3 major risks in real estate and possible types of problems you may face
Any investment activity is connected with certain risks because it’s impossible to predict everything. There are always unplanned situations, which can influence the amount and time of returns. Real estate investment is not an exception. If you decide to invest money in property in Ukraine, it’s important to know about all real estate investment risks and ways to avoid them.
Types of risks in investment
It’s difficult to be sure about all risks connected with real estate investments because they are highly dependent on the characteristics of the property and other issues connected with it. However, to let you understand the major problems, which can occur, we present the types of risk in investment:
- Property type. Various kinds of properties can possess a different number of risks. For example, we can consider the type of lease. If you have a single tenant for your property, he/she is the one to be responsible for it and you rather have than not have a regular cash flow. With more tenants, the risks increase but also your cash flow stabilizes. So, the risk to lose the entire income becomes higher with one tenant because if they vacate the property, it becomes 100% vacant. As a result, the landlord becomes responsible for all further expenses. That’s why it’s always recommended to observe the financial stability of a future tenant beforehand or buy a multi-tenant property.
- Investment structure. This type of risk is often unrecognized. This issue required several things to consider:
- Legal entity (it’s necessary to choose a suitable legal entity for risk management depending on the type of property investment)
- Capital (investments with plenty of available capital may be better equipped for unexpected property issues/downturns in market conditions). The source and availability of capital are to be considered to understand the investment opportunities
- Alignment of interest. Working with several investors, there’s a sponsor to control the key issues. You can have access to the experienced operators and other specialists but it’s recommended to find out the ways of compensation to the sponsors as well as their incentives.
- Market risk. It depends on the position of the property in the economic cycle. The latest consists of several phases, which are recovery, growth, peak, and recession. In spring 2020, we observed the economic recession, which influenced the property market. The situation dramatically changed in 2021 when the demand for real estate became growing. The tendency continues now. However, a deep analysis of a specific region is required before investing in property in Ukraine depending on location, property type, and other factors. Some types of real estate are still in the phase of recession. At the same time, there’re positive forecasts for the nearest future for all types of them (including the industrial sector). The residential property is the most popular now because people are looking for better opportunities and have different priorities compared to the period before Coviddemics.
Risks of real estate and how to avoid them
Now we’ll consider the most significant risks investors can face in Ukraine and describe the ways to avoid them:
- Negative cash flow. It’s a major and most frequent risk. Investors should know that their investments could be more than the returns. That’s why it’s required to carefully select the property, its type, and conditions. It should be a strong demand in the market. Thus, in Ukraine, the prices for accommodation to rent continue to grow (especially in the capital).
Besides, in 2020, the prices for 1 sq. m became lower, which made the purchase more available especially for investors. In Kyiv, the prices were about $3,000 per sq. m in the center and $1,350 in the outskirts. It’s much cheaper than, for example, in Bucharest or Riga. Besides, Ukraine moves to the EU, which additionally provides safety and stability.
- Lack of liquidity. With the current situation, it might be hard to sell your property, which makes it less liquid compared to other types of investment. However, the local real estate market is characterized by stability. Thus, with the stable demand for accommodation in Ukraine, there’s a low risk for real estate investment. The sector isn’t influenced by inflation and other economic changes. Besides, a positive tendency is expected to continue, so it’s a good idea to invest in residential property in Ukraine.
- Foreclosure. If the property is mortgaged, it will be necessary to pay for it every month. If you miss a few payments, there’re risks of foreclosure, which will lead to losses and problems with getting a loan in the future. In Ukraine, you will first have to pay fines for delinquency. After several months of non-payment, a bank will lawsuit you to either pay out all debts or sell the property. Be careful when analyzing your budget and choosing a suitable type of property to avoid this risk.
To prevent any real estate investment risk, it’s recommended to make a thorough research of the property market in a selected country and city. It’s also advisable to work with a real estate agency, which knows the local laws and other features of buying property.
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More about DGY
DGY is a real estate investment and property management company. Our experts have an impressive experience in turning businessmen into smart real estate investors. We collect limitless opportunities throughout the world’s best real estate markets and help our clients implement the best deals. We take care of all due diligence and customize documentation while your income grows. We also provide you with property management services so you can forget about the tiresome maintenance of several objects and entrust this process to professionals.
Investment advice and recommendations
DGY is an investment company that takes care of every client and helps them become successful investors. With the help of an investment experience and a well-thought plan, we will help you examine the market, choose a strategy specifically for you or your business, and calculate future costs to start making money with real estate investment.
In order to invest in real estate, you should consider how you will run your management in Ukraine. DGY will help you eliminate all possible pitfalls at an early stage as a personal project manager will be assigned to your case. They will assist you in choosing the project according to all required objectives.
DGY Investments takes care not only of purchasing property but also renovating an existing one. With the help of a thorough plan and estimating, we will thoroughly prepare a property for sale. Our professionals evaluate an investment property and create a strategy that includes the costs for renovation, possible taxes, fluctuations on the market, etc. Therefore, our clients are able to resell the renovated properties in Ukraine with more than 15-20% profit from the initial price.
Before our clients decide to deal with real estate investing, they consult with our experts concerning details such as the necessary documents needed to purchase a property and successfully run all the processes connected to it.
Therefore, if you are eager to invest in Ukraine, it’s essential to have all the paperwork done correctly, and that’s the moment when our team of experts takes care of this step. DGY Investments helps investors buy real estate property, manage the paperwork, start preparing relevant documents for purchasing realty in Ukraine, and close the deal successfully.
Real estate investment opportunities in Ukraine
When an investor decides to invest in real estate in Ukraine, the most affordable way to attain stable passive income is through buying residential real estate. Investors can expect to receive a regular monthly payment from their tenants at a fixed monthly amount, unaffected by inflation or other unforeseen circumstances. The amount of rental income will vary depending on the size, type of property and location. For example, buying an apartment in Ukraine’s capital Kyiv is beneficial to investors due to offering a large working population, central location and affordable prices. Hence, the minimum price of renting a decent one-bedroom apartment in Shevchenkivskyi District will be around $1000 per month in 2021, followed by Pecherskyi District with a cost of $850 per month. Besides, investing in real estate in Ukraine annually brings clever investors up to 15% of yield, attracting many business people every year.
Properties for investments in Ukraine
Ukraine has a giant sector for real estate investing. Businessmen who come there all over the world often choose between investing in residential and commercial properties. The main advantage of buying property in Ukraine is the affordability of prices on the houses and apartments. For instance, if you invest in real estate in a historical district, a luxurious apartment will cost you around $85k only.
How to invest in Ukrainian Real Estate
In order to invest in Ukrainian real estate, you should take into account a list of crucial factors. The first one is to choose what kind of realty you are going to invest in: residential or commercial. It is vital as it should comply with Ukrainian real estate law. The second tip is to identify the purpose of purchase in order to make a strategy for the property. For instance, you may purchase the property for your own use or buy it for lease. The next step is to calculate the taxes and what kinds of taxes are payable during the purchase, owning, or selling. Also, to invest in real estate properly, you should keep in mind currency control rules in Ukraine to sell a property and get a higher profit.