Real estate investment in Greece

20/06/2019

In using the terms real estate investment, investment property leased or income property, it is meant that a property is purchased to gain an income through rental, generating surplus value from the future resale of the property, or both. In this article, we will review the best options for individual investors, whether an investment is direct and the reasons to invest.

Acquisition of property has become a popular investment vehicle in recent years but buying and possessing properties is far more complicated than most people realize. The global financial crisis, the US mortgage crisis and the economic crisis which devastated our country, resulted in a major price collapse in nearly all areas of real estate.

The belief that the value of property never decreases, is a myth and it is, therefore more than reasonable to ask:

Why Invest in Real Estate Property?

Real estate properties can minimize investment risk and enhance the profile of portfolio returns of an investor by offering competitive risk-adjusted returns. Even during the mortgage crisis mentioned above, commercial properties still maintained on average, a return of 8.4% in the decade 2009-2017.

Another good reason to invest is that this market is usually of low volatility when compared to stocks and bonds and is also an attractive alternative to traditional sources of income, such as interest generated from term deposits or various pension insurance funds.

Ways of real estate investment in Greece

The first thing that probably comes to mind when thinking about investing money in real estate is buying your home property. However, there are other types of properties mentioned below, with information as to how to purchase real estate. Also, physical ownership may be replaced by shares in a real estate portfolio of real estate companies, as a hedge against the stock market.

An investment in real estate property may be a forecasted short-term investment, for example, a property purchased, remodeled or renovated and sold for profit. This investment can be combined with finding a leaseholder and then sold as leased property.

The second most widespread strategy is property purchased and leased to earn a monthly income. Usually, this market is of a long-term nature.

Flip Side: Buying and Selling Properties

This is the wild side of real estate investment. Like everyday merchants who buy and resell merchandise, the same thing applies to real estate dealers. They buy real estate investment properties with the sole intention of keeping them for a short period of time, often no more than three or four months, in the hope of selling them for a profit. This technique is called "flipping".  It is based on the real estate market of properties that are either significantly underestimated in value or located in rapidly developing areas of high demand with usually a small number of properties on offer.

Two main categories of investment of this kind are distinguished below.

Buying and Selling Without Renovation/Improvements

Property investors of this kind do not put money into a property for improvements. To generate surplus value and a reasonable profit without altering the property, the investment must be of native quality and value, otherwise, it will not be considered by the real estate investor. In this way, buying and reselling is a short-term investment, usually conducted in cash.

One of the main disadvantages of this type of investment is if a property is trapped in a situation whereby it cannot be resold because a suitable buyer does not eventuate when required. This can be a disastrous situation if the investor has taken out real estate loans and is not in a financial position to cover the mortgage and is forced to keep the property for a long period of time. The investor can also suffer considerable losses if he is not able to sell the property in a bad market.

Buying and Selling with Renovations/Improvements

There is also the second category of ‘’flipper’’ investors. The investors of this category generate income from real estate by purchasing properties at low or reasonable prices, taking advantage of an owner’s necessity to sell quickly due to an inability to renovate, by later renovating the property himself, thereby adding value to the property and re-selling the improved property at a higher price. This may be a more long-term investment, depending on the extent of the improvements.

This practice is more widespread, abroad, However, in recent years with the advent of short-term leasing such as Airbnb, Booking.com, etc., this type of investment has escalated. This has resulted in a tendency for older flats or entire apartment blocks and even commercial properties to be purchased from owners unable to renovate. These properties are then resold, ready for use, quite often incorporating a rental lease, following the renovations.

The disadvantage of these types of investments is that they are usually time-intensive and often restrict investors from undertaking only one property at a time.

Leased Property Income

It is an investment as old as the practice of acquiring property. How to invest in rental properties is simple: a person will buy a property and rent it to a lessee. The owner is usually responsible for the payment of possible mortgages, taxes and property maintenance, which may result from circumstances, such as violence. The lessee, on the other hand, besides the rental payment is responsible for maintenance from normal use, payment of municipal taxes, etc.

Ideally, the owner charges enough rent to cover the aforementioned costs and also enough to generate a reasonable profit. When there is a mortgage on the property, the investor must have the patience to charge enough to cover the costs until the mortgage is paid and the majority of the rent generates a profit.  In both scenarios, a landlord must be careful and keep pace with the general market outlook.

Besides, the property, beyond the annual income it generates, may also have been acquired at such a value that in the future it will also acquire goodwill, leaving the owner with an asset of value. According to the US Census Bureau, real estate in the US has risen steadily in value from 1940 to 2006. The same trend has been observed in Greece and although there was a substantial decline during the crisis in many types of properties there has been a recovery in prices and total values. For more details on leased properties, read here.

Real Estate Investment Companies

In the case of an investor not having the necessary capital or the proper knowledge to invest on his own in real estate, there is the possibility of acquiring shares of real estate investment companies. Useful tips on how to start a property investment company are given from an executive commercial investment real estate magazine.

“A Real Estate Investment Company in Greece is a public limited company whose sole purpose is the acquisition and management of the real estate, the right to purchase real estate by pre-emption and in general, the investment in real estate as defined by law. "

What to Look for When Acquiring an Investment Property

A real estate investor needs to know the area in which property is to be purchased or otherwise to contact a professional broker who knows the market, to assist him. There are many parameters of a profitable real estate investment that one needs time to learn. If someone is looking for a property that he wants to resell, whether it is renovated or not, then he should take into consideration the demand and offer that exists in the area, as well as the type of property, so that the right choice is made.

The location of a property is a key criterion in investment because it helps in its renting availability. An area should be chosen where what is on offer is ideally low, but the demand is high so that people or companies will want to rent it. For example, many successful residences are within walking distance of major centers of education, therefore, if a property is purchased near a university, students are likely to want to rent it more easily. The same will apply if the property is close to public transport.

For anyone looking for an income and wanting to know how to start investing in rental properties, important aspects that need to be taken into consideration, are supply and demand prices for local market rentals. There are, of course, risks and failures in an investment that to all intents and purposes may look ideal. You may end up with a bad renter or even worse, end up having no renter at all, for an extended period of time.

This will result in a negative monthly cash flow, which means losses on any loan installment payments must be covered. Once the ideal property has been found in an area of high demand, it is necessary to bear in mind the total cost of the property and the amount of time and work involved in its upkeep. If the owner does not wish to undertake this himself, a professional real estate manager can be hired, but this will become an added expense that will affect the profitability of the investment.

In conclusion, what we want to emphasize is that real estate investment has always been one of the main pylons of development, worldwide, which when done properly, with careful consideration and at the most opportune time, can result in a significant profit for the owner.