I would be interested in people’s thoughts on switching from Krakow from Sofia.

What extra growth can we expect in Krakow in the next 2 years?

Considering the Krakow set up and mortgage costs will definitely need supporting from UK funds (at poor exchange rate) since we now know a large majority of any rental income ( before taxes ) will be taken in operating costs, leaving a shortfall to pay the mortgage.

Selling Future City 2 later this year would take advantage of the strong zloty rate.

I am interested in the Selene deal but need to be careful with the finances. For the moment its either keep Krakow and forget Sofia, or go for Sofia and hope for a good sale with Future City 2 later this year.

Look forward to your thoughts, hopefully before decision day this week.

Regards

Alan of Aberdeen

Alan

I'm in a similar position to you as I have bought into Future City and am trying to balance the risk/return equation.

As I see it, you should still hold for the long term (up to ten years) as the returns increase significantly as the power of compound growth comes into play - i.e. 13% every year for ten years is much much better than a couple of years at 40%.
However, this needs to be balanced against the negative cashflow risk (or fact). At the moment, I would tend to hold on to see what happens in Krakow and the amount of negative cash flow that has to be carried.

I am considering another approach which reduces your negative cash flow and gives you returns earlier than 7 years. This is where you 'recycle' (or sell) property after 4 or 5 years. This reduces your exposure to negative cashflow and provides you returns every year once your first property is sold. It does mean you need to be confident you are selecting properties that will double every five years to take account of all the transaction costs and walk away with a decent profit. This is much more akin to speculation and flipping and always being able to buy at developments before the next stage of significant growth. You'd have to be a genius to call this correctly all the time but it might be worth considering.

On balance, I think you should hold Krakow for a few more years and play the long term game unless you believe Selene and Sofia are going to be a better longer term bet as you are swapping one deal for another and doubling your transaction costs.

Any other thoughts?

Alex & Alan

It's a very interesting question, Alex you make some good points.

I have a significant portfolio in CEE and some serious negative cashflow issues, but I believe holding on to the long term strategy will achieve the best financial gains. I intend to gradually weed out the relative 'duds' but keeping the strong performing ones. For example Marina & Future City are strong performing investments, these are likely to continue to be strong performing in the future for the same reasons they already have been. In the short term the cashflow should gradually improve, the ones to sell are the ones which are not performing so well as these are likely to continue underperforming (there are always exceptions such as Slovakia where I've held Nad Luckami for over 2 years with not much growth but hopefully growth is now starting to kick in).

Selling the underperformers goes against what you might naturally want to do as you may not make much profit, if any (especially compared to selling the top performers) but if you are going to 'churn' I believe that is the right strategy. Another option if you need to raise cash for other exciting new deals is to remortgage something like Marina or Future City thereby keeping the investment but accessing your built up equity (of course this makes your negative cashflow worse) to increase your exposure in the market to maximise capital gains - which remember is why we are all doing this !

Alan - Selling Future City this year may be tricky & you may not get the price you are expecting, and for other investments that have completed, if you have been through all the hassle of raising mortgages, fitting kitchens, furniture fitout, endless PoA's to get everything sorted out & now you finally have a tenant - you have done all the hard work ! Selling at that point because there is a profit I think is short sighted, there is a danger of losing alot of the gain in the selling & rebuying costs of another deal. Let the compound gains roll up over the years - the big money is in 10 years +

This is my view anyway, anyone else ?
Cheers
Antony

Antony

I largely agree with you. However, there are two limiting factors which constrain the 'buy and hold' strategy
i) the amount of risk (in the form of negative cashflow) you're willing to take on, especially in these uncertain times. Personally, I plan to have cash (borrowed!) to fall back on to carry me through difficult periods but aim to minimise negative cashflow (i.e. not buying too aggressively)

ii) your ability to borrow. This has been talked about at some length on previous threads (http: / /www .propertysecrets .net /forum /polish _mortgages _amp _room _for _further _growth /8598 /27100 /1 .html). As an aside, I have just failed to mortgage against one of my Future City apartments using the 'real' property value with Deutsche Bank. I would love to tell you why my application was rejected but Daniel (from Rednet) couldn't explain it to me in terms I could understand (his English is normally excellent)
No doubt, later this year, I shall try to remortgage against my other Future City apartment which has been running a mortgage since the middle of last year - maybe this will be more fruitful.

I am sticking as I am at the moment unless either of the above changes to any degree.

Alex

Hi Alex

RE the limiting factors to the buy & hold strategy
i) negative cashflow - I agree it is down to personal risk profile how far you go & you need to have some cash aside (even if borrowed) or some decent income from UK properties or 'proper job' ! (I gave my 'proper job' up nearly 3 years ago!).

ii) mortgages, in my experience it is tricky but possible. Some countries are definitely easier than others - as alot of use have discovered Poland is a challenge but I've found in Czech it is much easier to raise finance.

Antony

Hi Antony - Agree with your comments. You've got to hold most of the properties for a good period of time or else its really the agents, banks and mortgage brokers who will be getting rich and not you.

The Czech republic is the market that is appeals to me the most at the moment. The returns may not be as spectacular but they are solid enough, and the cashflow is better than the other CEE countries and it is easier to organise mortgages.

Lets hope the interest rates there are not going up to far although I am slightly concerned that they are on the way up.

Thanks to all for your comments.

I hold numerous CEE units and agree with the long term hold strategy.

I might struggle with all the Polish mortgages so selling was always a fallback plan and Future City 1 has had most time to grow.

Co-incidentally my UK mortgage is up for renewal, and I can raise some funds from here with a nominal increase. As per my recent post I plan to go interest only since the CEE mortgages are repayment therefore building capital.

If these funds are sufficient to help with the cashflow shortfall I will hold Krakow as per the recommendations.

I plan to go for a unit in Selene, and look forward to allocation day in the morning.

Thanks again for your sound advice

Regards
Alan of Aberdeen

Alex Antony and Brett et al

You might like to know that in progressing my options I asked Noble Finance to re assess my Polish mortgage eligibility with my increased UK mortgage.

I thought I would be on the mortgage limit with 3 polish properties and would have to sell or fund the fourth from elsewhere. The response was quite surprising. The allowable debt they stated was almost twice the mortgage value of all 4 properties. I guess the market has indeed moved on and they have revised the criteria significantly in the last year or so, all subject to status.

So, re-mortgaging Polish properties at latest LTV looks like a feasible option and would realise capital for whatever use, supporting cashflow or further investments.

All in all it looks better than I expected so hopefully I can keep Krakow long term as well as my new acquisition on Selene.

It has been an interesting week, thanks again for all your thoughts

Regards
Alan of Aberdeen