The vast majority of foreigners buying real estate in Istanbul make this mistake
They google “real estate istanbul”, go for one of the top five agencies and then get harassed by sales people pitching new developments in the outskirts of Istanbul at exorbitant prices with high rental yields and amazing capital gains.
The only thing that will materialize for these investors is the exorbitant part. By the time they realize the mistake they made, the agency will have made its 8%-10% commission for selling these overpriced units that were built and priced with this target market in mind.
This is especially important for people who want the Turkish citizenship by investment which I discussed extensively a few weeks ago as $400,000 is a serious sum to invest. In that video I explain why I believe Turkish citizenship is such a great tool for Westerners who want to diversify geopolitically.
In this video Keith shows me typical properties that are are actual investments that Turks would make. Do note that this video was filmed in June and that since then prices have been softening a bit, which is good news for new entrants.
The full guide to investing in Istanbul real estate
I recently updated my guide to investing in Istanbul real estate.
You can also find out more information about the Turkish citizenship by investment program.
Or get in touch with my Canadian Istanbul and Izmir realtor Keith.
To a World of Opportunities,
The Wandering Investor.
Other articles on Turkey:
- Making a real estate investment in Izmir? A value play within Turkey
- My Apartment Renovation in Istanbul – Case Study with numbers
- I bought an apartment in Istanbul
- Citizenship by Investment in Turkey, its timelines, exact fees, and traps to avoid
- Turkish Citizenship Bank Deposit option – Central Bank guarantee explained
- Making a Real Estate Investment in Istanbul, Turkey โ Overview and what to watch out for
- Buying Izmir real estate for the Turkish citizenship by investment
- Net real estate rental yields and cap rates in Istanbul, a case study
Available services in Turkey:
If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.
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Transcript of “How to buy Real Estate in Istanbul for the Turkish Passport”
LADISLAS MAURICE: Hello, everyone. So today, I’m in Istanbul with Keith, my real estate agent here. So as lot of you know, last year, I bought a few properties in Turkey. And today, Keith is going to show us so two properties, one property that one of his clients recently bought for the purposes of obtaining Turkish citizenship here, and another property which you feel is a decent deal in today’s environment.
KEITH: Yeah, it comes as a lead, and we’re going to go check it out.
LADISLAS MAURICE: Cool. Okay, so we’re going to go check it out. You haven’t been yet?
KEITH: I haven’t seen it myself but it comes from one of my staff, and he says it’s a good lead, so–
LADISLAS MAURICE: Okay, so we’re going to go do the due diligence, see whether it’s good or not. Because I have a lot of clients who want Turkish citizenship. The price went up to $400,000 in terms of the investment required.
#1 mistake to avoid when doing the Turkish citizenship by investment program
LADISLAS MAURICE: Online, if you google โTurkish citizenship by investment real estateโ, you’ll end up with all these companies that are selling completely nonsensical real estate in new builds like an hour and a half, two hours away from the center of Istanbul that are totally overpriced, that may look good but when you sell them in a few yearsโ time, you’ll notice that actually you lost 30%, 40% of your money, because they’re giving out commissions of 8%, 10% to these agents that you find on the first page of Google.
So what we’re going to see here today is the reality of the real estate market here in Istanbul, actual listings that Turkish people would buy, would go for. So we’re going to go check out this one and then do all of the numbers in terms of rental yields, etc. So tell us about this building, Keith.
KEITH: Okay. This is an eight-year-old building. It has an elevator. There’s no parking, you can park on the street. There’s also paid parking not far from here. We’re a couple of minutes away from main street. It’s a nice, quiet residential neighborhood.
LADISLAS MAURICE: Yeah, very quiet here.
KEITH: Yeah.
Case study with cap rates of first istanbul apartment
LADISLAS MAURICE: Okay. So we’re in the neighborhood of Kaฤฤฑthane. Can you tell us a bit more about the neighborhood?
KEITH: Yeah. Kaฤฤฑthane is one of those neighborhoods in the last couple of years you hear a lot about it. A lot of urban regeneration going on here. Sort of middle class, upper middle class neighborhood. Yeah, it’s a real area for development in the city. Very central.
LADISLAS MAURICE: So yeah, and Kaฤฤฑthane is interesting because it has the latest direct metro line to Istanbul Airport. So that’s like, what, a five-minute walk from here, seven-minute walk from here?
KEITH: To the Metro for the airport, I believe it’s about 8 to 10 minutesโ walk from here.
