The dream of a historical rental property

Residential investment properties in general and also landmark historical apartment buildings in particular have long been a highly sought-after means of investing capital and growing wealth. This article provides a concise overview of the most important aspects to consider when looking at an investment in a historical property. What qualifies as a “historical rental property” or a Zinshaus, as they are called in Austria? What are the pros and cons of buying a historical rental property? What factors are relevant for valuation, and what costs will the owner of an apartment building incur?

And we also cover the general conditions that should apply in the event that you wish to sell your historical rental property.

The JP Real Estate Group has been buying, developing, and selling historical rental properties throughout Austria as a competent and reliable partner for some 30 years. Based on our expertise, we guarantee you a binding price estimate for every historical rental property in Austrian within just 24 hours.

Fundamental definition – what qualifies as a “historical rental property”?

A rental property, whether historical or contemporary, is a property with multiple residential units. The owner or owner consortium allows tenants to occupy the rental units in exchange for monthly rent payments, thus generating a regular stream of income.

History – when were rental properties built?

The world’s first rental properties were built in Russia in the 17th century and were called “dohodniy dom”. This translates literally to “income house” or “income-generating house”.

Thus, buildings containing multiple residential units were built with the goal of renting them out for a profit. In the so-called Gründerzeit or Historicist period in the late 19th century, the upper levels of the bourgeoisie in Austria, Germany, and Switzerland in particular seized upon this idea, and since then, this has been a very popular form of investment because of the security that it offers.

The historical rental property – from tenement buildings to luxury apartments

The historical investment properties from the 19th century were built in different sizes and styles. The entrances and facades were generally inspired by the then contemporary Historicist style that was prominent on Vienna’s Ring Boulevard. Since then, the Zinshaus properties inside of the Gürtel beltway have defined the Vienna cityscape with compelling architectural beauty and meticulous attention to detail both inside and out. The buildings outside of the Gürtel beltway were generally only poor imitations with attractive facades commonly hiding cramped, uncomfortable apartments inside. These rental properties were thus typically called “tenement buildings”. Residents had to get cold water from the washbasin in the hallway, the so-called Bassena. The toilets were also in the hallway and were shared by multiple apartments on the same floor (an arrangement that has not yet disappeared entirely – some apartment buildings still have toilets located off of the hallway to this day).

Ornate apartment buildings with spacious luxury apartments, marble-clad entrances, crystal chandeliers, and Jugendstil lights in corridors adorned with opulent stucco were built in the inner districts and along the radial arterial roads – and also featured electric lifts starting in the 1890s.

But because demand for apartments almost always exceeds the supply in cities, new rental buildings are of course still being built to this day.

An apartment building as an investment – pros and cons

What are the pros?

Contemporary and historical rental buildings have long been a popular form of investment because the allocated capital is largely protected against inflation and because the rental income represents a secure return. As demand for housing rises continuously in urban areas, the investment value of a rental property also increases. This means that the invested capital grows continuously. A historical apartment building in a prime location, in very good structural condition, and with efficient, active management can generate an annual return of between 1.5 and 5.0% of the originally invested capital.

What are the cons?

Historical rental properties also involve a certain degree of work for the upkeep and management of the building. This is best handled with a reputable property management firm in combination with professional owner’s representation and asset management. These partners take care of rental income, minimise vacancies, and have any necessary repairs completed.

How the value of a historical apartment building is determined

As is the case for any property, the most important factors that determine value are location and structural condition. Transport connectivity and the proximity of different shops, recreational areas, schools, restaurants, cafes, and bars are key. Any person can assess these factors without any technical expertise. But when it comes to details such as tax regulations, inheritance disputes, calculating rental rates, and drafting rental agreements, it is best to involve an appraiser or, better yet, a real estate agency that specialises in historical rental buildings such as JP Real Estate. This saves you the cost of an expensive appraisal, and you can quickly determine the value of an investment property.

Solid potential from the basement to the roof

Because the fundamental purpose of an apartment building is to generate rental income, the most important input for the valuation is the rent roll. This specifies which apartments are occupied and which are vacant, and under what terms the occupied units are rented out. The attic level and the basement are also taken into account when calculating the return generated by a rental property. Can the attic level be developed? If yes, how much floor space can be created? Smaller attics are much more expensive to develop than larger ones. In general, developing an attic is only worth it when at least 250 to 350 m² of new floor area can be created.

