Hidden Costs in Real Estate Investments: Buying And Selling, Owning, And Running

As a company professionally operating on a Ukrainian market of real estate, DGY would like to make their clients more informed about the carrying costs, which they have to bear when they become landlords in Ukraine. Many of the below-mentioned costs are also relevant for other markets, so, by reading this article, you might receive a good picture of carrying costs in other countries and markets as well.

We divide this article into two parts: 1) costs that are required to become a landlord and 2) costs that are required to run a property.

Types of investment costs for real estate

When you buy a physical property in Ukraine, you must consider the initial costs, which increase the price of an object:

1. State Duty, which is obligatorily paid by all investors and regular buyers. As of the moment of writing this article, it is 1% of the estimated cost of a purchased object.
2. Pension Fund tax, which is the same, 1%, as of the time being.
3. Cost of estimating the real market value of a bought property – paid to a state-licensed provider of this service. It might range depending on the type of property that’s being estimated and might take from USD 200 to USD 2,000+ (commercial and office real estate price estimation costs the most while regular residential apartments and detached homes’ price estimation costs the least).
4. Paying for making new documents for a real estate object (one of them is a so-called technical passport) in the case if there is something wrong with the previous ones. For instance, if the internal planning of an object has changed during the previous ownership and this hasn’t yet been made official (this and other probabilities leading to the need of changing the documents are currently present in the Ukrainian market).
5. Notary registration of the real estate ownership. The price tag also ranges depending on the property cost and the associated services, which a notary does.
6. Expenses connected to bank operations of transferring money from a buyer to a seller – according to the current Ukrainian legislation, all such transactions must be made exclusively through a bank and only in UAH (national currency). So the cost would include foreign currency exchange cost (if you don’t have UAH but the currency of your country), opening the account, and moving the money between the accounts.

As it is uncommon for foreign investors to buy property in Ukraine for lent money received from Ukrainian banks, we’re not considering the lending-associated expenses. You could, however, decide to bear additional expenses, like insurance of your property from loss or damage.

Costs of owning a home

Now, as you are a registered official landlord, the future of the property and associated costs depend on what you’re going to do with it. Let’s say, you’ve purchased an apartment in a many-story building to let it for rent (which is commonplace in Ukraine). Thus, the holding costs would include:

1. Finishing a place (if you buy a completely new one) or refurbishing it (if you will have bought an old one, which isn’t suitable for usage immediately).
2. Installing a fire alarm and security breach alarm systems – to minimize the probability of losing your belongings in case of burglars’ intrusion or losing your entire property in a fire.
3. Finding tenants (costs for advertising in local newspapers or online websites).
4. Notary formalization of the concluded tenant contract (to secure yourself from possible failures of payments and some other risks).
5. Paying taxes from received incomes.

If you’re not running a property on your own, add here the cost of a managing company. Also, there are other expenses, like a cost of a real estate agent who will find new tenants and make sure to sign and formalize contracts with them. Usually, in the Ukrainian market, there is a tradition that agents’ costs are borne by tenants but there might be exceptions to that custom.

Conclusion about the carrying costs real estate

Entering a new market, like Ukrainian, is like entering a terra incognita for many investors from abroad. And if institutional investors usually have a dedicated team of attorneys and specialists who would find out everything about a new market before entering it, private investors usually don’t.

That’s why it is important to contact highly qualified local professionals, who are aware of the laws, peculiarities, and customs of operating on the local market – like the DGY Company.

It is hardly possible to cover all the features of the Ukrainian (or any) market in a short article like this. So, you should receive a thorough consultation from us about the local market, and find out the rest of the information, which fell out of the scope of this article – like effective ways of minimizing your tax load, expenses that are borne in the case of selling a property, ways of investing in real estate without actually buying a physical unit, and other interesting and must-know issues. We’re always open to your calls, emails, and are ready to provide you with professional coverage of your risks, questions, and investments.

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