Real Estate Made Easy

How does a professional investor see the real estate market and what advice does he have? Interview with Michael Topolinski – Real Estate Developer and Investor

Michael Topolinski

We were curious to learn from a professional real estate investor how is he making the decisions to choose one property, what is he thinking about the market nowadays and we asked for some tips before investing in the real estate.
Michael is an Equity Managing Partner at InteRo Property Development leading sales in multiple projects such as Pajurei 3 Residence and SunLight. Outside of these roles, Michael has his own private investment firm focusing on real estate investment.
Michael defines himself as focused on self-evaluation and consistently growing. One of his mantras is: Always put in your best effort, develop the best practices, and consistently deliver the top result.

What do you look/ analyse when investing in real estate?

There are a lot of factors to take into account when analyzing a real estate investment opportunity.

First, you must consider your investment strategy; short term vs long term; appreciation or rental yield focus. Once you have this defined you can move into some of the property specific factors.

For myself, my investment strategy is focused on long term, higher focus on rental yield but at the same time I certainly try to win on the buy as that protects your profit margin. I use this strategy to maintain long term cash flow that I will grow on a year by year basis. In order to achieve success in my strategy I first look do market research to determine the average market price/sqm for the area. I then look into the average market rents for the area for the different apartment types.

My personal investment goal is to have my rental properties earn at least 7.5% yield (yearly income vs total price paid for the unit), thus if the sales and rental market research align on average with a 7.5% yield then I will then go into my upside factors.

The upside factors I look into are, ordered in priority:

1) Distance from public transport

2) Distance from additional points of interest such as restaurants, schools, hospitals, etc

3) Any market related news by state or private investment in the area … example, is the state planning on investing in extending the metro lines or infrastructure in the area? A practical example of private investment news would be Cosmopolis publicizing a plan to invest 500M€ over 3 years in the area.

After all this research, I will then complete my calculations and determine what offer I will give or if I will give an offer at all.

Which are the best attributes of a property used as an investment?

The most important from my perspective is ensuring that the numbers make sense based on the market and my personal investment goals.

However in my perspective, the most important attributes of a property are:

1) Type of apartment … typically smaller units (1 or 2 rooms) provide the highest rental yields

2) The average price and rent rates of the area … My personal strategy is to purchase properties in areas that have lower price and rent rates because the yields seem to be higher in these areas because the difference in lower prices typically outpace the difference in lower rental rates compared to higher price/rent areas. Additionally, I like to invest in areas that require development because they provide long term appreciation upside. These reasons align perfectly with my personal investment strategy.

3) Distance from public transportation

4) Distance from points of interest such as restaurants, schools, hospitals, etc

5) Quality of finishings … this is an important factor, and its importance level can differ based off strategy, but for my strategy I would put this as important but less so than the factors above because if the factors above are met, then I have that margin that also provides me flexibility in changing finishings if needed

I would say these are my top 5 attributes, although there are more to consider as well.

Can you talk about your real estate portfolio? How is it or should it be the ideal portfolio?

The personal investment portfolio I have consists of roughly 20 units across different locations in the city and surrounding areas.

It is built for a long term – high yield strategy, with my average yield in the range of 8% and significant appreciation gains already realized.

Within my portfolio, I have seen the most success in developing areas surrounding the city, typically within 15 – 20 minute from the outer ring of the center of the city.

How do you feel about the market nowadays? Is it still worthy to invest?

Although the market now has its difficulties related to increased interest rates, inflation, etc, Bucharest still provides strong investment opportunities for long term investors. If you are a short term buy and flip investor, I wouldn’t say this is the strongest market for this strategy.

For the long term investor, the market still provides an incredible opportunities because there are so many macro factors that point to very high likelihood of significant gains in long term, some of these factors are:

1) Affordability… right now Bucharest is the 3rd most affordable capital city in all of Europe from both price/sqm and from income levels vs real estate price levels. In Bucharest the average apartment price is in the range of 8 – 10x the average salary rates. This is an incredible ratio when looking at more developed cities where you will see upwards of 20 – 25x apartment prices versus average salaries. This gives a lot of confidence in the potential margin for growth in the market long term.

2) Supply vs Demand… right now, despite a decrease in demand due to the macro factors mentioned above, the demand is still outpacing the supply. This is because the demand has decreased due to the macro factors but the new supply rate has decreased due to political factors. Right now the market reports are showing that both have decreased at a similar rate and with supply previously outpacing demand, the market is still in that place.

3) Romania not being in the EU for too long and the potential upside from increased investment both from state and private sectors.

Overall, I will personally continue buying investment properties on a year by year basis. I believe in the market, especially long term.

Your predictions for the real estate market in 2023?

As I mentioned above there are macro factors affecting demand levels and political factors affecting supply levels.

I believe that the best case for price levels is that they will have modest gains, the worst case is that the prices will drop 10 – 15% and the most realistic case is stagnant or slight (less than 5%) decrease in market prices.

Do you have any tips for a new real estate investor?

Start as early as possible. Organize your financials from as young an age as possible with a goal of investing 25%+ of net income annually. Define your investment strategy. Do the research and put in the time to lower risk.

It’s a great industry and has produced the largest share of global wealth.

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