Keith’s Weekly Property News April 16-2023

Unrealized gains in RE;

curb your enthusiasm:

There is nothing like spending a few heady days and nights with a young crypto baron to distort your views on investment returns. However, only a statistically insignificant number of people were skilled, or lucky enough, to have bought BTC when it was in the single or double digits (the “strategy” that sent KK into the stratosphere of riches un-spendable in multiple lifetimes). He had a few great one-liners I’ll never forget, but I had to rebuke him – in as avuncular a manner as possible – when he kept talking 2X, 3X and so on when referring to his real estate purchases. I noticed a popular and smug salesman from one of the top property agencies in Turkey, name withheld, wink wink, has also seamlessly finessed the typology of the crypto world on youtube videos into his assessment of property returns in Piyelepasa, of all places. More on that later. When you start regurgitating 3X claims in Piyelapasa, you are likely heading into the world of “unrealized gains”. Actually, unrealized gain is a strange term, but let us assume that it means basically getting out of an asset, whether it be stocks or crypto or real estate and getting proverbial “cold, hard cash”, with which you could use to spend or mis-spend on whatever you wish. Of course many clients ask me what the current value of their properties might be. I always give an estimate, but with lots of caveats.
If you are really a short term investor, then this is probably a much more relevant issue for you. But I believe most clients these days are on average, 5 year investors. A very logical time frame when you put all the factors together. So, you see the hype on the internet, with some of the more exuberant commentators straight-facedly, yet almost too insistently, belting out claims that such and such an area has gone up 3 X or whatever. Naturally, you want a stress test on your investment or at least be able to scribble down a number on your personal ledger -and that will help you sleep better at night, without having the security of stuffing said assets under your pillow. So before you move those “unrealized gains” closer to the “realized” columns, at least mentally, consider a few things.
1- Turkey is a less liquid market than some. Call it average or bit below average. I think a reasonable selling time is 3-6 months. If you need to liquidate in a month, that is not good news. Try to avoid getting in that situation.
2- Before you are about to bump it all up to 3X, do a final tally on all exit costs. You might have capital gains, you will have agency commission. You will also likely have fees associated with repatriation of funds, the main one being exchange rate cost – not very high, but a cost nonetheless.
3- Maybe the market is on fire, or that is what the cheerleaders on YouTube are saying. How will it be in 3 months or 6 months, when you likely, actually will be closing on your property? You have read the fine print, “Current stock valuations are not an indication of future values” and so on and so forth. Curb your enthusiasm. Or as Ezra Pound penned, more ominously, “pull down your vanity” – though I’m pretty sure he was not referring to net worth projections, lol.
Also, if you are in that position to sell, do not just look on the local websites, where all aspects of a property can be mis-represented or prices can be inflated. Do not just ask the real estate dude who sold you the property. He probably thinks if he says it is 3X. you are likely to buy even more from him (or her). If my realtor – and, yes, I do use for myself as well- tells me that my property has gone up 3X in the last year, I would lock him in the room and say SELL IT right now and I will give you 10%….would not even matter if I used for CBI or not. Such would be unexpected enormity of the gain that I would almost say anyone who experienced such a gain would be ill-advised to hold on to it. Remember, it is not crypto and nothing will go 10X etc, or almost nothing. But of course, my agent will not be able to sell at 3X what I bought last year, but he doesn’t lose much by saying it anyway. So, although I have seen great gains on some properties in the past few years, and certainly pretty huge gains on properties bought a long time ago. I do caution against immediately applying X multiples

Airbnb update:

