How to choose an investment property for rental purposes

How to protect our money from inflation and increase it

Recently, the most secure answer is “Buy gold or real estate!”.

In this article, we will not analyze gold, but we will give “golden” advice on the path to choosing the right property.

Investing in real estate for rental purposes nowadays can be considered classic. The winning formula, according to the majority of clients, is to look for an attractive property at a good price – preferably brick-built, and easy and fast to rent out.

Yes, this is great, but it also hides some pitfalls. We will give you recommendations on what to focus on in your search and what to watch out for if you are planning to invest.

We take into consideration four main criteria and we will evaluate on a ten-point scale:

Location – accessibility and relevance;
Price – purchase and potential future sale;
Rent – current levels and trends;
Return /% and years/;

No. 3 – Residential Complex “NADEZHDA” 1,2,3,4.

Location – 7/10

All parts of the “Nadezhda” neighborhood have well-organized public transportation (3 metro stations, trams, trolleybuses, buses) and you can find “everything from chicken milk” in them. There are numerous childcare facilities (nurseries, kindergartens, schools), healthcare centers, parks (the renovated North Park, Nadezhda Park), hypermarkets and shops, banks, restaurants, salons, etc.

Price – 8/10
Prices have increased in the last year, but they are still relatively affordable compared to other western neighborhoods. They start at around 1100€ per square meter for “green” properties and rarely exceed 1500€/m2 for finished ones. In other words, a two-bedroom property for sale on the website of Nov Dom 1 – www.novdom1.bg can be found for around 70,000€ with VAT, while a three-bedroom apartment starts at around 100,000€ with VAT. Prices that are almost unattainable in other comparable areas with developed and well-organized infrastructure.
Avoid purchasing old construction above the average price.

Rent – 6/10
The average price exceeds 10 BGN per square meter, with three-bedroom apartments being preferred. This is because the predominant residents are families with average salaries. Also in demand are 4-room, multi-room, and two-room properties. The trend is for the emergence of more and more new buildings and rental prices to increase.

Return on Investment – 8/10

Calculations suggest that the average return on investment in the “Nadezhda” neighborhood is around 5% on an annual basis. This speaks of an investment that pays for itself in a period of 20-21 years. The return on investment will improve, and the mentioned period will be shortened in a situation of predominantly new construction compared to old construction in the coming years.

The overall rating is 29/40, placing Nadezhda neighborhood at No. 3.

No. 2 – CENTRAL PART

Location – 9/10

The center of a metropolis like Sofia offers all the conveniences for families, workers, or city guests. The advantages are good connectivity and transportation. Many institutions, landmarks, and important buildings are within walking distance. Under normal conditions, there is a successful practice of offering properties for booking and overnight stays throughout the year.
Be careful with investing in properties around Lion’s Bridge and Women’s Market – they are not as preferred by tenants. The reason is the densely mixed population there.

Price – 6/10
Properties in the central part hold almost the highest prices in Sofia. Proximity to Vitosha Boulevard, the yellow cobblestones, Sofia University, and “Grafa” always raises the purchase price.
Our advice if you are looking for a good purchase is to look for a property that is 3-4 blocks away from the mentioned places. Prices are lower for properties around K. Velichkov Boulevard and Slivnitsa Boulevard.

Rent – 9/10
The average price exceeds 16 BGN per sq.m.! Yes, you read that right – These are some of the highest rental rates in the capital. Here, the rule is to focus on medium-sized apartments. The most sought after are Two-bedroom apartments – whether they are the classic Living Room-Bedroom-Kitchen type or the Living Room with Kitchen and separate Bedroom type. One-bedroom studios and Three-bedroom apartments are also in demand. The model of renting for overnight stays – through Booking and Airbnb websites if there are no pandemic restrictions – is popular and proven to be profitable.

Return on Investment – 7/10

Our calculations give us an average annual return of between 3 and 4%. Naturally, if you invest in renting out for overnight stays, this percentage can double or even triple. However, this comes with higher risk, considering the recent restrictions, lack of tourists, and it also costs more and takes up a significant amount of your time. In the long run, the investment in the Center would pay off in a period of 38-40 years. That’s why we believe that the Central part will always be preferred, but it can’t win first place.

The overall rating for the Center and the Central part is 31/40.

No. 1 – STUDENT CITY/MALINOVA DOLINA

Location – 8/10

Student City and Malinova Dolina almost have no boundary between them. The majority of residents are naturally students and young people, but more and more families are choosing to live there. The neighborhoods located in the southern part of the city have good connectivity if residents use a car, and the alternative for now is bus transport or taxis. It is expected that in the future there will be Metro stations, which will significantly improve the location rating.
Proximity to the southern arc of the ring road, Vitosha mountain, is an advantage over many other neighborhoods in the capital.

Price – 9/10
Some of the most affordable prices in Sofia!
They start at around 1000€ per square meter for “green” properties, but it is becoming increasingly difficult to achieve. The trend of building many new buildings in Student City and Malinova will not end in the next 3-5 years. The positive here is that there is a vision for creating new streets, sidewalks, children’s institutions, and overall normal European appearance and conditions! You can still find 1-bedroom/studio apartments for around 60,000€, 2-bedroom apartments for around 80,000€, and 3-bedroom apartments starting at 105,000€. You can even find more affordable prices on our website www.novdom1.bg.

Rental – 8/10
The rental prices exceed 14 BGN per sq.m. per month. Properties with 1, 2, and 3 rooms can be equally well rented out. Besides the standard apartments on the middle floors, there is currently an increased demand for ground floor garden properties with an individual yard/veranda. Buildings with dormitory status are often found in Student City, but there is nothing to worry about. Properties are most commonly rented for a period of 3 to 5 years, which corresponds to the duration of a course of study. They can also be rented for overnight stays for guests who want to experience the energy and atmosphere of the nightlife in the most youthful neighborhood.

Return on Investment – 9/10
The high demand from tenants, the good rental price, and the low purchase price give it a high position in our ranking. The average annual return in percentages is around 6% and above. A well-considered investment in a rental property can guarantee you a payout for nearly 16 years, which is an excellent achievement. It would be difficult to go wrong with an investment here.

The overall rating for Student City/Malinova Dolina is 34/40.

We hope the article has been helpful and we are ready to assist you in investing in the best and most profitable way!

Photo: freepik.com

Author: Miroslav Stoyanov, Manager Office “Leader”, Sofia, New Home 1 / tel.: 0879 900 430