What people need to understand about the Istanbul real estate market is that it is a very volatile market. The market can go from frenzied with bidding wars, to drops with little liquidity in the market.
After 3 years of price increases in USD terms, prices have been decreasing in USD for the past year, just as rents kept rising in USD.
The current market situation is therefore that you can buy apartments downtown Istanbul with rental yields of 6%-7%. As the gap between gross and net rental yields are low in Istanbul, one can easily get net rental yields of 5%-6% pre-tax.
Also, as prices are dropping and liquidity is down, it is a clear buyer’s market.
For people who want cash-flowing real estate at attractive valuations in decent neighbourhoods of a city of over 15 million people, this is not a bad play.
And you can get free citizenship out of it
Yes, if you invest at least $400,000 in real estate in Turkey (one or multiple properties), you can apply for citizenship for you, your spouse, and underage children. The process takes about one year and requires a single trip to Turkey. After three years you may sell the real estate.
It’s a great program, especially for Westerners who want geopolitical diversification. There have been strong rumours since last year of a hike to $600,000, so if you are considering this program, don’t wait forever.
There is also an option with a 3 year $500,000 deposit.
What’s the catch?
It’s not a market for the faint of heart. You need to stomach volatility, such as your rents decreasing in USD terms as the Lira goes down, until you renegotiate next year’s rent.
Also, Turkey invariably makes negative headlines in Western media, and the risk of conflict is ever present in this volatile part of the world. It’s part of the game of being a rising middle power with an active diplomacy, strong military and vibrant economy in a region with historical foes around.
The risk of earthquakes is real, though this can be mitigated by buying in the right neighbourhoods (which I did) or stronger buildings and getting compulsory earthquake insurance.
A case study
Here’s a case study of an apartment that one of Keith’s clients bought. Net rental yields of 5%-6% are doable.
Here is a full analysis of the real estate market in Istanbul.
Here is how you can obtain Turkish citizenship by investment.
You can also get in touch with Keith my Canadian realtor in Istanbul.
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
- Why is the Turkish Citizenship by Investment Program misunderstood?
- 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
- Buying Izmir real estate for the Turkish citizenship by investment
- Making a Real Estate Investment in Istanbul, Turkey โ Full Guide and what to watch out for
- How to buy Real Estate in Istanbul for the Turkish Passport
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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 “Net real estate rental yields and cap rates in Istanbul, a case study”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today, I’m in Istanbul with my buyer’s agent from Nova Scotia, Keith. Keith, how are you?
KEITH: Doing very well, thanks.
LADISLAS MAURICE: We’re going to go check out an apartment here in the neighborhood of Ferikรถy. We’re going to look at the price, we’re going to look at the rental income, all of the numbers in detail to reach a net rental yield or capitalization rate. Keith, why this neighborhood? Why Ferikรถy?
Why buy real estate in Ferikoy, Istanbul
KEITH: For me, Ferikรถy is the next domino, or the last domino to fall in terms of neighborhoods that are gentrifying in ลiลli. We’ve seen it happen again and again, starting with Bomonti, moving to areas like Meลrutiyet, and then Kurtuluล,and Bozkurt Mahallesi, those places. And here really is the last place that is going to gentrify. And still the prices are probably about 30%, 40%, probably 50% less than Bomonti.
LADISLAS MAURICE: Down the street, eight minutes away, if you walk, you have the Osmanbey Metro Station. And further down the street, down there, you start to see cool little cafes, and bars, even. And then, gradually, it’s coming to this side. It’s, like, the coolness has absolutely not come here yet, as you can see from, like, the restaurant, which is very local, or the little, I don’t know what this is, the little bizarre antique place. It’s still very local, although cheap places, but it’s coming. Let’s have a look at the apartment. Let’s do all the numbers.
Istanbul apartment tour and numbers
KEITH: Okay. All right. What we have here is a duplex or two-floor apartment. It’s 130 square meters. This is the living room. It’s got a really nice view over Bomonti, which, at night, is all lit up. That’s fantastic. One of my favorite views in the city. It also overlooks the Ferikรถy Sports Club, which has a, I believe, Division Two team playing there, so you can get some free matches.
LADISLAS MAURICE: How many square meters and what’s the price include? Because I know you’re negotiating it right now for a client.
KEITH: Yeah, it’s 130 square meters, 15-year-old building, hardly any renovation required. We’re thinking it’ll come in around $235k all in with all the costs. Here we go. Living room. Thereโs just a small little toilet here that you can use if you’re downstairs cooking or for the person in this bedroom. We have the kitchen here. First bedroom here. It’s a three-bedroom apartment, so this is one bedroom. And let’s go upstairs.
LADISLAS MAURICE: Who’s the target market for rentals?
