Buying a Property to Rent it Out: Is it a Good Investment in the Current Market?

As I’ve written before, we’re entering a sweet spot in the property market where, finally, buyers have more power than I’ve seen in the 10 years I’ve done this job.

It’s true mortgage rates are higher than they have been in a long time, but properties are sitting on the market longer and sellers can therefore be negotiated down on their asking prices.

For a lot of people, purchasing the kind of property they want, whether that’s size, style, location, or other factors, can still be out of reach with the level of repayments needed. However, for those still wishing to get on the property ladder, there is another option: buy to rent.

With many hopeful homebuyers being priced out of the market, they are renting longer, which is increasing demand for rental properties and therefore pushing up prices – more good news for people thinking to invest in a property to rent.

In addition to the increasing rents, and adding to that sweet spot for investment, is the expectation that mortgage rates will come down in the future, property values will continue increasing.

According to data from property developer Central Group late last year, the average rent gained on a new apartment ranged from 400 to 440czk per metre, with smaller apartments demanding prices at the higher end of the scale. Rent on a new 35 square metre apartment is now around 15,000czk a month. For older apartments, you could expect something around 335czk per square metre.

Choose your area of town right: up-and-coming business district of Karlin and surrounding areas, for example, or areas around tertiary education facilities, and purchasing a budget-friendly 20 or so square metre 1+kk, for example, could be a good strategy to help you get on the property market as it will likely be popular for both long and short term rent, as well as being something that will increase in value over time.

Later, you will even be able to leverage that investment against other property purchases.

Given the state of the market, and with rent prices predicted to continue rising, it’s no surprise that property developers themselves are now focusing on renting their apartments rather than trying to sell them

What will be key to determining where the market goes is what happens with the interest rates. The Czech National Bank has said it sees no reason to cut rates this year, and it will surely depend on what happens with inflation. Should it fall, we might be able to expect interest rates to fall too, though I wouldn’t expect it too soon. Probably not even this year.

I would argue this potential delay in the rates moving is what is causing the developers to turn their focus to renting out their new builds, rather than trying to sell them.

It’s true there is a shortage of new-build apartments to rent on the market too, with most of the rental activity being in older buildings. Any property owner, be it a developer or private owner, wanting to rent out a new build, could benefit from this lack of competition.

Why are older apartments more common on the rental market? According to Tomáš Jelínek, head of the real estate agency Century 21, a lot of those apartments are on the larger side, typically 3+1 and the reason behind it is the combination of expensive energy, high inflation and rising rents. Often this means it makes more financial sense for owners to leave these larger places, rent them out, and find smaller apartments for themselves.

However, as mentioned above, rental prices in these older buildings are not as high as can be gained on new builds.

So in conclusion, if you really want to get on the property ladder now and take advantage of this sweet spot in the market, but can’t afford the kind of property you would like to live in, buying something smaller with the idea to rent it out, especially if that is a new-build, could be a good option.