How to achieve 5-9% annual return from property in Sunny Beach.

Since the peak in 2008 property prices have fallen by as much as 80% in the ski resorts, 50% in Sunny Beach and 30% in Sofia. Black Sea off-plan property averaged € 1,000 per sqm 6 years ago and today finished and furnished is worth € 500 per sqm, still hovering just below the current build cost which stifles market growth as almost no profit is available for developers.

During this period the number of coastal tourists has steadily increased by 7%, which has contributed to the consistency of rental rates. In 2014 the nightly rate for an apartment ranged from 20 Euros / night for a studio in a complex 800m from the sea, up to € 80 Euros / night for a two bedroom apartment on the first line. At the sale values of 490 and 750 Euros / sqm respectively, both provide appealing levels of affordability and of return for comparatively small amount of risk.

Two genuine examples:

This is a small one bedroom apartment, well furnished, 55 sqm in the 3*Avalon complex, situated approximately 300m from the sea in Sunny Beach. Sold by us in early 2014 for 27,000 Euros, rented by us since for 35 Euros / night, it achieved 60 nights occupation during the summer months and thus 2,100 Euros of income. The annual maintenance fee is 495 Eur / sqm, the electricity and water bills came to 103 Euros and after some minor repairs and insurance the net income for the new owner results in a 5.18% annual return.

This studio at the 5* Royal Barcelo was sold by us in early 2014 for 28,000 Euros, we rented it throughout the summer and achieved 4,050 Euros rental income. Minus the maintenance and other running costs the owner has achieved a 9.1% annual return.

Until recently it was far more sensible to make a cash deposit of 27-28,000 Euros into a Bulgarian high interest account and achieve at least 5% guaranteed return without lifting a finger. However, after the collapse of two of Bulgaria’s largest banks this summer and the exodus of depositors and their money, few have sufficient faith in either the government or the institutions to leave their savings with the banks. As ‘high interest accounts’ now hover at around 2-2.5% with every expectation to reduce further, property investment on an affordable scale (where an agent manages the entire process hassle free) has once again become considerably more attractive.

Property prices in areas such as Sunny Beach have shown marginal decrease again this year, mostly due to the ongoing geopolitics surrounding Russia, the devaluation of the Rubel and the much reduced spending power of the Russian public. It is likely that by next summer the decrease in values will result in similar examples to those above being available for less and thus they will most likely achieve 6% and 10% respectively. At this level of return the viability of Sunny Beach as an investment starts to compete with a wide variety of investment options, but for a far lower entry cost which carries the added bonus of being a sunshine holiday home.

The opinion of owners who are investing in Sunny Beach to rent is that the fluctuation of resale values in the short term by 500-1000 Euros is of no concern as they are in the market for the next 10 years, during which time the example of the Barcelo above the property will be entirely paid off. Few expect market values to stay the same for the next decade, perhaps in the worst case scenario the 3-4 years static and 6-7 years of marginal growth at 4% / year would see a 1/3 gain on current values overall. As such, regardless of the immediate market movements the strategy to acquire now so far below build value and rent long term makes good sense if you are looking to invest cash at the pricing level of a new VW Golf.