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How to get your money working for you

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1. ANTICIPATED ANNUAL INCOME

Investment amount
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Proportion of equity capital
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Duration of loan
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Rental income

2. INVESTMENT RETURN

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Growth in value per year
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Income from cash flow

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Income from growth in value

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Profit

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Return on initial investment

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Examples
Statistics
Market overview
Competition

How much will you earn if you sell five years’ time?Example 1

Purchase price 63000 EUR
Growth in value 10034 EUR
Rental income total 25592 EUR
Profit when selling after 5 years 25435 EUR
Investment return from contribution 132 %
IRR (per year) 19,85 %
Profitability period of equity capital 5,0 a.
Assuming:

3% growth in rental price per year

3% growth in value per year

30% equity capital

Loan duration 30 years

Loan interest rate 4.5%

Maintenance period 5 years

Rental price per month 2018: €390

Example 2

Purchase price 63000 EUR
Growth in value 17406 EUR
Rental income total 25153 EUR
Profit when selling after 5 years 34367 EUR
Investment return from contribution 179 %
IRR (per year) 24,5 %
Profitability period of equity capital 3,9 a.
Assuming:

5% growth in rental price per year

5% growth in value per year

30% equity capital

Loan duration 30 years

Loan interest rate 4.5%

Maintenance period 5 years

Rental price per month 2018: €390

What rise in the property value can be expected?

The average rise in the prices of rental spacess in Tallinn has been 8.8% over the last seven years, and 5.5% in the last year. Prices are forecast to continue rising in the next few years, based on expected macroeconomic and property market trends.

Rental space sales prices and fluctuations in central Tallinn, source: KV.ee *2018 = first six months

What rise in rental prices can be expected?

Growth in rental prices has been 11% per year on average since the end of the recession i.e. since 2010. The average rise last year was 7.1%, and in the first half of this year the rise has been 7.5% (according to KV.ee data). Should the trends related to the growth rate of the average salary and economic growth continue, there is reason to expect that rental prices will also continue to rise.

There is limited supply in the small space sector whereas demand is proportionally high. This should mean the continuation of relatively high rental returns from small properties in the coming years.

Space rental prices and fluctuations in central Tallinn, source: KV.ee

  • There is high demand for small rental spaces on the market, with Tallinn’s ever-growing population likely to maintain strong demand for the foreseeable future.
  • Small and new rental spaces are in short supply.
  • The graph attached shows that growth in the number of people living in Tallinn has been consistently underestimated, with the number rising much more quickly than anticipated. Over the last seven years, more than 4000 people have been relocating to Tallinn each year. In 2017 alone a total of 5141 people started living in the city. As such, demand is being generated for new, high-quality living spaces that meet contemporary standards.
  • Tallinn is Estonia’s biggest centre of work migration, where people need quality places to reside for short spaces of time. 1766 foreigners moved to Tallinn in 2015 and a further 1114 in 2016.
  • The price rise in rental spaces in central Tallinn in 2017 was 5.5%. Taking into consideration the increase in the number of people living in the city, it is likely that space prices will continue to rise in the coming years.
  • 2732 new living spaces were added to the city in 2017.
  • The market for rental buildings with small rental spaces takes in many different target groups: young people starting out in life; people who have moved to the city; students; and long-term institutional lessees (universities, construction companies and commercial companies).
  • Tallinn’s population recently set a new record of 450,000. Growth in the number of people living in the city last year was ca 5000. Tallinn’s universities have around 20,000 students. Approximately 33,000 of the city’s residents are aged 20-30. There is a great deal of demand but relatively little supply.

Forecast vs actual increase, source: www.stat.ee; www.tallinn.ee

There are only a handful of projects in the microspace sector. They are mostly centred on the Mustamäe district and in the heart of the city and are few in number. At the same time, the city centre is the focal point for migratory clients. The number of small spacess being offered as part of new developments in the centre of Tallinn is very small.

There are two developments in the city centre where there are a handful of very small spaces. Offers of new spaces generally are also very few in the Kitseküla area.

Similar offers

The spaces in DepotHouse are around 20 m2. There are not many projects in Tallinn of a similar size or with a similar concept. Microspaces and business premises measuring 12-16 m2, on the one hand, and one-room 35-40 m2 spaces formalised as living spaces on the other can be considered competing projects.

DepotHouse falls somewhere between these two sectors, uniting the advantages of both. Being smaller than one-room living spaces, DepotHouse offers a more affordable rental price class but without compromising on quality or functionality.

Name Address m2 Price € m2 sales price Forecast rental price € Rental return without furniture
DepotHouse Juurdeveo 25c 19,3 62900 3259 395 7,5 %
Avangard Narva mnt 40 20,1 84506 4204 450 6,4 %
Jakobi 28 spaces Jakobi 28 18,3 78000 4262 400 6,2 %
Kalevi Panorama Võistluse 6 40,9 105100 2570 580 6,6 %
Das Haus Pärnu mnt 29 33,4 91000 2725 500 6,6 %

The most similar spaces that can compared to those in DepotHouse are in the same district: the similarly sized and finished studio spaces in the Kauba 10 building. The spaces it provides for rental are one- or two-room guest spaces/offices ranging in size from 15.3-22.8 m2.

Rental prices for these spaces average 390 EUR. The rental prices for larger, new one-room spaces are 500-550 EUR, making the smaller spaces more attractive to space-hunters with smaller budgets.