Distressed Property in Cyprus: is it worth buying a secondary property for renovation?

Real estate investments are very conservative, but you can find assets with high yields if you want. Distressed Property or, put, secondary property under renovation is suitable for investors who need quick cash turnover with an ROI of up to 70% and those who prefer a rental business with a constant income of 5-11% per annum.

What is Distressed Property?

Distressed Property translates to distressed property or distressed property. However, the distressed property is not distressed — it is simply secondary real estate in poor condition and needs repair. Usually, these are partially destroyed buildings in the historic center of any major city. It is the location that makes such properties attractive for investment.

In Cyprus, too, there are many Distressed Properties. They are often found in the Old Town of Paphos, Limassol, and Larnaca. Today it is the hottest real estate on the island, with a return on investment of up to 70%.

This is because more and more companies and freelance professionals are relocating to the island every year, who need both residential apartments and office space or innovation hubs. The most convenient and sought-after location is the historic city center, which is most often a tourist area, so this audience of clients should also be considered.

Types of investments in secondary real estate in need of renovation

There are 2 main ways to invest in Distressed Property — flipping and then selling and flipping and renting.

No. 1 Flipping + Selling

In this case, a quick in-and-out investment involves buying a property in a dilapidated state, renovating it, and reselling it at an inflated price.

The investment takes place in a run-down building phase using the renovation concept. You invest money in feasibility studies, research, project development, permits for renovating the property, and the renovation itself — walls, materials, and furniture.

In this case, the investment period depends only on the speed of renovation works. You can immediately sell the object as a ready business model after the renovation.

Profitability — from 30% to 70%. It depends on the entry threshold, the renovation cost, and the property’s price at the time of sale.

No. 2 Flipping + Renting

In this case, you buy a neglected secondary property and renovate it similarly. Still, you also develop an operating model and employ the services of a management company looking for tenants. Over time, the infrastructure around the building forms, reliable long-term tenants appear, the business gains popularity and a loyal audience, and a stable cash flow. The price per m² grows during this time, and ROI reaches 9-12% per annum.

With this business model, you, as an investor, receive constant income from tenants from the first day of operation of the ready-made business. 

Profit — from 5% to 11% per annum. It depends on the location and type of building, cost, and demand for rent.

How to use renovated real estate in Cyprus

There are several options for using a property for flipping on the island. The purpose of a particular renovated building depends on the location — namely, the city and location in the city.

The most sought-after and profitable buildings are in cities such as Limassol, Paphos, and the resort of Larnaca. Location investors usually choose near the historical center, business center, and tourist areas due to the demand from employees of relocated companies and visiting tourists.

Thus, there are two main directions — tourist and office.

Real estate for tourism business

The Mediterranean climate, clean beaches, and rich historical heritage attract tourists worldwide to the island. 

Apart-hotels, loft hotels, and boutique hotels can be created. 

The optimal regions are Paphos and Larnaca.

Buildings for offices

Many companies are relocating their offices after the UK’s exit from the European Union. One prominent relocation location is Cyprus, part of the European Union. It has English law, a low corporation tax of 12,5%, and an ultra-favorable IP Box regime with an income tax of just 2,5% for IT companies.

For office direction, you can do loft spaces and offices.

The optimal region is Limassol, the island’s business center.

Features of Cyprus Distressed Property

There are very few such assets in Cyprus, so you will not have long to choose if you want real estate renovation. Some projects are gone in a week, so you must decide quickly.

To avoid exciting options, an investor should be on the island himself or have a representative here who can see everything, quickly decide, and invest in a suitable building. To do this, it is necessary to participate in the auction if it is a bank-mortgage property or to buy the building from the owner as soon as he decides to sell it.

Secondary market property in Cyprus represents significant potential for investors, especially in today’s real estate market. Purchasing such properties can be lucrative, as their price is usually below market value, and the opportunities for growth and improvement of the property are enormous.

When it comes to choosing a location and region to buy Distressed Property in Cyprus, there are a few key areas to consider:

• Limassol. This city is one of Cyprus’s most popular regions for real estate investment. It offers a variety of properties of different types and price ranges. Limassol is also known for its tourist attractions, developed infrastructure, and beach access.
• Nicosia. The capital of Cyprus offers various opportunities for investors. Both commercial and residential properties can be found here. Nicosia is the cultural and economic center of the island, and it has many historical and cultural attractions.
• Paphos. This region attracts tourists with its beaches, archaeological sites, and beautiful landscapes. Investing in secondary real estate in Paphos can offer the potential for rental businesses and tourist services.
• Ayia Napa. A popular resort destination with beautiful beaches and active nightlife. Here investors can look at Distressed Property, which can be used to accommodate tourists and generate high rental yields.
• Larnaca. This region offers various properties at attractive prices. Larnaca has a developed infrastructure and proximity to the airport, making the city attractive for investment.

Let’s take a closer look at some of the regions.

Larnaca

In Larnaca, as an example of such facilities, there are small buildings that can be renovated into lofts. Such premises are eagerly sought after by IT businesses and creative companies.

Boutique hotels and loft hotels are also in demand due to the resort area. Such properties are popular among tourists because they are close to restaurants and the seafront.

 

Larnaca boasts an ample supply of 4 and 5-star hotels, but there are very few hotels in the medium and budget segment, which makes this area in demand and profitable for investment.

