Investing in Real Estate: Costs and Options

Investing in real estate is one of the most popular ways to not only preserve but also grow your capital. However, before you start investing, it’s essential to understand the associated costs and the different investment options available. This knowledge will help you make well-informed decisions and minimize potential investment risks.

Different Ways to Invest in Real Estate

1. Direct Real Estate Investment

This is the traditional method of investing, where the investor directly purchases real estate—whether it's an apartment, a house, commercial property, or a plot of land. Direct real estate investment gives you full control and the opportunity to earn income through rent or by selling the property at a higher value.

Example: You decide to purchase an apartment in the center of Vilnius for €150,000. If you don’t have the full amount and need to borrow from the bank, the down payment (20%) would be €30,000, with the remaining amount financed through a mortgage. Each month, you pay off the mortgage while renting out the apartment for €500 per month, a portion of which covers the mortgage payments, with the remaining amount representing your net income.

When opting for direct real estate investment, it’s important to consider that you may need to undertake renovation work, which can vary depending on the size of the apartment, the city, and the specific work required. It's advisable to set aside around €10,000–€20,000 for such renovations. If you plan to rent out the property, cosmetic updates may be needed more frequently, so allocate additional funds for both these updates and unexpected expenses—such as replacing an oven, refrigerator, or other household appliances.

2. Investing Through Crowdfunding Platforms

If you don’t have substantial funds for direct real estate purchases, you can invest through crowdfunding platforms. These platforms allow multiple investors to collectively finance real estate projects and share in the profits.

Example: You have €1,000 and want to invest in real estate. By using a crowdfunding platform, you can invest this amount in a real estate project offering a 10% annual return. If the project is successful, you will earn €100 after one year.

On the PROFITUS platform, there are no administrative fees for investors, so you won’t incur additional costs, allowing you to utilize your funds and earn returns on your investment fully.

 Key Costs of Investing in Real Estate

Down Payment
In the case of direct real estate investment, the down payment is the largest upfront cost. Depending on the type and location of the property, as well as your credit history, it can range from 10% to 30% of the property’s value. For example, if the property costs €200,000, the down payment could range from €20,000 to €60,000.

Mortgage and Interest
Most investors take advantage of mortgage loans. Interest rates typically range from 2% to 3% per year, though they can fluctuate depending on the economic situation and bank offers. For example, with a €150,000 mortgage at a 3% annual interest rate, you would pay about €25,000 in interest over 20 years.

Transaction Costs
When purchasing real estate, you’ll need to cover notary services, property valuation, registration fees, and other administrative costs. These expenses can amount to 1% to 2% of the property’s value. For example, when buying a property worth €200,000, you can expect additional costs of €2,000 to €4,000.

Property Maintenance and Renovation
Real estate requires ongoing maintenance, especially if you plan to rent it out. Annual maintenance costs can be around 0.5% to 1% of the property’s value. If you own an older property, major renovations may require more funds.

Risks and Other Factors to Consider

Market Fluctuations
The real estate market can be volatile. Property values can change depending on the economic situation, market demand, and other factors. Before investing, it’s important to assess these fluctuations and be prepared for potential losses.

Liquidity
Real estate is not a highly liquid investment. Selling a property can take time, especially if the market is slow. This means you might need to hold onto the property longer than planned or sell it at a lower price than expected.

Maintenance Costs and Tenant Risks
If you invest in rental property, you must consider tenant risks. These can include unpaid rent, property damage, or extended periods without tenants. Such factors can reduce your income and increase your expenses.

Use an Investment Calculator

To better understand the costs and potential returns of real estate investment, use an **investment calculator**. This tool will help you calculate all related costs, assess risks, and plan your investment returns.

Investing in real estate can be profitable, but it requires careful planning and risk assessment. By choosing the right investment method—whether it’s direct real estate purchase or investing through crowdfunding platforms—you can create a long-term source of income. Be sure to evaluate all the associated costs and risks in advance and use investment tools to ensure your decisions are well-grounded.