Yaro Blog

My Ukrainian Investment Apartment Renovation Project (With Before And After Photos)

If you follow me on Instagram you’ve probably seen some photos during 2017 and 2018 of my apartment renovation project in Ukraine.

As the months sped by the progress of the renovation continued, turning what was a very old and run down Austrian Empire era apartment, to a modern western style renovation.

To say the transformation was dramatic is an understatement. Take a look at a few of these before and after photos from what was a storage (trash) area to what is now the ground floor lounge room and guest bedroom.

And yes, I’m pretty sure there were some zombies living here before we cleaned up the place…

Is This An Investment Property? Why Buy In Ukraine?

In response to these pictures I’ve received quite a few questions, like am I or did I move to Ukraine? Why Ukraine? Why buy an apartment? How much did it cost? And so on.

In order to answer all these questions I decided to write this blog post, and also so I can share with you some more photos.

Let’s start with a little background story…

My father was born in a little village in Ukraine in 1939. His name back then was Ihor Starak. My father and his mother and lots of other relatives survived the second world war, but unfortunately my father’s father, my grandfather, did not.

After the war, rather than return to Ukraine where their safety was questionable (and it was about to fall under the Iron Curtain of the Soviet Union), they became refugees and fled to Venezuela. In a few years Venezuela also became a less than safe place, so they again took on the mantle of immigrants and fled to Winnipeg, Canada.

My father continued studies in Vancouver and Toronto, then many years later met my mother (also an immigrant to Canada). They decided to become immigrants one more time, traveling to Australia, where I was born.

Fast forward many more years to the 1990s, and like many a young person in Australia, a teenaged Yaro grew up with a love for the European Song Contest, otherwise known as Eurovision.

Australia has so much love for Eurovision that despite the obvious geographic handicap, they actually managed to become contestants in the competition in the last few years.

As a firm fan of euro-disco-dance-pop, I enjoy the catchy bizarreness of Eurovision music performances, combined with the window it provides into the various cultures and geopolitical relationships of the European continent and beyond (stretching into Russia, Israel and now Australia). Listening to the commentary by the Australian or UK television hosts makes for a laugh too!

I’m always surprised by the blank face of confusion that Canadians and Americans return when I mention Eurovision, so if that’s you, I recommend you watch this short video introduction to the European Song Contest (EUROVISION).

One of the fun aspects of Eurovision is that the winner of this year’s competition (as voted by all the countries in the competition), gets to host next year’s event.

In 2016, Ukraine won Eurovision with this emotionally powerful number by Jamala

This meant that Kiev would be host city for the 2017 song contest — which gave me a perfect excuse to visit my fatherland.

My First Visit To Ukraine

Again, if you follow me on Instagram (hint hint) you know that for much of 2017 I was traveling around Europe.

My entire European adventure would not have happened if I didn’t decide to go to Ukraine for Eurovision.

Although my father was born in a small village, much of our family lived in Lviv, the largest city in the Lviv Oblast, on the very far west of Ukraine. My grandfather was a photographer with a shop in Lviv, back during the days when people would hand color black and white photographs.

I’ll be honest with you, I had some trepidations about visiting Ukraine. The only time I ever hear about the country is due to some kind of uprising or scandal, usually because of the ongoing conflict with Russia over the Crimean peninsula, or the ousting of a political leader.

This is why I was so surprised by my reaction to Lviv. The city is very European in appearance, with many ancient churches, Austrian empire buildings, great food and beautiful people. It also has many things I am quite familiar with, including big shopping malls and young people walking around staring at their smartphones.

Lviv also felt comfortable because of the size of the city. Kiev is the big Ukrainian city, and usually I prefer the slightly smaller cities. For example, I grew up in Brisbane, smaller than Sydney, and now as I type this I’m living in Vancouver, smaller than Toronto.

I like the slower pace in smaller cities, the ‘big village’ feel, without missing out on all the advantages of a modern city like good public transport, lots of cafes, restaurants and culture. Lviv certainly has all these things (well the public transport could do with an upgrade, but they have by far the cheapest Uber I’ve ever experienced — usually about $3 USD per trip).

After visiting Lviv for a few weeks, then Kiev for Eurovision, I continued traveling Europe. During summer I met up with my father, his wife and my little brother in Spain. My dad ended up having a change of travel plans, which resulted in an opportunity for him to travel with me back to Ukraine so he could visit his birthplace again, the first time in nearly twenty years.

Dad and I explored Barcelona, then Warsaw and finally Lviv together, before he left to return to Valencia and then back to Australia, his home.

I meanwhile decided to stay in Lviv a little longer while I figured out my next step.

