Why did I sell my Budapest Apartment?

Jul 21, 2023 | Private List update

https://youtu.be/6jT2zJ_rp2I

Why did I sell my Budapest Apartment? (https://youtu.be/6jT2zJ_rp2I)

I recently sold one of my apartments in Budapest.

Why?

For a host of reasons. It was not an easy decision. I’m a little sad even.

In this video, I show my apartment, all the numbers, and explain why I sold it.

This apartment I sold can grant residency in the EU

Yes, few people talk about this. But Hungary has a low-key residency by investment program for real estate investors. You can find more information here.

I wrote a full analysis of the Budapest real estate market, including a macro overview, a lot of data, investment heat-map, etc.

If you want to get in touch with Benedek, my buyer’s agent and renovations manager, you can do so here.

Finally, if you want to use the law firm I’ve been using in Hungary (and for my EU matters) for the past 8 years, you can get in touch with them here.

This is quite literally the best toolkit to invest in Budapest real estate

I am very confident saying that you will not find better anywhere. It took me years of being active there to develop this network of competent professionals.

To a World of Opportunities,

The Wandering Investor.

Available services in Hungary:

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Transcript of “Why did I sell my Budapest Apartment?”

LADISLAS MAURICE: So I sold this apartment, the 74-square-meter apartment, for €223,000, including all the furniture really key in hand. The tenants currently are paying €800 per month, plus all the charges. But this was really a COVID-y price. The market price per month would be roughly?

BENEDEK: Approximately around €1,000 euros now.

LADISLAS MAURICE: Yeah, about €1,000, €950, roughly there. Because interest rates have gone up so much in Hungary, they’re at over 10% now, if you want to borrow money to buy a house, rent apartment, it’s over 10%. So essentially, nobody’s borrowing anymore. So what this has resulted in is more people being on the long-term rental market. So it’s really squeezed rents to the upside. So roughly, you’d be looking at a gross yield of 5% to 6%. Gross, then you’d have to make some deductions. But there aren’t that many in the sense that the common charges, which include water, maintaining the whole building, the elevator, all of that, are approximately €50 per month, which is really low for such a high-quality building.

And the property tax. Because I was renting it out on the long-term market, the municipal tax is a bit less than €400. I had to go pay it yesterday because of the handover. So really low property tax, low HOA, which the tenant pays. So really all I had to pay was management. And I was doing the management myself because I know Budapest so well. And whenever I need something done, I have someone who can help. And the property tax, that’s pretty much it, and a bit of maintenance. In terms of occupancy rates, I’ve had this apartment since 2016. And the occupancy rate was pretty much 100%. I never had an empty month. I always had tenants in this apartment due to its central location.

Why I sold the apartment

So now the question is, why did I sell it? And it’s not like I sold it for an amazing price, it’s like, Oh, I was offered so much money I couldn’t say no. If anything, I sold it a little bit below market to be able to get the liquidity, because I’m investing in other opportunities in other markets. So it’s not because this is inherently a bad investment. Actually, the person who bought it made a good investment, for sure. But it’s depending on that person’s objective. So that person wants core real estate that will maintain its value over time, it’s a bit of a wealth preservation move, having triple A real estate and just focusing on their other stuff.

When I made this investment in 2016, I was working full time. I was on the Executive Board of Nestlé in West Africa working 60, 70 hours a week. I just didn’t have much time. And then when I had my vacation, I just flew down here, and in one week, I bought an apartment. So that’s how it all happened. Because I was so busy with my career, this sort of investment was perfect, because it was triple A, I knew I wasn’t making a mistake by buying in this building, this apartment, in this neighborhood. I knew that it would be stable, and I would, over time, make some decent capital gains. So that was my thinking then. And for my circumstances at that point in time, it was perfect.

My circumstances have changed. So now I’m a full-time investor, and I look for very specific opportunities. And I have found in Latin America, opportunities that I feel give me more cash flow, more immediate cash flow that’s higher, and that has the potential for more capital gains, though with higher risk. But again, I’m at a stage in my life where I can tolerate high risk by going into such markets as Colombia, and Mexico, and others. But if I were to make a real estate investment right now in Europe, and if I wanted something for the long term, some quality investment, I would essentially buy this own apartment for myself again. I can’t think of any better city than Budapest in Europe at this stage in terms of value.

