How to Choose an Apartment for Investment?

If you've decided to try your hand at renting out apartments, but it seems to you that only people very familiar with the real estate sector can handle this and it's too complicated for you, then it's really not that bad. We asked for advice from someone who started from scratch three years ago in exactly the same way and who now has three rental apartments, and definitely plans to acquire more. The woman works a day job in something that has nothing to do with real estate, and her real estate knowledge has come on the go and from friends who had already dealt with rental real estate before.

So she encourages people who are interested in this field to definitely give it a try.

But how do you choose an apartment that is suitable for renting out?

First, she recommends taking an honest look at your possibilities – that is, how much money you have right now and how much more you could get from the bank. Based on this, you can choose the size and location of the rental property. Our advisor, for example, cannot look towards Kadriorg, as the apartments there are too expensive for her. Her apartments are located in Mustamäe and Pelgulinn.

Once the area is chosen, familiarize yourself with the local rental market there: what are the average rental prices for corresponding apartments and how much demand is there. The safest bet is to buy a two-room apartment, which is usually rented by either single people or couples without children. If a child is born to a family, they usually want to move to a larger apartment.

Although the Tallinn rental market is understandably the largest, you don't necessarily have to buy an apartment there. Perhaps you live in a smaller town instead, where there is an active rental market and demand for apartments exists. This is not ruled out either, and in fact, the woman who gave us advice actually started this way – from her former hometown. What's important is to know the local market or to learn to know it quickly.

If you've noticed a certain apartment, do the calculations to see whether its potential rental income covers the loan payment, insurance, and other running costs.

If you have the opportunity to buy an apartment in a more expensive price range, whose rental income is accordingly also larger, you need to consider that it may be harder to find a tenant for it and the apartment may sit empty for several months. In total, this can mean quite a large amount that you need to be able to cover from your own pocket.

The same actually applies to apartments that have greater demand. You never know how the market might change, and sometimes you're simply hit by bad luck – changing tenants can take just two days, but at the same time your rental property can sit empty for several months.

It's also worth looking at the condition of the building, because if the condominium association plans, for example, a facade renovation, they will likely take out a loan for this, which immediately increases the repair fund payment for apartments. And if you thought this is something that the tenant should pay for, then actually that's not how it works.

Would it make sense to choose an apartment that needs more extensive repairs?

There are several questions you need to answer first. If rental apartments are not your main business, then it makes more sense to invest in an apartment that doesn't need repairs and that can be rented out immediately. But if you have a partner who, for example, takes on the organization of the repairs themselves, then it's worth considering this option. Or some very good repair person you trust. If you buy an apartment in very poor condition and do a thorough renovation, then you have the opportunity to grow the value of your investment quite considerably.

If you want to get into even more detail, our advisor recommends choosing a furnished apartment, because then you don't need to deal with furnishing – most tenants actually want a furnished apartment. Then it's enough if you hang curtains and make the apartment cozier in some other way.

You certainly also need to take into account the fact that from time to time you need to deal with problems related to the apartment – it's not a business that involves just sitting behind a computer.

Finally, she recommends that a beginning investor not overthink things and get started. If she had thought too much about it, she wouldn't have dared to start either. The most important thing is to be sure that you have the ability, during the time when the apartment is vacant, to pay the loan repayment and utilities.

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