“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” Franklin D. Roosevelt 

Needless to say that investing in same shape and form is crucial to financial freedom. The earlier we start the better. Anyway, couple of weeks back my mum and dad asked me to help analysing the real estate market in Sofia, so they can determine whether and how to expand their investment portfolio. I am always keen to help the family holding company expand its footprint with wise investments so I gladly accepted. As you know, consulting companies on the subject of business development is something I am genuinely interested in, this specific assignment was even more important as it was asked by my parents and the investment destination was Sofia, the capital of the country in which I was born.

What I did?

Started by reading local newspapers, the internet some research publications. Found that, the market prices for residential units in the Bulgarian capital have been growing rapidly over the last couple of years. This was obvious from most of the information I consulted. The same was suggested by the leading real estate websites of Bulgaria, such as imot.bg or imoti.net. Then I started digging further, I wanted to understand what are the drivers for behind the recent substantial price increase. It took me about two weeks to research the topic. Started with collecting facts, true that the RE market is not that transparent, however lot of data was found. The date I found came, from a variety of institutions such as the national statistics institute, the Bulgarian national bank, Sofia municipality, national registry, Bulgarian banking association, numerous research reports coming from renowned consultancy  companies. Also looked at the fundamentals data coming from all the listed companies in the real estate sector having assets in South Eastern Europe and particularly in Bulgaria. As I am not a specialist, also consulted valuation models that are used to value realistically and impartially a residential property.

What I found?

Lets starts with the picture – interest rates in Bulgaria, as in many EU countries are at historic lows. The three month inter bank deposit rates have been in negative territory for more than 24 moths as the below charts suggests.

source: tradingeconomics.com

Naturally, lending to the private sector has been growing steadily as the below chart suggest.

source: tradingeconomics.com

Deposit rates for corporate and consumers have hit 10 year lows as seen over here.

source: tradingeconomics.com

It can be assumed that deposit rates have been among the key drivers in the real estate market, as in Bulgaria other investments than deposits and real estate are considered “esoteric”.

As rates market has moved, the number of building in construction has grown significantly.


Similar trend is noticeable in the number of construction permits issued for new buildings.


Macroeconomic data for the Bulgarian capital can also help us understand what could be the some of the behind the recent rise of real estate prices.

source: tradingeconomics.com

Real wages have grown significantly as the above chart suggests.

source: tradingeconomics.com

Unemployment has gone down significantly and in the capital is below 5%.

source: tradingeconomics.com

Home ownership rates have dropped as prices have increased as the above graph suggests.

The list with the stats and reports I read goes on and on.  As mentioned, to make sense of the data I looked at common real estate valuation methodologies. Here are few that you can also use, if need be.

Cap Rate

This is essentially a measure for the rate of net return on a commercial or residential property. It equals the net return of your property divided by the current market price of the property. As many get confused, including my parents at the first read, net income equals gross income ( your monthly/annual rent) minus all the expenses maintaining the property ( tax, insurance, building fees and charges, furnishings etc). The rate also indicates the duration of time it will take to recover the invested amount in a property. For instance, a property having a cap rate of 10% will take around 10 years for recovering the investment. Cap rates are approximate measure of return on property investment, because it is difficult to exactly factor in maintenance costs as well as vacation  rates. It is an important part of the equation while you decide to invest or not in a property, however it need to be complemented with additional analysis of for example the risk involved purchasing the property, location, local economic tends, etc.

Cost from the ground up or simply cost approach

This method involves taking into account the cost of building the exact same building today including the cost of land, materials, man hours, construction permits etc. minus depreciation for the building. The cost approach assumes that a reasonable buyer would not pay more for an existing improved property than the price to buy a comparable lot and construct a comparable building. This approach is useful when the property being appraised is a type that is not frequently sold and does not generate income. An example can include schools, churches, hospitals and government buildings.

Gross Rent Multiplier

It is simple to use method which consists of dividing the current market price by the annual rent the property could generate. It is a measure best used to compare properties with similar purpose and location. Using the gross rent multiplier is essentially like using revenue for a corporation as a measure of value. The problem with this approach is that when you purchase an investment property, your return isn’t based on top line revenue (gross potential income), but rather it’s based on cash flow. It is best used in addition to other valuation methods.

What I delivered ?

In total, I ended up researching and analysing 47 different data points so that a comprehensive fact driven report is produced and my parents can take the right decision. I also looked at numerous valuation models and tried to make sense of them for particular properties in particular areas. The report concluded that although we are at the peak of the economy cycle the the market currently contains some opportunities in certain specific areas.

Where you can find more?

There is a podcast in which direct residential real estate investment opportunities in Sofia. You can find it here.

There is also a video where the topic is discussed.

Finally, the entire presentation is available here.

As always please let me know what you think about the article, the video & audio as well as the presentation. Happy to help on other assignments and learn about other geographies.

About the Author

Boris Grozev is a seasoned fintech executive. Moreover, he is an entrepreneur by heart. Boris has helped number of businesses. To clarify, he has created and implemented business development and product enhancement strategies. In addition, his advisory work in emerging and frontier markets has resulted in culture and technology change. Above all, it has fostered innovation and lead to tangible results. He also invests in variety of asset classes and shares his experiences from the journey to financial independence. Boris is a fast learner. His leadership abilities, ambition naturally spread to others. In other words, his stamina, attitude and passion to succeed help to achieve common goals.

Boris is a financial professional fascinated with new technology, investor and a highly energetic individual with proven track record of overachieving extended sales and product delivery targets both as an individual as well as managing teams.

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