Are there empty basement spaces? Can parts of this potentially be rented out to a restaurant operator, a hobby association, or someone else? If the building is in a prime location, could space on the ground floor be rented out for commercial use? The more options a building offers, the better the property will pay off as an income-generating investment.

Reference rent

Pre-1945 apartment buildings are covered by the Austrian Tenancy Act, which sets a rent cap. This is called the reference rent, which is defined per square metre and which is adapted to the current inflation rate every two years.

A developed attic qualifies as newly created housing, by the way, and is not subject to the reference rent – meaning there is no legal rent cap for such space.

Investment property costs – what is upkeep likely to require?

Historical investment properties must be maintained with a high level of commitment and attention to detail, and are in some cases protected as historical monuments – meaning that renovation and maintenance costs consume a significant portion of the recurring income. If a historical rental property needs to be renovated, this can rapidly become very expensive. In addition, historical buildings cannot be compared with modern buildings in terms of floor plans, wiring, energy efficiency, barrier-free access, and the like.

For an apartment building from early in the previous century, you should budget around 30% of the annual return for various maintenance costs. This does not include the services of a property manager.

Property management fee

When you commission a property management firm, the fee can generally be freely negotiated. A good point of reference is the “flat-rate allowance for management expenses” in section 22 of the Austrian Tenancy Act. Since November 2022, this allowance has been set at €4.23 per square meter of net usable floor area per year. This means that for property with 1,000 m² of space, you should budget €4,230 per year for the management expenses.

Are you looking to buy an apartment building?

The fairly limited supply of historical investment properties has seen strong demand for many years. As has been the case for all real estate for years now, this is steadily driving the prices up and makes a historical apartment building an especially solid investment. JP Real Estate has chosen the core mission of restoring historical apartment buildings with meticulous attention to detail – while preserving the original spirit and essence of the properties. If you are interested in buying an apartment building, please get in touch with our experts.

Historical and contemporary buildings – what are the differences?

Apartment buildings from the turn of and early part of the previous century period are common in the urban centres of Vienna, Linz, Salzburg, and Graz. But the existing stock is decreasing due to conversion into condo apartments and even some instances of demolition. For example, there were around 15,000 Historicist apartment buildings in Vienna in 2010 – but this number had decreased to around 13,900 just ten years later. The marketing of a historical rental property generates significantly lower returns than marketing a modern rental property. This is also why new apartment buildings are being constructed all the time.

How can I find a historical rental property to buy?

Rental properties are generally built and managed by real estate developers and construction companies. We recommend that you contact a respected real estate agency like JP to enquire into currently available properties. Just reach out to our historical rental property experts and we will find the right apartment building for you!

Another option is fractional ownership. This means that depending on the amount of capital you plan to invest, you can acquire shares in a consortium and own a percentage of such a building alongside other investors.

Selling a historical rental property – the basics

At some point, the owner of a historical rental property may become interested in selling it. Problems with the Federal Monuments Office or with holders of old leases, high maintenance costs paired with low rental income, and many other issues may make a sale the most attractive option.

It also often becomes necessary to sell such an apartment building because the heirs of an estate do not want to take over operating the building and the proceeds are to be divided among multiple parties before they pass away.

Competent support – from our expert agents

The people buying historical investment properties are professionals – so you should also turn to professional market experts to assist you with the sale. You issue a power of attorney for the sale to the specialist agent for historical properties, and everything is then taken care of for you.

The agent knows the market well, appraises the property, arranges the many required documents such as construction plans, energy performance certificates, rent rolls, rental agreements, building permits, any expansion plans, etc. and in just a short time finds the ideal buyer for you.

As compensation for his or her work, the agent receives a commission of 3% of the attained purchase price – and is worth every cent as we at JP Real Estate hear from our satisfied customers time and again. For example, historical rental properties in Vienna are sold in only 6 months on average, to the satisfaction of all parties.

We at JP Real Estate will be happy to assist you in all matters. You can find further information and an enquiry option in our Zinshaus section.

Summary:

• Historical rental properties have long been a secure investment with a guaranteed return.
• The purchase, management, and sale of a residential investment property are handled by respected professionals and require very little time commitment on the part of the investor.
• Experienced real estate agencies can realise the purchase or sale of an apartment building in a relatively short time frame.

If you are interested in buying or selling a historical rental property or would like additional information on this topic, please do not hesitate to contact us. You can find more information here on our website, or reach us by phone at +43 1 596 60 20 or via email at office@jpi.at