Invest in Istanbul real estate with under 10 Year Pay Back period
Analysis prepared by Cameron Deggin of Place Overseas looks at investment opportunities in Istanbul's growing apart-hotel sector focused on Beyoglu, Taksim.
This is a low-end project in less established parts of Beyoglu. From GBP 430,000, this little guest house style building is up and running fully operational. It offers 6 rooms, which come to approximately GBP 71,000 per room, a very reasonable sum for Istanbul, Beyoglu, on the bargain side. At a charge out rate of a very conservative GBP 30 per day per room at 80% occupancy (which is easily achievable in this part of istanbul), this gives a revenue of GBP 8,760 per room per annum, which is a gross pay back of 8 years. Running costs of such a small operation are minimal, basically 2 people"s wages. After all running costs, this project would look something like this
Total room revenue per annum GBP 52,560
Less running costs GBP 12,000
Net revenue around GBP 40,000
Pay back period under 11 years (worst case scenario)
Very good location near Istiklal Avenue in Beyoglu, Taksim. The building has ample character and very high foothold. Price GBP 815,000, which gives around GBP 81,000 per room. It can be used as separate apartments or combined as a small boutique hotel with 10 bedrooms. Average room rate in this area will be minimum GBP 40 per day for this type of guest house / apart-hotel. Occupancy is exceptionally high on this particular street, however, we will assume 80% again for our purposes, always on the conservative side. Figures would be as follows
Total room revenue per annum GBP 116,800
Less running costs GBP GBP 23,000
Net revenue around GBP 94,000
Pay back period around 9 years (can be further improved by upgrading the building in terms of interior design)
This period building is located in authentic Galata district, not too far from landmark Galata Tower of Istanbul. Price GBP 1,435,000, however, it requires modernization and some renovations estimated at around GBP 200,000, which will bring total investment to GBP 1,635,000. Minimum daily room rate will be GBP 50, this rate can be increased by upgrading the concept, however, we are assuming minimum further investment. The hotel will have 20 good size rooms. At 75% occupancy for Galata, which is quite conservative, figures would be
Total room revenue per annum GBP 274,000
Less running costs GBP 50,000
Net revenue around GBP 224,000
Pay back period just over 7 years (making this an exceptional investment)
This old building requires quite a bit of work, however, location is prime. It is a proper 'foot-trap' on one of the main streets of Galata, Beyoglu. Asking price is GBP 1.2m and it does require around GBP 350,000 renovation and face uplift. Once renovated, this could be a very stylish boutique hotel with 15 decent size rooms that can easily charge GBP 60 per day as a minimum and achieve no less than 80% occupancy. Figures would look something like following
Total room revenue per annum GBP 263,000
Less running costs GBP 43,000
Net revenue around GBP 220,000
Pay back period around 7 years (very viable investment which delivers prime real estate and potentially 100% capital growth in as quick as 4 years)
A small and cosy boutique hotel / apart concept in Galata, Beyoglu. It requires no work. Figures work out around 9 years for pay back period. For those, who do not wish to get involved in renovations, etc, this is ideal opportunity in a prime area of old Istanbul.
When we compare the above opportunities to rental income on residential real estate in Istanbul, quite an interesting picture emerges.
Average rental yields on residential real estate in prime location Istanbul are around 4.8 - 5%. This gives a pay back period of around 20 years, same as London, New York and Paris averages. Leaving capital growth expectations aside, it is more than clear that small concept hotel projects are far more viable than investing in residential real estate. Therefore, our recommendation for investors seeking to invest around the GBP 1m mark is to focus on high foot-hold areas for small apart-hotel style projects as opposed to residential investments. In the long run capital growth will possibly be higher as well for areas such as Beyoglu are becoming prime attractions and prime living zones in Istanbul.
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