KEITH: Rentals, anyone really, it can be Turkish family, it can be foreigners. Very open.
LADISLAS MAURICE: Do Turkish families– Because this one comes, you were telling me, comes furnished, right?
KEITH: Yeah. Still, you’ll be able to get–
LADISLAS MAURICE: The price again, you said how much?
KEITH: $235k.
LADISLAS MAURICE: $235k. Including furniture, excluding furniture?
KEITH: Including the furniture. This one, I believe.
LADISLAS MAURICE: Okay. Thereโs a terrace here.
KEITH: We have, this is the second bedroom. You have twin terraces on both sides. Here, it’s open, but on the other side you have the nicer view. But you see all the way down to Levent as well.
LADISLAS MAURICE: And how much could you rent this out for on a monthly basis?
KEITH: Weโd be looking at somewhere between $1,100 and $1,200. This is the main washroom.
LADISLAS MAURICE: And this is taking into account depreciation, correct?
KEITH: Yeah, that’s right.
LADISLAS MAURICE: Okay. And this is important for people to understand, who get involved in Turkish real estate, is because of the depreciation of the lira, the initial rent at the beginning of the contract that you’re getting and towards the end of the contract are very different in terms of USD terms. When you’re saying $1,150 on average, you’re probably starting at, the first few months, $1,300 and then towards the end of the year, it’s, like, $1,000. On average, it’s $1,150.
KEITH: Yeah, and we can’t account exactly for the appreciation, but that’s certainly been the case the last couple of years, maybe, obviously, a bit more extreme as well the last couple of years but, yeah, that’s what we’re calculating.
LADISLAS MAURICE: Cool. Let’s say I buy this apartment, $235k all in. You rent it out. I get $1,150 per month on average. What else do I have to pay as a landlord?
KEITH: Yeah, the cost of holding property, as I’ve always said in these videos, in Turkey is extremely low. That might change in the future. I think it’s likely to do so. But at the moment, property taxes, maybe $200, building maintenance fee, $20 a month. That’s $200 a year, by the way, for the property taxes.
LADISLAS MAURICE: And the building fee the tenant pays this?
KEITH: Yeah, the tenant would pay that fee as well. Then you have the property management fee which ranges between 8% to 10%, and then earthquake insurance, which is about $50 a year. Those are your holding costs, incredibly low. Your net versus your gross yield are much closer than they would be in other countries.
LADISLAS MAURICE: What about finding tenants, who pays for this?
KEITH: Finding tenants is very easy in downtown Istanbul.
LADISLAS MAURICE: Yeah, but who pays for it? Like, I buy this apartment, and I hand it over to you to manage it, and I tell you, โKeith, find me tenants.โ Do I have to pay for this service?
KEITH: No, you donโt pay any fee for us finding tenants. It’s part of the property management fee.
LADISLAS MAURICE: Cool. This makes a big difference at the end of the year in terms of net rental income when you donโt have to pay for finders fees for tenants.
KEITH: Yeah, that’s right. Yeah.
LADISLAS MAURICE: And what would be the occupancy rate?
KEITH: Occupancy rate would be, like, near 100%.
LADISLAS MAURICE: Look, we’re in the center of a city of 15 to 20 million people, so finding tenants is not hard. [laughs]
KEITH: Yeah. If you price it correctly, yeah.
LADISLAS MAURICE: Yeah, cool. In the numbers, we’ll just put 95% to be safe, to add a little bit of buffer. When we do all of the numbers, essentially, we get to a net-net yield before income tax of about 5%.
KEITH: Yeah.
LADISLAS MAURICE: Can you find other such deals, because this one will probably be off the market by the time the video gets published?
KEITH: Yeah. I think we’re negotiating on this currently, so I wouldn’t expect it to be on the market. Yeah, we can. We have to dig to find properties, as always. We always have. It’s never easy. But if somebody comes to us and they’re patient and they’re willing to work with us and give us an idea of what their needs and expectations are, yeah, we can come up with properties.
LADISLAS MAURICE: And is this apartment compliant for the Citizenship by Investment Program?
KEITH: Yeah, fully. Yeah.
LADISLAS MAURICE: Fully?
KEITH: Yeah.
Get in touch with Keith
LADISLAS MAURICE: Okay, cool. Fantastic. I wrote a whole article on the real estate investment market here in Istanbul, there’s a link below, in terms of which neighborhoods to look into, which neighborhoods to avoid, some of the mistakes you should avoid here in this market. And if you want to get in touch with Keith, who can help you find property, manage property, etc., there is also a link below. All right, fantastic.
KEITH: Great. Good to have you again.
LADISLAS MAURICE: Thank you very much.
KEITH: Good to have you in town.