The numbers look a little softer than I would like to see them. End of Ramadan is fast-approaching, so the real litmus test is upon us. I always have to keep in mind that Middle Eastern, Iranian guests etc tend to book very much at the last minute and then they also come in pretty huge numbers. Unlike some Americans, who book months in advance, and often plan so extensively you get to wondering if they are planning a full-scale invasion, or a “special military operation” at least. Years ago, I once had one US gentleman send me a 19 question, 2 page list (prior to even booking, mind you). I wondered how it would actually be when he got boots on the ground in the hostile environment. I thought it best for everyone, and judiciously left query without reply.
In all seriousness, at least 80% of the clients for Airbnb are non-Western, so it delays the outlook for upcoming occupancy a bit. Suffice it to say, if your numbers are low for May (lets say, less than 60%), you should pick up the phone and say to me, “Houston, we have a problem.” Likely, you would get that call from me beforehand anyway. At that point, I would give my outlook on mid-term or longer tenancy situations, which are actually my homeostatic mean comfort zone anyway
If numbers do come out low, as I have said before, there are only 2 possible causes…supply has become too much OR earthquakes impacted more than expected. The former is a stickier issue. I suspect the latter will be forgotten over time and tourism numbers will return to their trend of growing every year.
Cleanliness, Property maintenance. What to expect.
I do not want to drive too much traffic away from Turkey and to Ladislas’ pursuits in other continents, but parts of this video are really good and the guy Louie seemed very correct on many points.
https://www.youtube.com/watch?v=P2pl37espYw
I liked his idea about getting regular cleanings done on the rental units. If I were renting out slightly lower end units, I would build it into the rental fee. If Im doing higher end, I might do the same or just pay out of pocket. Why is it such a good idea? For many reasons, maybe one or two are a bit sly, but oh well…
1- A stitch in time saves nine. Some kind of dirt cannot be cleaned out after a few years. Same can be said for mold. Also, if it is a furnished unit, the damage can be documented earlier, as the cleaning person will likely notice it, particularly if you tell them to keep an eye out for it.
2- If a place looks in pretty much perfect condition, you can bet anyone visiting the property will respect it more. It’s just human nature. If I walk into a barn, I am not going to ask my host if I should remove my shoes. I might not even ask where the washroom is. I mean, you get my point. When I worked as a painter in college, my boss used to always say, “Clean, boys, clean”. I understand the value of that better now.
3- If the property is really being abused, the cleaner will surely let you know, even without being prompted.
We have been lucky not to experience property depreciation due to extreme wear and tear, as we have mostly avoided the sub-prime rental market. In any event, paying that extra 30 or 40 bucks a month, or passing it on to the tenant, to have the place cleaned at least once a month, is probably money well-spent when it comes time to re-sell. It will not add an X multiple, but it is good practice. A more detailed and heavy extra day or two cleaning once a year would also be good. When I think back over the years, we only had one truly awful tenant. Oddly enough, he was a young Dutch guy, corporate type. I mean, usually the Dutch are so fastidious, I was in shock when I saw the place. It was one step short of faeces on the wall kind of thing. It did look like a place inhabited by a serial killer. If we had had our cleaning lady in there regularly, we probably could have saved many lives ( :
Lastly, for property maintenance, I always tell people to set aside 10% of the income for future repairs. It is highly unlikely that you will spend this on average year after year, but you may have to replace an old how water, heater combi boiler, so….After several years, you should have an excess and that can be used for upgrades etc.
If you have a newly renovated or new property, most years, you will only be spending a hundred or two hundred bucks.
I had planned to do a more extensive report on sqm pricing in various neighborhoods throughout Istanbul. However, I will split it over several sessions of zoom and zoom notes due to time constraints. In any event, the below gives an idea to newcomers the types of property categories and how they should be evaluated. I started off with an easy one; Ferikoy.
For the sake of our numbers, we make a few assumptions. There is a roughly 20% discount on sqm prices of properties, say, over 150 sqm. Properties under 50 sqm, a bit arbitrary, tend to be 20 % higher sqm prices. Pretty much the same world-wide in dense metropolitan areas.
So, for our numbers below, we are assuming a property anywhere from 70 to 100 sqm, without any amazing added advantage, like a great sea view. Nor any disadvantages, like being in the basement or a 7 floor walk up.

Ferikoy SQM prices:

Category 1. High end, luxury or lifestyle new construction.
These properties come with all the bells and whistles and can correspond anywhere from a 5 star to a 7 star hotel. There might be a shopping mall below, and definitely have pools, gyms, restaurants, valet parking and often much more. The top end in Istanbul would be the Zorlu Center.
In Ferikoy, this kind of development does not exist…yet. The closest thing would be Terrace Feri, a very good quality, bespoke project. It has underground parking, a lovely court yard, swimming pool (indoor), reception, security and more.
3250 USD per sqm and 3750 Prices per sqm, depending on floor. For example (the quoted net here is 150, but it is actually 140)
https://www.hepsiemlak.com/en/istanbul-sisli-yayla-satilik/daire/8496-4520
This development is almost a sub-category, well below the very top end where absolute entry prices, depending on location, start at 4 to 4.5 K USD per sqm and can go way, way up. There are many projects throughout Istanbul with similar characteristics to Terrace Feri and they are priced quite differently from true luxury projects.
Category 2. “Mom and Pop” new construction.
These can be anywhere from 0 to 20 years old. They usually are very light on facilities. You would be lucky to have underground parking. However, the often have pretty decent locations and can be good value for the money. We sometimes have to come in and fix up a few rough patches, but that is often worth it. Look on the bright side. You get to put your creative stamp on it. These properties usually have elevators.
2000-2500 USD per sqm There are some slight variations due to the precise location of the property in question.
https://www.hepsiemlak.com/istanbul-sisli-pasa-satilik/daire/30486-1665
Category 3. Buildings older than 25 years.
This is a hard category to nail down pricing, as there is such variety of buildings and standards. Some have more classical features and are more elegant. Some are just ugly. Others well-maintained, others not. Again, here, for the sake of argument, we are assuming somewhere in the middle.
The pricing for these properties in Ferikoy is well below adjacent Bomonti, Kurtulus, Merkez, etc.
1200-1500 USD per sqm. Most likely renovation will be required, anywhere from quite moderate to an A to Z. This should be factored into your equations. That can add anything from 100 USD per sqm to 500 USD. Of course, the higher end will produce a superior final result. If the property only needs some tweaking, the lower range number should do.
Maybe something similar to below.
https://www.hepsiemlak.com/istanbul-sisli-pasa-satilik/daire/92051-1156
We will have special guest JFK joining us tonight to discuss his US distressed property fund. I kid you not.
Properties will be distributed in meeting. If you like, PM me and I will send them to you directly.
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