Look at any European capital and see what €3,000 a square meter will get you. It doesn’t get you much anywhere. Even Slovakia is more expensive. And Prague is at least two times more expensive than Budapest. So overall, in terms of value, Budapest has it. It’s just that in Europe, generally, from a macro point of view, I don’t see any immediate capital gains. So that’s one. And, two, the rental yield was reasonable and very safe. But again, I now manage my investments full-time. It’s my job managing my money, so I can get more alpha somewhere else. Essentially, that’s the whole reasoning. So Benedek here is my buyer’s agent. How’s the market doing right now in Budapest?

Budapest real estate market update

BENEDEK: Well, the market is very interesting right now in Budapest. It has been in decline for, I think, approximately nine months. So this naturally gives good opportunities for new investors in the market. It really depends on what someone is aiming for. Like you mentioned, for your circumstances, this investment initially was a perfect one. But your circumstances have changed. I have been in talks with a lot of investors lately. And I see a trend that they are trying to invest into Budapest for capital preservation, like you said, and these kinds of properties are perfect for that.

There is an influx of properties right now into the market. And the prices vary on a great scale. So I have seen a lot of incredibly underpriced properties right now, I still see a lot of overpriced properties. So right now, if anybody has cash, it’s a good hunting ground for giving lowball offers and hoping someone would accept it without any second thought. Some people are in the big need for liquidity right now because of other recession-related issues. So I would say this is a very opportunistic market right now.

How much to negotiate for real estate in Hungary

LADISLAS MAURICE: Price discovery is essentially searching itself in the market. Like you said, pricing is a bit all over. I made a point of pricing the apartment a little bit below the market price, but then I was very firm on the negotiations. Because what you’re seeing with your clients is, depending on the apartments, people are getting discounts of five to ten–

BENEDEK: Well, 5% to 10% is standard, I would say. But if someone is a bit more courageous, we can even try up to 15%.

LADISLAS MAURICE: Yeah. I sold mine 1% below the price I was asking for, because I priced it in a way that I caught a lot of eyeballs, I constantly had visits here, so poor [Lesh 00:14:37], my tenant, had to deal with all the visits from all the agents. But then people were trying to throw low balls, but I knew that my pricing was just slightly below the market price and that someone would go for it. Boom, someone went for it with just a 1% discount. They made a good deal. I’m happy. I have the liquidity. I’m out of here. But if I were to make an investment in Europe, it would be, again, Budapest. And I wouldn’t necessarily buy this sort of apartment for my objectives. Because you were showing me some of the potential projects you have. And they’re more active projects where you need to put more effort into it instead of just buying a nice apartment, renovating it, putting it on the long-term market, where it’s a bit more active. So you showed me two projects?

BENEDEK: Yeah.

Current real estate investment opportunities in Budapest

LADISLAS MAURICE: So one project was, can you elaborate on the one in the first district briefly?

BENEDEK: Yeah, of course. So there is a very specific type of investment in Budapest, which I don’t think is very well known for foreigners. It is that we have a lot of historic buildings with low height, and the building community is selling off the rooftop area of these buildings for a reduced price, basically. And then the investor can basically turn it into a new level of building with multiple apartments. And then you can either resell it, or you can rent it either for short or long term. But in any cases, these apartments will be newly-built apartments, but still on the top of historical buildings. So it has some sort of the good things from both worlds, basically. So it is a very interesting opportunity for someone who is not afraid to try new things for a high potential return.

LADISLAS MAURICE: And there’s this other apartment you showed me that it was really cheap. You could cut it into like three apartments.

BENEDEK: Actually, four.

LADISLAS MAURICE: Four. Yeah.

BENEDEK: Yeah.

LADISLAS MAURICE: Seventy-six square meters to be chopped into four mini-apartments via Airbnb, right?