Exploring Opportunities In Lviv

While in Lviv I met a young guy name Andriy, a cousin of my Ukrainian friend and frequent 2016 travel buddy, Olena Beley. He offered to show me around several times, and we became fast friends.

Andriy, although working for the local government at the time, was clearly entrepreneurial. Several months later we decided to go into business together. I’ll save that story for another time.

One thing I found very appealing about Lviv was the property prices. I have this compulsion, whenever I find a city I like I get curious about buying property.

I used to have a dream of owning an apartment in all my favorite cities around the world so I could easily move around and be a local anywhere… and then AirBNB was invented!

I began to realize there might be a good opportunity in Lviv. My father described the feeling in the city similar to the feeling in Brisbane when he first landed in Australia back in the late 1970s — a small city about to boom in prosperity.

Ukraine still has plenty of problems, mostly due to the corruption that’s inherent to the culture, which they are trying to eliminate. The remnants of the Soviet Union way of doing things is also still apparent with many ‘central authorities’ controlling things that normally in countries like Australia or Canada would be independent bodies, creating extra layers of bureaucracy.

Despite this, I felt the potential positives outweighed the negatives. Many Ukrainians aspire for the country to enter the European Union, which would be a huge boost to the economy, opening up trade, and hopefully further modernizing many systems.

Did I mention that there are a lot of beautiful historical Western Europe style buildings too? Downtown Lviv is one big Unesco heritage area — and property, while limited in supply, is selling cheap — at least compared to what I am used to in Australia, Canada, the USA and much of Western Europe.

At various times in recent history, the borders of Ukraine have changed. At one point Lviv was part of Poland, and if you go further back in time, part of the Austrian Empire. Many rich Europeans kept palatial like homes in the city center of Lviv. Today these buildings might just as likely house a tech outsourcing company.

Lviv is a hub for information technology, which is fueling extensive growth in the local economy as computer engineers are earning more than doctors (this comes with its own set of problems). These engineers spend their salaries on cars, smartphones, and entertainment like eating out at nice restaurants, which Lviv has in abundance.

Labour is still comparatively cheap in Ukraine, and Lviv in particular has become a hot spot for computer engineers to get trained up, then hired by an overseas company. I met a young lady there working as a programmer for a company from Melbourne, a city I lived in just three years prior. The world can be a small place.

While in Lviv I lived in AirBNBs, which on average cost about $600 USD per month for an entire one-bed apartment to myself. You could find places for as little as $300 a month if you looked outside of AirBNB, or if you are willing to rent a room and live with other people.

With food costs of about one third the equivalent in Australia or Canada, life in Lviv is very affordable, especially for someone earning USD online. You could live pretty comfortably on $1,000 USD a month.

AirBNB is popular in Lviv, but one thing I struggled to find were places with what I call a modern western style. The interior, including the furniture, kitchen equipment, bathrooms, etc, look like remnants from the Austrian Empire, so not exactly my taste.

The few apartments with a modern interior were always booked out on AirBNB, which made me think that there is probably latent demand from overseas travelers who want to stay in a style they are used to — that description certainly fits me!

The Property Market In Ukraine

One interesting fact I learned about Ukraine is they don’t have the same kind of home loan mortgage options that we have in the west. Most loans have a seven-year term maximum, meaning the repayments are crazy high compared to a 25-year term, like I had on my last home loan in Australia for example.

Consequently, locals with normal jobs are basically unable to buy property unless they save up a lot of money and get support from family. Successful entrepreneurs are the only people who have the earning potential to buy property, and that is not a large chunk of the population. As a result, property prices are low, and remain low.

Buying property in Lviv is not necessarily about capital growth. That could change if the banking system changes opening up new loan options, which could happen when Ukraine enters the European Union.

It could also change simply from population growth or overseas investors (like me) snapping up property. I met a couple of guys while in Lviv who planned to start a USA-backed investment fund focused entirely on buying up properties in the UNESCO listed city center.

I wouldn’t buy property in Lviv expecting huge capital growth in the short term, but the long term could see some very exciting developments. Let’s not forget that there is only so much Unesco heritage property available — you can’t build new properties like this — so the historical value and lack of supply may play into values long term.

In terms of investment, what appealed to me most was the AirBNB potential. I figured if I renovated a property with a modern interior, it would appeal to overseas visitors and wealthier Ukrainian visitors, which Lviv has many due to the tech and tourist industries. AirBNB prices, while clearly much lower than other cities, are in relative terms pretty good compared to the cost of acquiring a property (more on this coming up).

I was also interested in buying a property for my own use, to live in during my visits to Europe. Ukraine has the family history connection for me, but it’s also well placed geographically. It’s only 12 hours away to fly to Japan, one of my favorite places, which is then close to Hawaii and Vancouver, also favorite cities.

