Borrow money to invest and your percentage gain will be far greater than if you buy a property all with your own cash.

Here's how a 70% loan to value mortgage can help you make massive percentage gains when compared to buying for cash.

Let's assume you buy a property for the equivalent of €100,000.

And the property rises in value by 15% per year.

End of year 1 = €115,000
End of year 2 = €132,250
End of year 3 = €152,088

Profit = €52,088 (rounded down)

If you buy for cash you have made a profit of 52% over three years. Not bad.

Now let's see what happens when you take out a mortgage of 70%.

You invest €30,000

At the end of year 3, your property is worth the same €152,088. And your profit is the same €52,088.

But, as a percentage of your €30,000 investment, this represents a massive 73% profit spread over three years.

Which rate of return would any sensible investor favour? Not difficult, is it?

But, more importantly, can you Borrow Against an Eastern Eight Property?

The fact is that most of these markets are not as established for foreign buyers as, say, France or Spain are.

Lenders outside the country where the property is located will often be wary of providing mortgages. In many cases, it will simply be impossible - or not economic - to borrow to buy in your home country.

Things are a little easier in some of the Eastern Eight.

It is very difficult to be categorical about loan availability, but after thorough searches of what is available, here is a summary...

 

Lenders will, perhaps not surprisingly, favour the more established markets that at least sound less risky. These tend to be:

• The Czech Republic
• Hungary
• Poland

But Latvia, Lithuania, the Slovak Republic, Estonia and Slovenia will prove to be problematic.

However, with the exception of Lithuania, loans to non-resident foreigners are available in these countries - if you can convince banks that you're a good bet and have a good income and good track record of making debt payments.

Obtaining them is not an easy process, however, and nearly always involves a personal appearance at the bank.

Loan-to-value ratios also tend to be lower than we are used to in the West, usually around 70% or less.

Interest rates are generally on a par with the West - except in Slovenia where they are between 12 and 15%!

One of the most active and flexible mortgage brokers in the UK is Conti Financial Services (www.mortgagesoverseas.com), who it is believed are the first broker to introduce mortgage schemes for Eastern Europe in the UK.

They have introduced a mortgage scheme for Poland and are planning schemes for Hungary and the Czech Republic. Other schemes will follow based on demand from clients.

For Poland the Conti scheme allows loans of up to 70% of a property. Loan repayment is over 20 years and repayment mortgage rates currently stand at 5.90% for US dollar or Euro mortgages, comparable with many of the 'old' EU states.

If you're self-employed or you are in another 'complex' category, you may only be able to borrow 50% of a property's value. Each case is judged on its merits and individual circumstances.

You could re-mortgage your existing property

For many people this is the easiest option, simply because other sources of finance are often difficult to obtain or unavailable.

The large amount of equity locked in many people's homes makes re-mortgaging attractive.

You become a cash buyer in the country of your choice.

Or you could pay in cash now and refinance later.

This is traditionally seen as a highly unattractive option for the investor. Here's why:

Paying in cash
Cost of property €100,000.
Buy for cash.
One year later property is worth €120,000.

Profit = €20,000.
Profit as % of original investment of €100,000 = 20%

Borrowing
Cost of property €100,000
Put down €10,000, borrow €90,000
One year later property is worth €120,000

Profit = €20,000.
Profit as % of original investment of €10,000 = 200%

So, basically, paying in cash when you can borrow is dumb...

...or perhaps not always?

One element of investing in property in the Eastern Eight countries is that it is more of a gamble, perhaps, than investing in more established property markets.

So, an extra gamble you may be willing to take is that the mortgage market in your country of choice will develop so rapidly in the next two to five years that you can buy for cash now and mortgage easily in a couple of years time.

This is a distinctly realistic option. Once these countries have settled in to the EU, it is very likely that the tiny mortgage market will blossom.

And, if it doesn't and you are unable to re-finance, you still have the capital gain, so you sell the property and re-invest elsewhere.

Where is likely to develop mortgage markets fastest?

This is a tough call, but examine the Czech Republic, Estonia, Latvia and Poland.