Information package for apartment investors

Buying an investment apartment

Taxation of rent income

Tips for renovating an investment apartment

Buying an investment apartment

It takes carefulness and knowledge to buy a good apartment to invest in. You have to closely consider the amount of purchase price and actual rental level. If the apartment needs renovating before renting, these expenses also need to be considered. In addition, the condition of the building and the possible needs for basic repairs are very important in the long run. Big basic repair work, such as plumbing, may prove very expensive. If the condition has been checked, it is wise to read the report through very carefully.

The financial state of the housing cooperative is important because it tells you how well the building has been managed. Problems in the past may show in a high maintenance fee, for example. The general development of the area is also crucial because it helps to make an estimate of the future price trend. In other words, a good investment is the result of many different factors.

Information about buying apartments to invest in is also available in “Assignment to purchase”.

Taxation of rent income

Rent income in Finland is taxed according to the capital gains tax percentage, which currently is 28 %. Earned income or income from capital does not affect the percentage at which rent income is taxed.

There are certain allowances to income from capital that have to do with acquiring the income. It is possible to deduct agent commissions, interest on apartment and student loans, maintenance fees, repair work that is needed to maintain the current condition of an apartment, the repair and renewal of household equipment, and membership fees to Suomen Vuokranantajat ry from the rent income.

The rent income left after the deductions is taxed at the capital gains tax percentage. If there is no income after the deductions, no tax is paid. If the deductions are greater than the income, you have an income deficit from capital. This deficit can be noted as compensation for earned income tax. Another possibility is that the deficit is confirmed as a loss of income from capital, in which case you can deduct the amount from income on capital for the coming years. However, the deductions must be made in full during the next ten-year period of taxation.

It is also worth gold to know that in some cases, the basic repair work in an apartment can be deducted from rent income taxation. Even basic renovations can sometimes be deducted during the time of effect of the expense. The deductions must be made evenly and over the course of ten years at the most.

Tips for renovating an investment apartment

The materials and level of equipment in rental apartments varies greatly depending on the size and type of the apartment rented. For example, for a detached house in Haukilahti, Espoo, one tends to get higher quality, and thus more expensive, materials than for a one-room apartment in the centre of Helsinki. It is easy to argue these choices because most likely, a detached house in Espoo will at one time or another also be used as the home of the owner. Another reason for the different selection of material is that different apartments are usually rented by very different people with different needs and wishes. Moreover, some applicants are ready to pay more, some less.

Because the needs of people differ and because the use of apartments differ, it is unwise to generalize too much when it comes to renovation and equipment. According to good practices, a minimum demand is that the apartment must be warm and the equipment in it must be working. The tenant has the right to assume that there is a refrigerator, a stove, and a phone and TV connection in the apartment. If these do not exist, it must be stated in the lease of residence.

Vuokraturva’s experience of renting hundreds of apartments has shown us that most applicants want an apartment in good condition. Before renting an apartment again, it is good to check that the previous tenant has cleaned up before leaving. The cleanliness of the bathroom and toilet in particular has proven very important when showing an apartment. If you have a small middle-priced apartment, it is not necessarily wise to spend the rent income on making expensive renovations; a mere repainting and little renewal may just do the trick.

Repainting can also eliminate bad odour if, for example, the previous occupant smoked in the apartment. If there is a strange odour in the apartment, it should never go unnoticed. You should always find out what is causing the smell – perhaps there is moisture damage that is not visible yet. It helps to clean the apartment with ozone in difficult cases (www.ozon.fi).

The cost of different hardwood floors and laminates has come down and even in many small and economic apartments, the old plastic carpeting has had to go in favour of laminate. This is also seen in a slight increase in demand in general. In some cases, the choice of material may play a part in the demand. This is especially important in areas where the rent is higher than the average.

Finally, we should mention that the amount of storage space is often an important factor when choosing an apartment. It is good to have some clothes storage space in the bedroom and household equipment storage space in the kitchen.