LADISLAS MAURICE: Cool. And then you have a direct line to the airport, which is a big plus. So this apartment is, what, how much is this here? Give us the metrics.
KEITH: Yeah, this is a small two-bedroom. It’s about 65 square meters. You have the living area here. You can see out the windows, got a view, some of the skyscrapers downtown. And that’s Levent, actually, up there in the distance. So we’re really not far from Levent, either, which is the CBD of Istanbul. So this is the living room. You have a little kitchen in here. This one, it doesn’t really need any renovation. In fact, we haven’t renovated it. Maybe at some future point, to add value, you could do some renovations here like a new kitchen, new washroom. But for right now, the gentleman who purchased this just said, โGet it rentable, rent it out.โ
LADISLAS MAURICE: Because he wants to make the $400,000 mark without doing renovations.
KEITH: That’s right. Yeah.
LADISLAS MAURICE: Because renovations do not count when you go for the Citizenship By Investment Program. So it’s really how much real estate you buy.
KEITH: Yeah. So this is his first property. Approximately, $200k for two units. We’ll see the upstairs in a second.
LADISLAS MAURICE: Okay, so it’s $200,000.
KEITH: Yeah.
LADISLAS MAURICE: Like, with fees, without fees?
KEITH: That’s everything all in, about $200k.
LADISLAS MAURICE: So stamp duty, agency fees–
KEITH: Stamp duty, commissions, you name it, yeah.
LADISLAS MAURICE: commissions, everything, $200,000 cash?
KEITH: Yeah.
LADISLAS MAURICE: This apartment and another one?
KEITH: Yeah, there’s one upstairs.
LADISLAS MAURICE: Let’s go see it.
KEITH: Yeah, so two separate entrances entirely here.
LADISLAS MAURICE: Okay, so two rental units for $200k, okay.
KEITH: Two rental units, yeah.
LADISLAS MAURICE: That’s interesting.
KEITH: Now we go upstairs. Upstairs is a little bit rougher. It’s definitely, I think, before this gentleman wants to resell it, it would be a good idea to do some renovation up here.
LADISLAS MAURICE: Yeah.
KEITH: It’s rentable as is but I think you can add value. This could be quite a nice space up here. But it does need a little bit more work. Especially the washroom and the kitchen. Kitchenโs almost a throwaway right now.
LADISLAS MAURICE: Yeah, this needs to be–
KEITH: And the washroom as well. But there’ll be tenants for this. This would rent for about $400 when you adjust for the lira deflation.
LADISLAS MAURICE: And the one downstairs?
KEITH: And the one downstairs, $500 approximately.
LADISLAS MAURICE: Okay, and that’s not like how much you would rent out now, but it’s what you estimate it would turn out to be over the year?
KEITH: Yeah, I’m sort of calculating in a bit of a depreciation in the lira.
LADISLAS MAURICE: Cool.
KEITH: I hope I’m wrong.
LADISLAS MAURICE: And I think this is really important because a lot of agents, the ones who sell you the crappy, overpriced units in these new builds will tell you, โOh, you’re going to get a rental yield of $700, etc.โ Sure, you might get that in January but by December, youโre actually getting only like $500. So when Keith gives us estimates, he tries to–
KEITH: Well, we try. I mean, it’s always hard to calculate in these things. And we also hope that there are not major depreciations that throws off our numbers as well. But we try to be accurate.
LADISLAS MAURICE: Okay, so $500 per month, on average, for the year downstairs. Upstairs, $400 per month, that is about $900 per month. It’s a bit over $10,000 a year. What would be the occupancy rate here?
KEITH: This would be pretty much always occupied. I mean, as soon as we put a price on it, it’s ready to go, and sort out a few issues we have to do here, we’ll find a tenant almost right away.
LADISLAS MAURICE: So in the numbers, we’ll put 95%, 98%, something like that.
KEITH: Yeah.
LADISLAS MAURICE: Because, I mean, we’re in central Istanbul. It’s a city of 15, 20 million people. It’s not some, like, village in Nicaragua or something. There’s always tenants. So if the price is right, you have tenants the next day. Even before your tenants leave, you have the next ones lined up.
KEITH: Yeah.
LADISLAS MAURICE: So that’s a positive, it’s never empty unless you’re messing up with the pricing. What about, so expenses, property management, how much do you charge for property management? Because you do that, too.
KEITH: Ten percent for the property management, then you have your yearly taxes, which are very minimal.
