For any Eucon owners, I wondered whether anyone else has sold or re-mortgaged their unit(s)? Has PS/I Property Assets done such?

Unit 3.26 1 bed flat (2+kk) 56m2 (although survey just carried out measured it as 54.7m2!) with parking space.

I've just remortgaged and had a val survey of 3.8m czk. 85% LTV with Raffeissenbank via SC Finance (Hana Kortherova who is excellent by the way and I can highly recommend - she has just arrnaged my 2 x Central Park Prague mortgages too).

I bought in April 2004 with all in costs (incl VAT, lighting, and kitchen) of czk 2,890,180 which gives a growth of czk 909,820 - you have to include these items to compare like for like with the current valuation and resale potential. I've NOT included cost of furnishings, sro company set-up, cost of cash flowing and other related costs over the last 4 years.

This gives a 31.5% increase on cost over 4.5 years. The original PS investor pack states:

"5% discount off current sale price plus a 7.3% under market value at today's prices..."

As the general Prague property market is supposed to have performed very strongly in the last 2 years at least, and Prague 3 Zizkov area in particular, the capital growth since purchase is very disappointing and less than 20% total growth in 4.5 years if you remove the so called discount and under market value figures.

When converting to sterling the returns are much higher of course given the recent vastly strengthened Czech Krona but this is a major bonus and you have compare like for like in the local currency for a true reflection of investment performance.

Rents have been disappointing in comparison to the investor pack. In April 2004 the pack was forecasting 16,500 czk pcm with rental groeth of 10% to 15% per annum. My current rent is czk17,700 (it's slowly increased the last 2 years since completion) broken down as 15,500 flat rental with 2,200 from a separate car park rental. I'm advised by the property manager, Impact Corti, that these are very good rental levels for Eucon so I can only assume people are receiving relatively less rent than this. So, again, the PS figures were very over-optimistic to say the least.

Overall, it's been a lot of effort and time, but I'm still pleased I bought in Prague and actually have 2 units in Central Park Prague (also in Zizkov) Phase 1 completing end Oct/early Nov 2008 which I also bought in April 2004. I do believe Prague will be an excellent long term investment although I don't see myself buying any more over there at the moment.

I'd be very interested to hear of any other experiences of PS clients with their Eucon unit and also from PS and also owners of other Prague developments as a comparison.

I'm just in the process of selling the flat from my sro to myself, taking the hit from a transfer and corporation tax point of view, in order to have it in my own name with the resulting benefits in the years to come such as zero capital gains if held for 5 years in your personal name.

My final point is for PS clients to ensure they do not rely on all that is in the PS Investor Packs - do your own due diligence on PS' research. If you do this and still wish to invest then go ahead. PS are good at sourcing some good deals but there has to be some conflict of interest when trying to sell property and earning fees from it and supplying 'objective' research. The risk of being over-optimistic is real and has shown to be the case in a number of investments from what I can see on the forum and from my personal Eucon experience.

Let me know if you have any questions.

Best wishes
Dom

Dom,

Just read your mail but have had similar issues on rental yields at Kosik.

Unfortunately, I have had mostly downtime on rentals for my 2 apartments. One was empty for 6 months, rented for 4 and then someone left and it has yet to be re-rented. The yields are particularly bad on Kosik due to the fact that it is still a building site with all phases of development not yet complete. They are a long way from the PS rental predictions. I just hope that yields increase with completion of the project.

I agree that the appreciation has been disappointing and not in line with PS valuations. This hasn't stopped me, like you, buying on Central Park. The rental guarantee of 7% was key for this investment. I think Prague will be a pretty safe haven in the current financial storm.

I may well buy this as an EU citizen, with an EU Card, as I think this is a cheaper and more flexible way to go. I'd be really interested to find out how the collasping of your SRO goes, with costs involved, as I am also thinking of doing the same and transferring to personal ownership.

Regards,



John

Hi John
Sorry to hear re your rentals. I've been fortunate in Eucon in that I had only a 6 week void initially and then the same tenant has been in since and has just renewed for the 3rd year. He was going to move out and i offered to reduce the rent by 500czk per month which persuaded him to stay which made it more cost-effective for me versus potential void and 1 month's rent finders fee to source a new tenant. There is good tenant demand in Zizkov Prague 3.