Ukraine is just 12 hours away by plane to New York and Toronto. Plus of course, everything in Europe is a maximum of three hours away — I traveled to Berlin, Hamburg, Amsterdam, Paris, London, Warsaw and Krakow all while Lviv was my base in 2017.

Because I am also starting a business in Lviv with Andriy, I could see Lviv becoming a regular stop off point for me as I traveled around my favorite places. Hence, the AirBNB strategy seemed perfect. I could rent it out when not there, and live there when in town for business.

Then there is the one major selling point that made the property investment strategy appealing in the first place — I could buy an apartment for less than $50,000 USD.

Larger two bed apartments could cost $75,000, but there were plenty of options available for under $50K. You could even get started with something quite old and in need of repair, but located right in the middle of the city, for as low as $35K for a one bed unit.

I’ve made $35K USD in one month of running my blog business before, so I figured it might be fun to put some money into an investment in a city that has a history of housing my relatives!

Buying An Apartment

The plan was to buy a place, then do a big renovation. I expected the repairs and modernization to cost about $20,000 USD given it would be completely gutting out the inside of an apartment in a building that could be over 100 years old.

I wanted something close or directly inside the city center, since all the tourists head there and all the best restaurants and nightlife is around the area too.

Ideally, I wanted two bedrooms, since this would be another selling point on AirBNB. The apartment I eventually decided to purchase in fact stood out because it sat directly above a dead storage space full of trash, which could be turned into a ground floor lounge room and second bedroom.

Apartments in Ukraine are a bit unusual in that they don’t always have a lounge room — usually where the couch and television sit. Sometimes an apartment will be just a kitchen, bedroom and bathroom. I stayed in several AirBNBs like this and got used to using the bed as the couch.

In my search for a place I was hoping to meet the following criteria:

  • Two bedrooms
  • Lounge room for a couch and TV
  • Kitchen
  • Bathroom
  • Situated on the ground floor as most Ukrainian buildings do not have an elevator (I trudged up many a set of stairs with my suitcases in Europe and I did not want to put my AirBNB guests through this if possible)
  • Walking distance to the city center
  • A character building, something with that old-world European look, which would not be hard to find in Lviv!

Andriy and I began to explore the property market in Lviv to see what was available and for how much. You can take a look for yourself on this website listing Ukrainian property for sale if you are curious.

We ended up inspecting at about ten apartments before we found a place that stood out.

This particular apartment had an asking price of $40,000 USD, was situated on a road that leads to High Castle, a park on a hill looking over all of Lviv, right next to the old town city center tourist and restaurant area. It is a great location.

The apartment itself was old, really old. Many of the apartments we looked at were old, and this one was definitely one of the oldest, but in my book that was a good thing since the asking price would be lower.

What sealed the deal for this apartment was as I mentioned earlier, the ground floor storage area sitting directly below the apartment. If we could acquire it – and Andriy said it should be possible, we would then have space for a second bedroom and lounge. Plus everything was on the ground floor of the building, so only one small flight of stairs to climb for our future guests.

As you can tell from the few before and after photographs I shared at the start of this article, the state of the storage area/trash room was epically bad. However, we had high hopes with a cleanup, gutting, new walls and a paint job, it could shine up really nice. The shape of the roof was particularly cool – like an underground wine cellar.

Andriy’s father is the kind of guy who can build a house (which he, in fact, did for himself and his parents), so we made sure to consult him before buying anything. He said the property was a sound choice, and with his help we managed to knock $1K off the final selling price, securing the property for $39K.

Transferring Money And Taking Ownership

After finding the apartment and negotiating the deal, things got a bit interesting.

The first hurdle was getting the money into Ukraine. Due to anti-money laundering laws, it’s actually quite difficult to just transfer cash into the country. You have to prove where the money came from.

The other challenge, which in this case was not the Ukrainian bank’s fault, but Canada’s – I had to actually be in Canada to initiate a wire transfer from my bank account. I wasn’t about to fly back to Toronto just to do a transfer, so I had to look for alternatives.

In the end I used a combination of money from my Australian bank, where I can do a wire using online banking, plus money transferred from PayPal into my American bank account (again which I can wire to Ukraine) and also the Transferwise service, I was able to get the cash to Lviv.

The fun didn’t end there though.

In Ukraine people have a distrust of banks, primarily because many had money in banks that simply disappeared when the Soviet Union took over. As a result, people tend to keep money hidden away as cash, and even when purchasing something as large as an apartment, will do cash exchange.

This meant I had to take out $40,000 worth of crisp USD bills, put them into a bag, then look inconspicuous as I carried my cash to the notary where the deal would go down.