LADISLAS MAURICE: What’s the property tax?
KEITH: I think it would be about $150 a year. I know, it’s hard for people to believe, but that’s right.
LADISLAS MAURICE: Nice. Cool.
KEITH: [crosstalk 00:06:51]
LADISLAS MAURICE: What about finding tenants? Finderโs fees?
KEITH: Finding tenants, the tenants pay that, not the owner. Also, the building fee is paid by the tenants, not the owner, unless it’s unoccupied, of course.
LADISLAS MAURICE: Cool. So again, this is really important. So you look at the gross yield, youโre at around 5% gross. Typically, when you have 5% gross, in a lot of markets, the number goes down a lot because you have to pay common charges as the owner, you need to pay finder’s fees for tenants, you need to pay a lot of maintenance, because maintenance is expensive, you need to pay very high property taxes, etc. In Turkey, there’s none of this, you just pay the 10% management fee. The tenants pay Keith to find the unit. So it’s like the other way around.
KEITH: Yeah.
LADISLAS MAURICE: So that doesn’t go into your cost structure. Property taxes are absolutely minimal. And even the building fees for the elevator, the cleaning, etc., maintenance, the tenant pays. So you, as the landlord, you’re paying very little, just the property tax and maintenance. How much would you tell your investors just to put aside every year in terms of normal maintenance?
KEITH: I mean, I always tell people to put aside 10% of the annual revenue.
LADISLAS MAURICE: That’s a lot.
KEITH: But if the apartment is in pretty good shape, you’ll never spend that. But it’s good for a rainy day.
LADISLAS MAURICE: Cool.
KEITH: Five percent will probably do it, even less.
LADISLAS MAURICE: Yeah, I think $500 a year is good enough. Cool. And then you would tell the owner to do a bit of a renovation before selling in three to five years?
KEITH: I would definitely do that, yeah.
LADISLAS MAURICE: Cool. Great. Because when you do the citizenship by investment here, you have to hold the property for three years before you can sell it or else you lose the citizenship. Or, you can sell after five years and also not pay any capital gains taxes, which is quite interesting. So overall, even though the gross yield is about 4%, you end up with a net yield of over 4%, so 4.3% or so, roughly. We’ll see the exact numbers when we do them afterwards. Which is not too bad at all, especially when you get a free passport out of it for you and your family and all of your descendants. So I think that’s the play here for such an apartment. And it’s liquid. Like, if you were to sell it, how long would it take you to sell it?
KEITH: No time at all, really. I mean, again, it’s price sensitive. But this kind of property we can assume is a pretty decent appreciation over the next three to five years. And when you put it on the market and you’re not going too high, this kind of property sells locally pretty fast.
LADISLAS MAURICE: Cool. Okay, great. So we are going to go check out the other property now. In which neighborhood is it?
KEITH: I’ll have to double-check, but I think it’s just behind the Cevahir Shopping Mall.
LADISLAS MAURICE: Okay.
Case study with rental yields of second istanbul property in Sisli
KEITH: So part of ลiลli, not Kaฤฤฑthane, actually, going to a different municipality, but it’s also within probably 15, 20-minute walk or 10 minutes by car, depending on the traffic.
LADISLAS MAURICE: Okay, cool. So we’re going to go, you haven’t seen it.
KEITH: Yeah.
LADISLAS MAURICE: So we’re going to go check it out and essentially do the due diligence, do estimates and see what it is.
KEITH: Yeah. Great. Okay.
LADISLAS MAURICE: All right. Cool, let’s do it. Great. So here we are in a nice area of ลiลli. So there are some nice historical buildings around here. It’s very residential. Weโre going to go see an apartment down the street right there. Fourth floor, no elevator but decent renovation. Really big, five bedrooms. Weโre going to have a look at it, do a bit of the numbers. This one would be an interesting candidate, actually. All right, so this place is big.
KEITH: Yeah.
LADISLAS MAURICE: Big and bright. I like it.
KEITH: Yeah, freshly renovated. Just some more installation to be done here. You got the tiger working on it.
LADISLAS MAURICE: Cool. So how many square meters? What price?
KEITH: This is about 160 square meters net, upstairs and downstairs combined. And the price is $250k.
LADISLAS MAURICE: $250k.
KEITH: It’s about $1,500 per square meter for renovated unit, which is an exceptionally good price for being so close to the Osmanbey Metro, we’re about a five-minute walk. Just two minutes to the main street, close to Niลantaลฤฑ. I think we have five bedrooms in all here.