BENEDEK: Yeah, we have different separate video on this topic. But we are still doing a lot of this kind of investment because it’s sort of on the safe side still, because you have the property, you are just renting it for short term, you are just dividing the space into smaller units, which, in any cases, could be used even if it’s not for the short term, you just rent it to students. And being small spaces, the rental prices will add up anyways. So it is a bit more creative kind of investment, but for those who look for higher yields. These kinds of investments are easily able to generate more yield than the typical short-term rental investment.

So whereas the typical short-term rental investment in Budapest yields between 6% and 8%, these kinds of subdividing apartments, these are easily able to do between 8% and 12%, depending on the actual project.

LADISLAS MAURICE: Net?

BENEDEK: Net, yeah. That is after expenses.

LADISLAS MAURICE: Yeah, net, 8% to 12% is doable in Budapest.

BENEDEK: The downside of this is that it’s not as liquid, although I don’t see a lot of people selling these kinds of properties. So it might just be the reason, because they are good investments, people are not trying to sell them.

LADISLAS MAURICE: Yeah. Yeah, yeah. So yeah, essentially, I’m sad to have sold this property because I like it a lot. But yeah, life, things change, people’s circumstances change. And I had to make a decision. I could see something that was a better fit for me somewhere else. And also, when you have a market that is going down slowly, like here in Hungary, it’s not like prices are crashing or anything, they’re going down a bit, which is why if you come with cash, there are opportunities. And you’re trying to sell, because I’ve made that mistake before, of having real estate in down markets. Just try to anticipate the market, don’t try to chase it down. If you want to sell, just understand that the market is going down a bit, price it a little bit even below, make sure it goes in a few weeks. And then you’re done.

Because like when you’re trying to get the extra 3%, 4%, that’s when you get played, because then, suddenly, the market drops more and then you’re just chasing it. So you need to understand, do you want to exit? Yes, or no? If you want to exit, then you need to price accordingly. If I were to come back in Budapest, which I will, I still have positions here in Budapest, I haven’t sold everything, to be clear, I would like to come back to Budapest in the future, invest more here. But when I do invest here, if I’ll still be doing what I’m doing, which is being a full-time investor, I’ll be speaking to someone like Benedek, who’s actively looking for specific deals for investors. So you act as a buyer’s agent, which is rare in Hungary. In Hungary, you just deal with like normal real estate agents who just try to sell whatever they have on their books, and will just talk nonsense to sell what they have to sell.

Real estate buyer’s agent in Budapest

So Benedek works differently. He charges money, but then he’s representing your interests. And he is going around and scouting specifically for deals. So essentially, I mean your fee is essentially immediately offset in that foreigners who come here and don’t have the time to be here for a few weeks, they can come here and someone’s done the proper due diligence. You know you’re not going to be overpaying. And generally, you’re going to be actually be getting a better deal than average. So the few percentage points that you ask in terms of fees, generally, are immediately offset. And even in terms of the rental yield, you’re able to get higher rental yields, because you do management as well.

BENEDEK: Yes, that’s right. I am also helping with the price negotiation with my clients. And generally, we offset my charges immediately with the purchase of the property, which I am usually able to push the price more than my service costs.

LADISLAS MAURICE: And you have a renovation company, so that it’s not like a real estate agent telling you, “Oh, yes, you need to renovate this apartment. It’ll cost you €600 a square meter.” And then actually, when you start getting quotes, “Oh, it’s €1,000 a square meter.” So when you’re working with someone like Benedek, you’re getting the right type of properties. Immediately, he can essentially quote you on the renovation works, because that’s what he’s doing. He can do all of the ROI calculations. And then he’s got to deliver because he can do the management as well in the end, him or one of his close partners. So it’s like really key in hand investments. So when I come back, I’ll be using your services.

BENEDEK: You’re very welcome to do so.

LADISLAS MAURICE: Cool. All right. So if you’re interested in finding out more about the Budapest real estate market, I wrote a whole article. There’s a link in the description. I go into the neighborhoods, etc., where to invest, where not to invest. And also, if you want to get in touch with Benedek, there’s a link below with more information on his services. All right, Benedek, thank you very much.

BENEDEK: You, too.

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