Purchase and rental of an investment property

OwnerSide was recently commissioned by one of its clients to rent out a property that they had purchased several months earlier through our sister company, BuyerSide. Although the property was brand new, there were significant challenges in order to avoid rental vacancies and ensure the long-term profitability of the investment.Let’s take a look back at this challenge full of twists and turns.

A property with great potential for profitability and major risk of rental vacancies

Though the property was completely taken apart and built again from scratch, the commercial ground floor was sold as is by the builder.

BuyerSide was well aware of the difficulties that an unfinished interior would cause when renting the property out and took these elements into consideration when valuing the property.

Indeed, doing up a room like this, which does not have concrete screed on the ground or water, gas and electricity, in which the walls are completely bare and literally everything must be done, is a significant investment for the incoming tenant. This inevitably limits the number of potential rental applicants and, in turn, increases the risk of rental vacancies. As a result, it was essential that Buyerside assess the risk and profitability of this investment as precisely as possible before deciding whether purchasing this property was worth it for our client, regardless of whether the commercial premises were usable based on the activity and needs of the tenant. 

The anticipated profitability calculated on the purchase price allowed for a margin in the event that the premises remained vacant for several months and/or if we had to carry out a portion of the works on the owner’s behalf.

Once the client had received the deed and was officially the owner, they decided to entrust us with the task of renting out the property.

The challenge of renting out an unfinished commercial ground floor

Thanks to the relatively low rent (€1,400 for 135 m2), a number of applicants were curious to see the commercial ground floor.

Unfortunately, as expected, most of them did not have the energy or the budget to manage a project of this magnitude in order to get the premises in order.

Through a great deal of perseverance, we ended up finding serious applicants with a promising project, who were ready to invest in the management of the project. Finally, we were onto something! Sadly, they were soon discouraged when they realised how much it would cost. Once they had the quote from their contractor, they were ready to rent the commercial space and invest in the necessary renovations, on the condition that the owner contributed to funding them.

It was a significant challenge, but we wanted to maximise the profitability that the owner expected, while ensuring a trusted win-win relationship with the future tenants. 

Over the course of several meetings with the owner and the prospective tenants in our offices, we were able to discuss, listen to each other and exchange ideas and reach an agreement involving an investment of up to €2,500 by the owner in the works, as well as three months’ free rent during the work.

Finally, the lease was signed after only two months of looking for a tenant!

Three new apartments for rent at the beginning of the winter season

The renovation of the apartments in this property achieved a standard of quality that is rare in Brussels real estate: triple-glazed windows, great light, luxury household appliances and materials, a good location, an A BER rating, etc.

However, knowing that demand for rentals is at its highest between April and June, and then September and October, renting out the property in the beginning of November was clearly not to our benefit.

Additionally, the rental market is always subject to market supply: the more rental accommodation available, the more you have to stand out from the competition.

We rented the first apartment at the requested price during the first visit. Conversely, applications quickly dried up for the other two identical apartments.

We conducted a study of the rental market in the area, which revealed strong competition at lower prices.
In order to avoid lowering the price, we decided to make improvements to the apartments first. We suggested adding a washing machine and curtain rails to the owner, as well as lamps in the living room. This would represent a significant advantage for the tenant and add an aesthetic touch that would encourage a good first impression.

Once the client had agreed, we began looking for the materials with the best value for money and got in touch with our contractor for a quote.

Unfortunately, their lack of availability in the coming weeks and the cost of this investment led us to revising our strategy.

Indeed, the cost of the investment per apartment represented almost one month's rent, without factoring in the need to add an extra month while we waited for our contractor to be available and to receive the materials. This would also have forced us to find a tenant in the middle of winter. We wanted to avoid this at all costs, since the task would be even more complicated.

To this end, we wanted to reduce uncertainty as much as possible. We estimated that it would be much less risky and, in particular, more profitable to reduce the rent for the two remaining apartments by €100.

In the end, once we received approval from the owner to adjust the rent, we found the last two tenants in one week!

This prevented the owner from incurring expenses and having rental vacancies, by accepting a lower level of profitability. Due to our custom of being transparent with our clients, they were well aware of the market difficulties that we had no control over. We worked on this project in close collaboration and were keen to use our responsiveness and ideas to ensure the profitability of their investment. In this way, our services have completely satisfied their requirements.

As they say, 

“I was well aware of the risks associated with the rental void when I decided to make an offer on this building. I trusted the BuyerSide team and have not regretted it. I enjoyed working hand in hand with the OwnerSide team who understood the issues of an owner/investor and knew how to defend my interests in an intelligent manner. I appreciated the open communication and the solutions they offered to the difficulties I encountered. I found them very responsive and finally I was pleasantly surprised by the rapid pace at which the building was fully leased. This operation was a real success and I can only advise investors to choose BuyerSide as their partner!”

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