Plan ahead and prosper financially with a buy-to-let property
Director – Frank Salt Real Estate
Owning real estate as part of one’s investment portfolio has always been a favourite choice of investors due to property’s regular capital appreciation. This applies both abroad and even more so in Malta, where property has withstood all types of tests thrown at it over the last two decades – the global financial crisis in 2007-2009 and more recently the Covid-19 recession. Buying real estate as a rental investment in Malta has always been very popular, with properties traditionally rented mostly to expats. In recent years however, particularly since the introduction of the changes to the old rent laws, renting to Maltese has also become common practise.
It does not matter whether you own a single property as a primary residence or whether you own additional properties under the “buy-to-let” principle. You will always stand a good chance of making a handsome profit if you regard property ownership as a medium to long-term investment.
Historically, Malta’s housing market has constantly delivered good capital growth. The years of 2019 and 2020 saw an inflation-adjusted rise in house prices of 1.23% and 4.82% respectively, according to the Central Bank of Malta. Considering 2020 was the year we were hit by Covid, that is pretty impressive. If we had to look at the first quarter of 2022, according to the House Price Index, prices rose even further by a very healthy 6.7%!
As an owner of a rental property, keep in mind that owning property this way should always be regarded and treated as a business in its own right. Malta’s residential rentals market is renowned for above average returns and growth potential, with returns on long lets ranging between 3% to 5%. This excellent return must be kept in mind when it comes to furnishing the property – give the property that wow effect (without breaking the bank) to be on the upper end of that scale.
Being a landlord
You will need knowledge of leasing, how to go about financing it, tenant and landlord relationships, and property management. Buying real estate can be lucrative but, just like any investment, comes with benefits and challenges. One word of advice here: seek the services of a reputable estate agent when buying property as a rental investment, as one costly mistake can set you back many years on your returns.
Once you get your buy-to-let property, you also need to assure it’s worth by maintaining and looking after the property. In the case of apartments this is especially important when it comes to the common parts and their periodical maintenance will definitely enhance the future resale value of your property. You might decide to manage the property yourself, but you should also consider getting a property management company to do this for you. It is true that it is an additional cost, but the service the company offers makes up for this through a wide range of services including coordinating of maintenance repairs, vetting new tenants, handling of punctual rent payments and liaising with tenants for on-going maintenance. Frank Salt Real Estate’s Property Management team manage a large portfolio of properties and the fees charged are amongst the most competitive on the island.
You will also need to familiarise yourself with tax laws and landlord/tenant regulations. In Malta, one has the option of paying tax on rental income at a flat rate of 15%. In the case of holiday or short stay accommodations, VAT is chargeable at 7%.
The rentals market in Malta typically caters for youngsters leaving home, expats or foreign workers on short to long-term working contracts and even locals that are in between owning homes. With tens of thousands of expats working in Malta, the preference is to rather rent for the foreseeable future which is usually from 1-5 years, but even “serial” tenants may opt to rent initially until they realise the potential of the real estate market and decide to buy a property – particularly if they are to be based in Malta in the long run. In the short term, renting a property does allow for greater flexibility. If you are not going to be in Malta for a long time, it definitely makes more sense to rent. Rentals are popular because they are “easy-in” and short-term deals. There is a large selection of properties available to rent. However, the rental market is fast paced, so if you find what you are after, don’t take long to decide. Renting is also less of a commitment so you are able to move around at the end of your lease term if your first choice turns out to be less than ideal.
Both tenants and landlords have rights and obligations regarding security deposits, minimum lease period requirements, eviction rules, and so on. Your agent will be able to explain these to you.
Reassuringly, in recent years, Malta’s rentals market has seen some very positive moves and the new rent laws regulate the market well and safeguard the rights and interests of both landlords and tenants alike.
Financing your investment
Your savings today yield very little…if anything at all! Therefore using your savings to finance or part finance your rental investment property makes a lot of sense. Banks have a number of loan packages for investors buying rental properties. Using the bank’s funds this way helps your money go that much further. An experienced agent can help guide you as to the ideal loan to equity ratio by making sure your expected rental income generates the returns you are hoping for. You should also shop around as different banks may offer diverse terms. If you plan to partly finance the property, keep in mind that you will still need to pay your mortgage when the property is vacant.
It is also wise to protect your real estate investment by taking up a landlord insurance, which covers amongst other things for property damage and liability protection in case a tenant or a visitor suffers an injury as a result of property maintenance issues.
Location is key
When investing in a property with hopes of renting it out, location is key. It is always best to look at those areas that offer the highest rental return, highest capital growth as well as the best chance of renting out the property fast. An experienced agent can guide you as to which developments are the most popular and let you know about good investment opportunities that may come up for sale within these projects. There is normally an ideal investment threshold, above which returns tend to diminish.
Smaller scale developments offer a more affordable price tag and if chosen correctly, allow for the same kinds of returns. Location however is always key. Think about potential selling points for your property, such as access to amenities, public transport, shopping centres, office regions and so on. Not only will this attract a greater pool of prospective tenants, but it will be an added asset should you decide to sell later.
Owning real estate is a tried and trusted long-term investment option that can pay fantastic dividends. Get advice from an experienced estate agency, do your research and make sure to check out any government incentives that you might avail of.
Issued by Frank Salt Real Estate Ltd, St Julian’s, Malta | October 2022