In Larnaca, there are many unreconstructed buildings under UNESCO protection, which require repair and significant investments. These are the kind of properties that may be interesting to invest in Distressed Property.

The area also has many old buildings with developed infrastructure — near the seafront, restaurants, and the new marina. There are a lot of somewhat neglected apartments that can be renovated and converted into an apart-hotel format or demolished and a new hotel built in their place.

Limassol

Limassol, as the business center of Cyprus, is the number one city to which business people and employees of relocated companies, freelancers, and independent IT specialists relocate.

Every company needs office space for its human resources. Therefore, office buildings, innovative hubs, and loft areas are in high demand. The demand is exceptionally high for class-A offices, which are still in short supply in the location.

Paphos

In 2017, Paphos was chosen as the European Capital of Culture. The European Union reconstructed the central part of the Old Town: new restaurants and stores appeared, and the streets looked European cozy. Thanks to this, boutique hotels and apart-hotels are in demand in the city, which brings 10-11% ROI. Even during the lockdown, hotels with 30 € per night rooms were fully booked.

Paphos is also developing as a second business center. The city is more peaceful than Limassol, which becomes attractive for many relocated professionals. Therefore, in addition to the hotel business here has become in demand and the creation of business premises, offices, and hubs.

Apartments for rent here also do not lose popularity because the entire Old Town of Paphos is included in the UNESCO Heritage List. There are many tombs and excavations, rich history, and the most beautiful sunsets in Cyprus. This attracts people to live, work, and vacation in this town.

Learn more about Distressed Property in Cyprus from our video:

Why is it profitable to buy secondary real estate for renovation?

Distressed Property investing can provide investors with several significant benefits, such as:

• Reduced Costs.

Distressed Property typically sells for well below market value. This can be due to various factors such as financial difficulties of the previous owner, enforcement proceedings, or bankruptcy. Investors can purchase the property at an attractive price, allowing them to realize a high degree of profitability in the long run.

• Potential to add value.

Properties in the secondary market typically require rehabilitation or renovation to bring them back to a usable condition. This allows investors to add value to the property by making repairs or improvements. Once the work is completed and the property is improved, its market value can increase significantly, resulting in an increased investment return.

• Variety of Opportunities.

Distressed Property can represent various property types, including residential and commercial. This allows investors to select properties that fit their investment objectives and strategies. Moreover, these properties can be located in different cities or regions, diversifying a real estate portfolio.

• Opportunity for long-term value growth.

With the successful rehabilitation and appreciation of properties needing renovation, investors can expect long-term growth in the value of their investments. This is especially true for properties located in popular and developing regions where demand will continue to grow.

• Portfolio diversification.

Various property types and locations allow investors to reduce risk and increase potential returns from multiple sources.

However, it should be remembered that investing in Distressed Property also carries certain risks, such as legal issues, difficulties in the recovery process, or unforeseen costs. Therefore, it is essential to conduct a thorough analysis, obtain professional advice and make informed decisions before investing in distressed property.

What does an investor need to know before investing in renovation real estate?

There are several important aspects you should consider before investing in a Distressed Property in the secondary market:

Conduct a thorough analysis and research, and study the specific features of your chosen Distressed Property. This includes examining the market price, the property’s condition, the potential to add value, and possible risks.

A legal analysis is necessary, as legal complications may be involved in acquiring such property. Examine the legal status of the property, check for encumbrances, legal problems, or enforcement proceedings. Consultation with experienced lawyers and real estate professionals may be necessary to minimize risks.

Develop a financial plan estimating all costs of acquiring and rehabilitating a secondary property. This includes purchase price, repairs, property management and maintenance, taxes, and other expenses.

Evaluate the potential for adding value. This may include making repairs or improvements, improving the quality, or remodeling the premises. Investors need to assess the costs realistically and the expected returns from such activities.

Examine regional and macroeconomic factors affecting the real estate market and the property’s potential value. This includes examining regional development prospects, infrastructure, real estate demand, and the financial condition of the market.

Take into account property management and leasing issues. Evaluate the ability to lease the property, the return on investment, the stability of the region’s rental market, and the potential rental yield.

Realize that investing in Distressed Property carries certain risks. These may include legal problems, unforeseen rehabilitation costs, market instability, or tenant difficulties. Be prepared for these risks and develop a strategy to minimize them.

In general, Distressed Property investments are often attractive to investors because they provide an opportunity to purchase properties at a reduced cost and add value through renovations or improvements.

Thus, secondary properties in Cyprus may be preferred to primary ones, although Distressed Property properties sell out quickly. Such investments can be pretty marginal with a suitable operating model.

Did you know that Paphos is considered one of the best cities to live in Cyprus? But what are its specialties and differences? Look in our article review of Paphos at the best places and beaches of this ancient city, where to relax adults and children, and in what neighborhood is the best to live and what to choose for purchase and investment — a villa or an apartment.

Also, pay attention to Cyprus’s best 14 primary real estate because it’s not just housing. It’s also an investment and a direct and fast way to get a European residence. By buying an apartment in Cyprus and moving, you gain confidence in safety (the island is in 5th place in the world regarding security), high quality of life, an excellent climate, a clean environment, and the ability to travel around the world without a visa.

SPM is your most valuable contact in Cyprus.

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