Some say putting money in real estate is a gamble, but most of the world’s millionaires grew their wealth this way, claiming that it is the best investment option.
While purchasing a property is a big commitment that requires a lot of time as well as a good starting capital, becoming a landlord and getting into owning rentals has been an attractive option for many Ukrainians.
Approved by Forbes as the top 10 best passive investments for 2021, rental property business usually brings investment back within 12 years, according to Dmytro Sheinert, director of Kyiv-based real estate agency Next Realty.
A number of factors make such an option attractive in Kyiv.
February’s average cost of new apartment buildings in Kyiv was around $1,160 per square meter, with a 14.7% growth compared to the real estate prices back in February 2020, the first Realtor Group reported.
And while landlords need to advertise vacancies, communicate with tenants, pay utility bills and collect rent, this business still looks like one of the best ways to keep money say amid economic turbulence in Ukraine.
Promising investments
Oleksii Teriakhin, a real estate consultant who rents properties, says investing in real estate is a long-term commitment but it’s still “quite profitable” in Kyiv: tenancy laws are pro-landlord and the tax is low.
Even though those registered in Ukraine’s taxation system as physical persons have to pay a tax of 19.5% from their income, one can become a private entrepreneur and pay a simple 5% tax.
Teriakhin said that the current rental yield for his apartment is roughly 10%, meaning he covers 10% of the cost of the apartment by renting it out every year. It is much higher than in other capitals in Europe like Berlin, where the average yield is lower than 3%.
The 32-year-old rents out two central flats: a 30-square-meter apartment that he bought for $75,000 back in 2010 and a 45-square-meter home purchased in 2019 for $80,000.
The cost of renovation for the first apartment was $15,000 and $22,500 for the second. “That is the only way you can receive good money from rent and good yield,” he said. It took him six months to finish renovating the flats.
Teriakhin began renting his properties last February. Since then, he has earned $8,355 for the $75,000 apartment and $5,570 for the $80,000 apartment.
The rental price for the first apartment is around $430 and around $640 for the second one. The average rent price for a one-room flat in Kyiv is $380.
Now Teriakhin plans to purchase a three-room apartment in downtown Kyiv and divide it into four tiny flats, 12–15 square meters each with their own bathrooms and kitchens, and rent them out.
Teriakhin expects to invest $110,000 to buy and renovate an apartment like that. The rental yield will be 12 to 15% by offering each for $1,200 a year.
Landlords say that, in order to to make money on rentals in Kyiv, one needs to be ready to invest in renovation. The figure can be 50-100% of the cost of the apartment, or even more.
Rising prices
French estate explorer Ladislas Maurice expects demand for apartments to continue growing and the prices to increase further in the next few years. Even just over the last year, the price for a square meter in Kyiv increased by $130.
Real estate remains one of the safest and best options for holding money.
Dozens of banks in Ukraine went bankrupt and became insolvent even last year. Ukraine’s State Guarantee Fund compensates just about $7,000 to a single depositor of a failed bank. Plus, the hryvnia’s value fluctuates often.
The author of “The Wandering Investor,” a real estate blog for investors looking into investing in countries abroad, Maurice argued that more foreigners will want to purchase assets in Kyiv when they realize that the city has the highest rental yields in Europe and relatively low price per square meter.
“Kyiv makes one of the top three markets in the world for real estate,” said Maurice.
Falling demands for rental properties in Kyiv amid the pandemic gave power to tenants. According to Next Realty’s real estate specialist Taras Svynar, about half of landlords in Ukraine agreed to reduce the rent. It remains a renter’s market, but Svynar doesn’t expect that to last long.
Unexpected career
Oksana Matviychuk never planned to start a rental business.
Matviychuk bought the first 94-square-meter apartment in 2001 for $100,000, and her second 137-square-meter one in 2007 for $230,000 to keep her money in safety and maybe live there someday.
After a staggering $120,000 renovation for the first apartment and $100,000 for the second, she began her career in the property management business and continues to this day from her current place of residence, Austria.
The 47-year-old loves her job: there is always a steady stream of income, even if the rents were reduced due to the pandemic; she is able to meet people from different cultures and have more time for herself.
Matviychuk began renting out the first apartment 19 years ago, and within three years, she earned enough to cover the initial costs of the property. “It was a very profitable business,” she said.
The landlord said today it has become more difficult to make money in real estate, and it took 10 years to get a return on the second investment.
There are also the challenges of managing rental properties from abroad. It is “difficult to understand for what and when something happens,” Matviychuk told the Kyiv Post.
Nevertheless, the Vienna resident still believes that investing in quality real estate is the safest way to keep her savings since European banks often charge fees to keep an account open and Ukrainian banks are unreliable.
Real estate, on the other hand, will always be there, and in case of an urgent need for a large amount of money, Matviychuk can sell the property and get her money back.
Right now, the rental price for the first apartment is $1,700 a month and the second for $2,600.
“This business can be passed on to the children,” Matviychuk said. “Of course, they will need to learn how to run it, but it’s something that anyone can learn fast.”
