If you’re planning to buy a holiday home in Bulgaria you might also be interested in owning a property that will provide you with an income to cover the running costs and help with mortgage payments. The most common method of earning money from a property is to let all or part of it.
Note however, that while there may be long-term potential for generating good returns from a rental property, the current prospects aren’t so attractive.
Those who manage to make a modest return on property letting usually offer something special – whether it’s quality, serviced accommodation for the top end of the market, an unusual or unique building (e.g. a renovated old farm house or a remote lodge in the mountains), or a stunning coastal location away from the crowds.
If you’re thinking seriously about buying to let, research the market, look closely at the types of accommodation available locally and, most importantly, don’t go into the deal thinking you will make your fortune! It’s difficult to make a living providing holiday accommodation in most areas, as the season is short and there’s too much competition.
There are essentially two types of rental property:
Self-catering accommodation must, of course, be self-contained (e.g. in an outhouse). It makes sense to have a number of units, reducing the running cost per unit and spreading the cost of installing amenities such as a swimming pool.
Bed and breakfast accommodation doesn’t require authorisation, but it’s recommended that you be able to speak Bulgarian to at least a working level. If you plan to run a B&B, you will be required to register your guests with the local police as well as running and managing your business.
Self catering accommodation
If you let a property, it must be categorised and registered with the Ministry of Economy Energy and Tourism (www.mi.government.bg/eng ). If you will be using an agent to let your property, he can do this for you. Even if you will be handling the letting yourself, you can pay a letting agent to categorise and register your property, which will cost around €20. Categorisation is the ‘star’ rating of your property, which is awarded after an inspection by local authorities. The inspection can take up to six months to occur, so you will initially receive a temporary licence as a tourist site.
It’s usually recommended to apply for a star rating of two or three, as it can be more difficult to let your property to tour companies if you have a high rating (because of the higher rental cost). As with Bulgarian hotels, star ratings for self-catering accommodation generally have more to do with the number of facilities provided (e.g. a TV in every room, ensuite bathrooms) than with the standard of those facilities or the overall quality of the accommodation. If your property is attractive and tastefully furnished (and reasonably priced), good photographs will sell it to potential customers much better than a star rating.
Bed & Breakfast accommodation
Bed and breakfast (B&B) accommodation is slightly more complicated. If you’re planning to set up a B&B you will need to do the following:
First, the tourist board will inspect your property and give it a star rating and category (e.g. hotel, guesthouse or hostel). Then the fire department will inspect it to ensure that it complies with fire safety regulations. Once these inspections are complete, you will be issued with a certificate or licence, and you must display your star rating and status outside your property.
While the process sounds daunting, provided you have a good translator or lawyer and an accountant, it isn’t complicated difficult – although it can take as long as four months.
If you’re letting through an agent, he will provide a standard rental contract. If not, you should draft a written contract or agreement for all rentals that includes a description of the property, the names of the clients, the fee paid and any deposits required (and the conditions of refund), and the dates of arrival and departure.
If you do regular letting, you may wish to check with a lawyer that your agreement is legal and contains all the necessary safeguards. For example, it should specify the types of damage for which the renter is responsible. Note that if you plan to let to non-English speaking clients, you must have a letting agreement in the appropriate foreign languages.
As yet, landlords cannot take out public liability insurance in Bulgaria. You can insure your property and contents with a Bulgarian-based insurance firm, but you must arrange liability insurance in your home country or another country.
WARNING
If someone is injured or dies while staying at your property and you don’t have public liability insurance, you can be sued for a VERY large amount of money.
If letting income is a priority, you should buy a property with this in mind, in which case location is paramount. Some parts of Bulgaria are better suited than others to letting (generally, the coast, mountain areas and ski resorts are the most popular), although much depends on who you think your clientele will be.
The following should be taken into consideration when deciding on the location of a rental property:
Letting rates vary according to the time of year, the area, and the size and quality of a property. Before deciding on a letting rate you should do as much research as possible, looking at what other properties are available in the area. Note, however, that because the rental market in Bulgaria is so new, rates have yet to ‘settle’ and can be unrealistic, so you may wish to disregard exceptionally high and low rates.
A house sleeping six near a beach can be let for €400 to €600 per week in high season. A luxury villa in a popular area with swimming pool and accommodation for up to 12 people can be let for between €500 and €1,000 per week in high season.
High season on the coast in Bulgaria is July and August, and sometimes the first week of September. In the mountains high season generally runs from mid-December to mid-March. The mid-season usually includes June and September on the coast, when rates are around 25 to 30 per cent lower than in high season; the rest of the year is low season, when you shouldn’t expect more than €200 to €250 per week for an average property. In mountain resorts, the summer may be mid-season and the autumn and spring low season.
Don’t forget to factor into your charges the cost of utilities, although electricity is often charged as an extra. In particular, if your property has air-conditioning, you may want to add a service charge in summer. Air-conditioners use a lot of electricity and the cost will quickly add up if tenants run it for extended periods. It’s best to provide linen (some agents provide a linen hire service), which is usually expected.
Finally, keep in mind that you must pay income tax on 80 per cent of income for property letting and, if you’re a non-Bulgarian resident, a 15 per cent withholding tax is levied.
This article is an extract from Buying a Home in Bulgaria
from Survival Books.