Apartment as an investment
Successful selection of the investment is of great importance in terms of profitability
Whether you are buying an apartment as an investment or to live in, a new residential project is a good alternative.
When you buy an apartment in a newly constructed property, you get to have a say in how the apartment will look. You will not need to fix up the place yourself, nor do you have to worry about expensive plumbing or exterior renovation work in the near future. The apartment’s soundproofing, moisture tolerance, indoor air quality, electrical systems and telecommunications will be in line with contemporary standards.
Buying an apartment in a new residential project is an excellent choice, even when you are not planning to live in the apartment yourself. Buying investment apartments has become increasingly popular in recent years among private individuals.
The benefits of investing in an apartment are twofold: The investor will earn a fixed monthly return on the investment in the form rental income. In addition, apartment values tend to increase over the years, particularly in the Helsinki metropolitan area and other urban growth centres. While the prices of apartments are not immune to economic cycles, statistics indicate that the market values of apartments have increased steadily over the long term.
Investing in an apartment is not beyond the means of an ordinary wage-earner. An investment apartment bought using a bank loan is paid off using rental income. The investment is particularly advantageous when interest rates are low in relation to the rental income. When the bank loan is fully paid, you have a debt-free apartment that is a source of income for you.
Further factors that make investing in apartments a lucrative option include apartments having a strong value as collateral for the loan, and the fact that interest payments are tax-deductible. Rental income is treated as capital income in taxation. When filing taxes, the investor is entitled to deduct the interest payments on the home loan from the rental income.
You can estimate your potential rental income in advance by using a rental income calculator (in Finnish). The calculator takes into account rental income, taxes and potential trends in interest rates. A return of at least five per cent can be considered good.
In recent years, rental levels have increased substantially faster than apartment prices. For this reason, living in an owned apartment is currently exceptionally inexpensive compared to living in a rental apartment.
It is possible to become the owner of a new apartment by paying only part of its total price (sales price). The remainder, which is the apartment’s outstanding share of the housing company loan, has been negotiated in advance and requires no separate collateral. The maintenance charges paid to the housing company are generally lower than rent.
Payments made on the home loan increase your assets, unlike paying rent to someone else. As the years go by, the apartment ultimately becomes your fully owned property. At the same time, you build together a nice nest egg in case of surprising changes in your life situation. As a shareholder of the housing company, you get to have a say in how the property is maintained and how the housing company manages its affairs.
Living in an owned apartment also gives you greater security, as it makes you your own landlord.