I purchased my first piece of rental real estate

Even though, it’s not the first time I had to sign off on a real estate purchase, then it’s still scary enough to get started with rental real estate. However, this puts me more than half way to filling one of my goals for this year.

What did I buy?

I ended up buying a very typical starter apartment for a lot of real estate investors – a small 12 m2 apartment in a dorm style house in Pรตhja-Tallinn. I’ve been looking for a piece of rental real estate for quite a while now, and several that caught my eye sold very quickly, so I was unsurprised when this apartment was already booked.

However, I ended up being a part of those lucky few people who found a motivated seller – a person who had planned to start with rental real estate himself, but was moving due to switching jobs and the person who had wanted to purchase the apartment failed to pay the deposit, so the deal had failed and he was in a bit of a rush.

Why did I buy this specific apartment?

I’m going to be completely honest here, that my knowledge about real estate is not good enough to claim that my analysis was by any means perfect. The sale ended up being under market price, especially considering the state of the apartment – it had been freshly renovated. The house itself is old but ok outside, the hallways are ugly as sin though, so that can be problematic when it comes to actually renting it out. I’m taking this as a serious learning experience. The apartment itself looks like this:

korter1 korter2 korter3

How did I finance the purchase?

Essentially I didn’t get too creative with the financing. About 60% of the purchase was my own financing, the money of the company that my husband and I own. The money has been gathered through years of living below our means, and aggressively gathering money for investments. The other 40% was financed with FFF money (in this case friends, who were willing to lend out money at a low %). Currently the loans are relatively short deadlined, but I’ve tried to do my best to balance out the risks.

What are the next steps?

Well, there’s actually quite a few small things that I’ve already done. Such as finalizing everything about the sale, getting extra keys, exchanging all kinds of contact information, looking for furniture etc.

Essentially what I have to do now, is finish with getting in furniture (hopefully done next week), and then find & edit a proper rental contract & then it’s time to start looking for someone to live there!

I’m currently hovering between mad excitement and small slivers of panic, let’s see how it goes!

 

16 thoughts on “I purchased my first piece of rental real estate

  1. Congrats and welcome to the real estate club – the club of hassle, stress, more expenses and less piece of mind ๐Ÿ˜‰ But also club of cashflow and capital gains, leverage and financial freedom!

  2. Welxome to rental world:-) Good to hear you that. I am looking right now same apartments, but imterestimg why i missed that. Is it over 20 000 euros or below that?

    1. It was listed at above 20 000โ‚ฌ, but the owner was open to negotiations. I’m assuming a lot of people passed it due to the actual house.

  3. If it’s not a secret, how much did you pay for it ๐Ÿ˜€ I also have kept a eye on 12-15 m2 apartments for some time and thinking about buying one to rent out also.

  4. Welcome! And congratulations on your purchase. Make sure to carefully select the tenant so that (s)he will not break everything in matter of days.
    I also with my wife co-signed a buy order for a real estate which was approved a few hours ago and the final sale will take place on 19th of May.
    The appartment is 27 sq. meters and it is LOVELY, it is old fashioned with sleeping balcony but this is the luxury in Finland. :)
    I have already 3 people interested in renting with net yield of around 20 % p.a.

    1. I cannot emphasize too much on how important it is to have an appartment that is easy to rent. This means you are able to choose to whom you can rent. Usually capital/metropoly areas are such and also areas that have some kind of university/high school/university of applied sciences etc.
      The students need appartments and they cannnot afford to pay the downpayment for their own appartment, therefore they are a good target group of an investor.
      Personally I try to do as little as possible work for the appartment, the most work is to find and negotiate the deal and then finding the tenant… Buying and repairing is not for me and in Finland it is even hard to find any houses that can be used like this.
      In Tallinn I would consider the buy-repair-sell-strategy since it has a lot of houses that look pretty ugly (especially in Sikupilli/Torupilli area). If I am not mistaken, even some wooden houses are partially burned(!!!!). If one can buy some of those appartments and repair them, it brings some hefty profits. Just go to your bank and present your plan and you will get the financing from the bank (especially if you are able to do good deal with the appartments).

      In this market, the stocks are over priced (and you have very little control over the companies unless you have tons of money to pour out to buy 10+ % of outstanding shares), the interest rates are low.

  5. Congrats! Do you have considered of taking a business loan from the bank? It should be easy nowadays and the interest rates are quite low.

    1. Probably for the next piece of real estate I’ll take out a bank loan. For now, the deal ended up being so quick that I didn’t want to delay it by dealing with the bank.

      1. Definetely good idea to take a bank with you. Now you have one appartment with free collateral which you always can bring up to your bankster and get a loan against with it, which in turn gives you the next collateral free appartment which you can bring to your bankster and get a mortgage to your next deal. Rinse and repeat.
        Once the bank says: hold on – then call to a new bank.
        Usually in Finland the banks love real estate/appartment investors and want to take them as their customers.
        Real estates are a snowball which definetely will make you wealthy if you put an effort on that.

        On the other hand, not everybody can be real estate investor – imagine the situation in country like Estonia: 1.5 million people and probably less than 1 million households and all of the households own rental properties. So there is not that much space in “buy and rent” -type ventures.
        I would recommend to do some business with buy and repair… Some houses even in Tallinn look pretty rough. That’s definetely an opportunity.

        Also, if you have a spare room in your own appartment, you might consider renting it out via airbnb… For instance, if you are planning to have children in next 5-10 years, you might want to have an appartment with extra room which you can rent out to random travellers for 20-30 euros/night + breakfast option a few more euros. :)

      2. It’s much better to take the bank loan after you have bought the flat because then you get the loan amount of value not the price that you have payed. If the market is going up or you get a discount the value should be bigger than the price.

        1. I think it doesn’t matter since you can always refinance the loan with the new value.
          The good thing to get higher collateral value is to do some minor fixes and then call the real estate agents and hint them you might be selling the appartment via the agent who is able to get the highest price.
          Suddenly you might end up getting 5-10 % higher valuation for your appartment and with these evaluations just walk to the bank and ask refinancing. ๐Ÿ˜‰
          At least in Finland this works often.

  6. I suggest that you put some money aside for times that your flat is not being rented. Also look into eviction rulers for tenants that get behind in their rent payments. In Canada, it can take up to 6 months to evict a bad tenant. Congrats on being a landlord.

  7. Congrats to the purchase. Probably a good move. This will be interesting to follow. I keep my fingers crossed for you :)

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