As simple as that sounds, even the process of getting my money out as cash is not straight forward. The banks have a limit of how much cash you can take out each day, especially for non-residents like me. Hence I had to go back and forth to the bank every day for a week, taking out chunks of cash, from $8K to $12K a day, depending on what the bank had available.

I felt like a bit of baller carrying around multiple thousands of dollars in USD as I walked around the streets of Lviv.

In the end, the deal got done, and I took over ownership of the property towards the last quarter of 2017.

The Renovation Process

Next, I hired an interior designer named Yliana, a friend of Andriy, to help me with layout, fittings and furniture decisions. We met up many times to review all kinds of things, from floor tiles and paint colors, to kitchen and bathroom layout, and furniture selection. She did a great job, as you can see in the photos.

Andriy’s father, Ihor – the same name as my dad before he changed it to Yaro (yes, that is my name too – confusing right) and his crew began the big cleanup and renovation job, with Andriy acting as my liaison and translator.

As the crew cleaned up the downstairs area, Andriy went to work to get the rights to use the space, which added a license fee to the total acquisition cost. This expense was not expected, and brought the total acquisition cost up to about $50K for a two bedroom apartment, when you factor in things like real estate agent fee and notary fee.

Unfortunately, this was not the only unexpected extra expense.

The renovations continued slowly as we headed into winter. The cleanup job was done, the walls were stripped raw to the brickwork, then a new layer of stucco was applied. Because it was winter, work was slow as the walls required quite a bit of time to dry in the cold and snowy weather.

By the time spring of 2018 came along things were moving again, however it became clear that my guesstimate of $20K for the renovation was off.

The apartment turned out to be in worse condition than expected, the new walls needed to be extra thick to protect against the weather, plus lots of other little things started to add up.

It would end up costing more than double my initial renovation budget, bringing the total cost for everything close to $100K USD. That’s more than I wanted to spend, but I’m confident long term this will prove to be a good investment.

Now It’s Time To Earn A Return

I was hoping to be the first person to live in the apartment, but as it became clear the reno job would not be done before winter set in, and my plan was to run away from Ukraine to avoid the super cold by February, it was not meant to be.

I left in February 2018 for Japan, then met up with my aunt, uncle and cousins in Hawaii, before settling to live in Vancouver for 2018. I continued to communicate online with Andriy to finish up the apartment.

As I type this we’re just about to get it listed on AirBNB (it is listed on AirBNB here and the first guest is already in!). I don’t know what the occupancy level will be like, or what kind of daily rental rate we will get, but my goal is to average $1,000 USD per month in profit.

Lviv currently commands anywhere from $20 USD to $100 USD per night to rent entire apartments. Given my place has two bedrooms and is one of the only apartments with such a modern renovation, I hope we can sustain a $50 a night rate on AirBNB, maybe even $60 or $70 during the peak summer months.

If we get an 80% occupancy rate at $50 USD per night, that’s $14,600 USD in revenue. Minus AirBNB fees and management fees (I’ll hire someone to look after everything), it could be possible to return 10% a year on my initial investment.

If we make $10,000 USD a year after expenses, I’ll be happy, and the apartment will pay for itself in 10 years, not considering any capital gain. It may do worse, or could even do a little better, time will tell.

My father has already booked the place for July 2019 for a family visit, and I will live there whenever I am in Lviv. That’s what I love about AirBNB, the flexibility to rent out and live in your own place to whatever schedule you like.

As I write this, I still own a two bedroom property in Brisbane, Australia, my bachelor pad from 2009 to 2014. I loved living in the place, but it does not make for a good rental property. Brisbane had almost zero capital growth in apartment values during the almost ten years since I bought the apartment, so it hasn’t been a good investment.

Of course I didn’t buy my Brisbane pad as an investment, but it would have been nice to get some capital gain in a decade! Unfortunately thanks to two floods, then a glut of new apartments coming on to the market recently, values have remained flat. If I had bought in Sydney or Melbourne it would be a different story, but that’s not where I wanted to live at the time.

Since 2015 my Brisbane apartment has rented for $550 a week. The apartment has quite high body corporate fees (otherwise known as maintenance fees or strata fees) of about $1,050 every three months, and after you subtract city council rates, insurance, water, and property management fees, I’ve been taking home about $12,000 AUD a year in profit.

Considering my Australian property cost me $550,000 AUD and it returns about the same as I expect from my $100,000 USD Ukrainian apartment, you can see why I’m planning on selling my Brisbane property later this year. The capital would definitely be better allocated elsewhere.

I’ll end this first chapter of my Ukrainian property investment here. I’ll update this article in the future, probably in a year from now, so I can tell you what the rental return was like.

Thanks for reading,

Yaro
Property Renovator

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