New Zealand Leader: Flipping Thrives, But a Real Shortage of Suitable Apartments Has Emerged

According to Argo Pillesson, head of Estonia's largest real estate agency Uus Maa, flipping or renovating and selling old apartments is very popular, but suitable apartments are running out and buyers are willing to outbid each other, which reduces profitability.

 According to Argo Pillesson, flipping has been the main way smaller builders and one- or two-person companies have made profits from the real estate market over the last 2-3 years. "On average, one project takes 3-4 months and an expected return on equity of 20%-30%. If two apartments can be completed and sold in a year, that's a decent income that attracted many people," said Pillesson.

 "By now, competition has grown noticeably and affects the wider residential apartment market – apartments in poor condition suitable for flipping are bought up very quickly and on real estate portals you see purchase offers for apartments needing renovation in the sales listings section. Good deals are being made both under the counter and offered in public competition, which reduces expected profitability," commented Pillesson.

 "A typical flipping apartment is located in a Soviet-era apartment building on the outskirts of Tallinn and ideally one extra room is created during renovation. Preferred are 1-bedroom apartments averaging 30-35 square meters that can be easily converted into 2-bedroom units – the old kitchen becomes a bedroom and the living room is connected with an open kitchen," added Pillesson. 

"Since smaller and poorer condition residential apartments are running out, the market is moving towards larger and more expensive apartments – two-bedroom apartments become three-bedroom units and three-bedroom units become four-bedroom units, for which 170,000 - 180,000 euros is already being asked," said Pillesson. 

On average, an apartment is flipped within 4 months 

"In Mustamäe, approximately 12% of 1-bedroom panel apartment sales over the last three years have been for flipping purposes. On average, such an apartment cost 70,000 - 75,000 euros before renovation and sold for around 100,000 euros and, if things go well, more. On average, the transaction-to-transaction timeline took 100 - 120 days, during which successful projects saw price increases of 35,000 - 40,000 euros," Pillesson provided as an example. 

"In Lasnamäe, 1-bedroom panel apartment units are three square meters larger than similar ones in Mustamäe and transactions were made on average at 75,000 euros. After renovation and layout changes, apartments are sold for 100,000 - 105,000 euros and the average time from purchase transaction to sale in Lasnamäe is also 100 - 120 days," added Pillesson. 

"For the buyer, a flipped apartment – one that has been recently and well renovated by someone else – is actually quite a reasonable choice, because self-renovating or finding a builder can be difficult and time-consuming, and banks typically only lend for apartment purchases, meaning you need to have renovation funds available. But if you purchase an already renovated apartment, which already has a new kitchen, then you can get a loan for the full amount," said the head of Uus Maa.