I'll post on here re Central Park as, unlike you, I don't have any rental guarantee. I bought these units (1 x studio, 1 x 1 bed) in April 2004 via another sourcing company separate to PS so I'll have some real life figures to post later this year. Should be interesting to see if the rentals cover my outgoings as this a high end development, unlike Eucon, but it will be affected in the first year on rentals/resales levels due to Phase 2 not finishing until spring 2009 earliest i believe and the communal facilities similar so will be a building site for at least 6 months after I complete in Phase 1.

I'm expecting to have to cash flow for the first 12 months then I'll review.

Will also post later on re selling my Eucon unit from my sro company to myself and then selling the company on.
Regards
Dom

Hi Dom

Interesting post. I have a few untis in Czech including Eucon (achieving similiar rental levels it's a 2 bed getting 15500 + 3500 charges & 2000 parking) it's on par with most of my others, it's a good central location and one to keep I think.

I also have some in my sro and some via EU card, of course it would be convenient to transfer them all into private name to primarily save the company costs & hassle but your point about no CGT in 5 years may not be so compelling. Presuming you are UK resident even if Czech CGT is 0 your UK CGT is still 18% based on this I would be surprised if the figures work out favourably to transfer the property and mortgage as theoretically this will crystalise the gain now plus I believe you have to pay to get the sro wound up, no one will want to buy it. But if you find a way for the figures to work it will be interesting to know the details.

John - I have some units in Kosik they are achieving rents of around 19000 (16000 + 3000 charges) for 2 bed units unfurnished, I'm surprised you are having quite so much trouble.

Get in contact if you can
Antony Tilney

Antony,

I think I've just been unlucky to date. It took some time to get rented out initially, as did many others through PS, but it eventually rented. Unfortunately, the tenant left after a very short period.

Let's see how things play out now but I'm down at 15,000cz + charges for a 2 bed. Self-funding, particularly with the Czech Krona strength, is not what I needed!



John

Sorry if this is a little bit off topic but I am just reviewing the PS 'Post Strategy Report' for Forest Park, Prague 4. So I was interested to read of your experiences.

PS are suggesting that rental is the way to go; Its only been a year since we committed to purchase so any capital growth would be wiped out by the selling costs. I am an inexperienced investor and have never rented anything to anyone before.

We have taken an 80% LTV CZK mortgage, I had of course expected the mortgage repayments which will be £560ish per month, but I'm concerned with all the additional 'parasitic' cost. I've just read in the report that the developer will make a service charge of between 3000 ~ 6000 CZK per month, ours is a 1 bed so I guess 4500CZK which is around £150 per month! then there are void periods of ?? who knows how long and management charges of 9% a month etc. etc!

Frankly the service charge will be crippling for me did you have to pay this and is our figure comparable?

With an 80% loan I don't see how we will ever get cash positive?

I felt bullish after reading the original investment report but now I feel very naive Thank you for your posts.

Before you make your decision you really should do a cash flow forecast over the period you expect to hold your unit. My post on the white tower thread has a list of the types of costs you can expect to have to fund.

Remember that in calculating your running costs you need to a acount for financing the full cost of purchasing your unit, not just your 80% mortgage. Another factor that is easy to overlook, I did, is the VAT charged on initial and ongoing letting charges.


Regards

Alan

Atadifficultage,

I too have suffered a bit with regards to costs for the investment properties in Prague. I run a SRO and the tax return at the beginning of each year was another cost I really didn't factor in. The prospectus suggested a return, before service costs, of over 19,000; I get 15,000. The Czech Krona strength, as I am regularly transferring money, is not good either!! Added to this, the monthly fee for collecting rents - if it were rented!!

I guess I am lucky to be in the position to be able to fund this investment, to a certain extent, myself. Had I not been, I feel sure I would have sold at a loss by now. The capital growth better be worth it!!! I believe it will be and hence the additional investment in Central Park.

It's been a lot more stressful than I envisaged. I have rentals here in the UK and an apartment in Paris (Leaseback). The other properties have been constantly rented with not 1 day in downtime. The ones here in the UK I have done myself and this has led to the consistancy of rental.

Good luck,


John

Guys

Renting apartments successfully in CEE is not as straightforward as it is often made out to be. But you can make it work, my experience is this takes some leg work and getting more involved with the investments, particularly working directly with focused management agents.

IPA is the easy way for busy people with no time to spare on sorting these things out, it is not the most efficent way though, so it is a trade off between time & money or just getting the right contacts.

I have found the first stage is to get the investments completed and up &
running, the second stage is to analysis the costs, driving them down where possible and creating an efficent portfolio for the long term.

HTH
Antony Tilney