LADISLAS MAURICE: So three bedrooms and two bathrooms downstairs.
KEITH: Yeah, a couple of bathrooms as well.
LADISLAS MAURICE: Nice wardrobes in there.
KEITH: Got some storage space underneath here as well, underneath the stairs.
LADISLAS MAURICE: Let’s go upstairs. So this is a huge apartment. So–
KEITH: Youโve got a pretty nice view up here as well, which I like.
LADISLAS MAURICE: Per square meter, that is– Oh, nice view.
KEITH: Yeah.
LADISLAS MAURICE: Okay, so this is one of the bedrooms. Why is there a second kitchen here?
KEITH: Well, we’ll have to ask the designer. [laughs] I think he conceptualizes, perhaps multiple generations living in the same space, as is often the case in the Arab and Iranian world. So you could have, you know how we have a granny suite in the West, you might have the parents living up here or the children living up here. And so you don’t have to go downstairs every time you want to make a sandwich.
LADISLAS MAURICE: Cool. So this is very unfamiliar for Westerners to have two kitchens like this. But yeah, it’s the market here.
KEITH: I wouldn’t say it is the market here, that would be a bit of a stretch. But it’s definitely not a negative to have the second kitchen.
LADISLAS MAURICE: Okay, cool. Yeah, because, typically, Westerners would have done, I don’t know, like a playroom, or an office area, something, you know?
KEITH: Yeah. I would have put it in a smaller kitchen. I don’t think you need to do the whole bit up here. Just something where you could make tea and sandwich, but this is fine. It’s not so elaborate this is the kitchen.
LADISLAS MAURICE: So Keith, what are the numbers?
KEITH: Okay, 160 square meter net apartment, $250k. I think if you look at the yield here, you’re looking at a minimum of $1,200 as a rental, perhaps a little, you know, $1,400, maybe a bit more if you furnish it up. So good long-term potential. If you wanted, due to the location, you could also do short-term as well.
LADISLAS MAURICE: So between 5ยฝ% and 7% gross yields. So net yield, something between 5% and 6% net yields, roughly.
KEITH: Yeah.
LADISLAS MAURICE: Because again, it’s very cheap per square meter for a fully renovated place in this neighborhood. But why? Because it has such a large surface, but there’s definitely a market for it.
KEITH: Yeah, I think, when you get over 120 square meters, there’s some compression with the square meter price. And you wouldn’t expect it to be as high as like a 50-square-meter apartment. However, as you said, in Istanbul, it’s a little bit different than, say, a central European country where you have a lot of single people. Here, families, big spaces are always easy to fill up, actually.
LADISLAS MAURICE: Yeah, yeah. So the occupancy rate here, I would expect, would be very high?
KEITH: Yeah, would be high. Would not be affected, just people wouldn’t say, โOh, it’s too big. You can’t find a market for this.โ That’s not the case in Istanbul at all.
LADISLAS MAURICE: Yeah, cool. So, look, this gives us an idea of what the market is currently in Istanbul if you want to do the Citizenship By Investment Program. So as you can tell, the two properties that we saw are, overall, much better value than what the guys online are trying to sell you with these new builds an hour and a half away from the center, where, for $200,000, you’ll get a, I don’t know, one-bedroom or tiny two-bedroom in the middle of nowhere. So these are actual market-related prices here in Istanbul, and you get some decent-ish yield.
Personally, I find that what you like to propose to your clients, which is to buy one property in Istanbul, one property in Izmir, I think this is the sweet spot, because in Izmir, $200k you have a very nice new apartment in a new building with stunning sea views of the whole bay. So they’re very complementary in one’s portfolio. So I like this approach that you have.
KEITH: Yeah, I really like it as well. And we’ve had some success with that model. And it’s just a little bit more bang for your buck in Izmir, you get that kind of property maybe that you identify more, it’s got this great sea view, and then something more pragmatic for the Istanbul investment.
LADISLAS MAURICE: So I wrote two articles, one article on the real estate investment market here in Istanbul, the neighborhoods that are interesting, that are not interesting. The same thing in Izmir. The two articles are in the link below. And if you want to get in touch with Keith for all your real estate needs here, both in Istanbul and in Izmir, feel free to get in touch with him. There’s a link with more information on his services as well as his email. Keith, always a pleasure. Thank you.
KEITH: Thanks.
