The 1% rule in Europe

[Oliver Kopun]

Hi,

I'm a new member from Slovakia (tiny county in central Europe).

I've been an enthousiastic subscriber of the BP Podcast for a few months now. I'm absorbing knowledge like a sponge while working towards a first deal, but whenever I do my own calculations I get very disapointed.

For example : I came across examples of people owning units which value $140K with an monthly mortage payment of $600 and are renting these units for $1340/month. Sounds great right ?

In my area the rent/value-ratio is much, much lower...

For example an average flat in my hometown (Spa town with 30 000 inhabitants) is around 700 - 900 sq ft. Average price for such a flat is around $130 000. The rent? Aproximately $600 if you are lucky. 

The houses start at around $200 000 but it's worth noting those don't usually rent. I've noticed it's super uncommon not only in Slovakia but in Europe to rent a house. It just doesn't make sense to pay $1000+ rent if you can get a much cheaper loan. Usually young couples/people rent a flat until they can afford to buy themselves a house.

In our Capital city, Bratislava the % is pretty much the same - around 0,5%.

Is it that hard to get appoved for a loan in the US?

Any comments on my thoughts? 

I would love to invest in rentals but is it even possible to be cash flow positive in such a market?

Thank you very much in advance, 

Oliver

[Erik W.]

Welcome.

First, my knowledge of renting in foreign market is next to zero.  I rent properties in the Mid-Western united states in what is called a "Class C" market.  The properties are older, but clean, safe, and functional.

All I have to say is the numbers have to work, however that happens.  If you're not making money, then find something else to try.  You cannot FORCE real estate to generate good returns: it either does or it doesn't, which is proved where you say most folks WON'T rent a house because they can get a loan and buy for cheaper.

Your angle might be something like rental arbitrage.  Let's take that same house you say only rents for $600/month....can you rent it on AirBnb to tourists for $100 / night?  

Or could you avoid buying a home all together and simply rent a home from someone for $500, then you sub-lease out to someone else for $700 and keep the $200/month "spread"?

When numbers are that far off, you're banking on appreciation and using your own money feeding an alligator meanwhile.  Don't go broke chasing a return that isn't there. Either find the return, or try another strategy.