Buying a Property in Bulgaria

Where are People Buying?

There has been a complete explosion of interest by foreigners buying property in <= st1:place w:st=3D"on">Bulgaria. A few years ago our seminars about buying in Bulgaria were attended by two or three people. Now it is common for there to be over= a hundred. Developers and estate agents say the properties are just walking off the shelf. About 60% of all buyers are Britis= h.

The main focus of activity by foreign bu= yers is as follows:

The Black Sea= Coast

The Black Sea coast has long been popular with tourists from Bulgaria in itself and from o= ther parts of Eastern Europe. It is easy to see why. It is still inexpensive as a place= to take your holiday. Prices are= those in Spain 20 years ago. It has some good beaches and a summer climate nearly as good as that of Spain.

It is, however, a second division destination. It is not the new Spain= . It never will be. This is for several reasons. Firstly, the climate is simply not= good enough. The temperatures are almost identi= cal during the summer months but there is a lot more rain and humidity. In the winter months the temperatu= res are on a par with London. Many people wish to make use of th= eir holiday home is during the winter months, partic= ularly if they come from a cold climate. This is simply not a realistic option on the = Black Sea coast. Secon= dly, there is simply not the infrastructure of things to do that is found in Spain. You do not have the host of tourist attractions, the huge number of golf courses, the world-class cities and the vast range of social activities available in Spain= . Still less do you have them in English. For the British buye= r or traveller there is the additional disadvantage that this is a journey invol= ving (in the summer) 4½ hours flying time rather than 2½ hours.

This does not mean that investing in the= Black Sea coast is necessarily a bad thing. If you are looking for a holiday h= ome for use in the summer months you will find one that is relatively inexpensi= ve. If you are looking for an investme= nt there still seems to be considerable room for upward movement of prices bef= ore they become anything like a comparable with those in Spain= .

Just do not delude yourself that your apartment will become as valuable as an apartment in = Marbella.

The main areas of interest rather than f= rom the Romanian border in the North, through Varna and Gower looked to have the Turkish border in the South, through Burgas. There are the main clusters of development, mainly lay down towards the southern = end of the coast. Look at the area around Sunny Beach and Pom= orie. Older developments tend to be rath= er lacking in character. So do s= ome newer ones but there are now more interesting developments being built up to the highest standards found in Spain and elsewhere.

The Ski Areas

By contrast, the ski areas are potential= ly world-class. They need a lot = of investment in infrastructure and equipment but this is coming. Fundamentally, however, ski areas = are about whether there is good skiing. The Bulgarian ski areas score very well on this test. Better still, more runs are being constructed. The qualit= y of the skiing is evidenced by the fact that Bulgaria is attempting to sec= ure the Winter Olympic Games in 2014. Whether they get it or not is another matter but the mere fact that = they are trying speaks volumes for the quality of the skiing available in the area. Purists may think that = the skiing in Austria or France is perhaps better than the skiing in Bulgaria. Whether or not that is true, the h= uge difference between the price of a good-quality ski apartment in Bulgaria and the same apartment in France mean= s that the Bulgarian apartment offers fantastic value for money. I have just been dealing with the = sale of a one-bedroom apartment in Les Arcs in <= st1:place w:st=3D"on">France. The price was £150,000. A similar apartment in Bansko in Bulgaria would cost a third of this amount. Although the tourist might be prepared to pay more to rent an apartm= ent in Les Arcs, they would probably not be prepared to pay three times as much. Thus the apartment in <= st1:country-region w:st=3D"on">Bulgaria could be a very cost effective investment.

What is available and at what price?

There is always a huge range of prices i= n any property market. This one is = no exception. You need to rememb= er that, by and large, you get what you pay for. That is to say, a more expensive property is usually more expensive because it has some special quality abou= t it and, conversely, a very cheap property is usually very cheap because it has= a very poor location, it is built to a very low standard, it is in a bad stat= e of repair -- or all three!

Prices have been rising rapidly. Some of our clients have seen grow= th of over 40% in the last year.

The table below attempts to show some ge= neral indication of prices as at January 2005.

Place & T= ype of Property	Low £	Mid £	High £
Sunny Beach – New= 1 bedroom apartment – 60m2		€40,000	€60,000
Sunny Beach – New= 2 bedroom apartment – 100m2		€70,000	€90,000
Sunny Beach – 3 bedroom villa &#= 8211; 160m2	€70,000		€150,000
Countryside – Wooden cottage = 211; 42m2	€7,000
Countryside – 2 bedroom apartment – 80m2	€33,000
Countryside – 2 bedroom villa &#= 8211; 100m2	€40,000
Bansko = 211; 1 bedroom apartment in new hotel style complex – 65m2			€90,000

Why are People Buying? – Bulgaria as a Place to Invest

As I have already said, there is a huge interest in the purchase of property in Bulgaria at the present time.= There is always a danger in such an explosion in demand. Is this = a real change in the market or is it a bubble?&nb= sp;

There are good signs and bad signs.

The good signs are that there is a genui= ne and large increase in the British and other Western European tourism to Bulgaria. Bulgaria has been discovered.= There are many people who like Bulgaria simply because it is not Spain. It is not yet as developed, though= it is rapidly going in that direction. Of those tourists there will be a percentage who like it so much that they decide to buy a holiday home in the area. They may well be nudged in that direction by the realisation that prices are likely to rise because of the increasing demand, because of Bulgaria's entry to the European Union in 2007 and because of the impact of the attemp= t to host the Winter Olympics in 2014. Current rental yields are reasonable, though not stunning. They are, however, likely to impro= ve as more tourists become familiar with Bulgaria and are prepared to = rent privately rather than going on a package deal. They may then diminish as the large amount of new building coming on stream hits the market and, possibly, crea= tes an oversupply. For rental yie= lds to remain static there will need to be a continuing rise in tourist levels. That is entirely possible but the = danger is that some other new and cheaper destination will come along and take the shine off the Bulgar= ia market. The contestants are a= lready lining up. For example, the <= st1:place w:st=3D"on">Cape Verde Islands offer comparable prices wi= th a year-round superb climate. Th= ey are two hours further flying time and two or three years behind in the developm= ent curve.

The bad news is that a very large percen= tage of the people now are buying are buying as an investment. They have little or no interest in personal use of the property. They intend to flip (sell it on before completion) at a profit. This creates an obvious danger. If too many people want to do this= there will be no market. There will= be no one to buy. Or, at least, the= re will not be enough people to buy to generate any profit for those wanting to sell. Our advice to anybody w= anting to do this remains the same. = You should not buy a property with the sole intention of flipping it. You should buy it as a medium term= hold because you think it is outstanding either as a place to live or as a place= to rent out. If, when it is read= y for delivery, somebody then make you an offer that you cannot refuse, feel free= to take it and rejoice.

All in all, however, I believe that, the= ski areas in particular, will offer a long-term good investment yield.

The Climate as a Factor in Investment

Most British people buying abroad are motivated, in large measure, by the thought of a better climate. What is "better" depends= on your personal perspective. &nbs= p;

If the property is for retirement the bu= yers will want a climate that is acceptable all year round. If the property is a holiday home = the buyers will be looking for a climate that appeals to them at the time is wh= en they are most likely to use the property.&= nbsp; If the property is for investment and for letting to the holidaymaker they will be looking for a long rental season.

Unusually, I am including two sets of figures. The first is for Varna, on the Black Sea coast.&n= bsp; These will give you an indication of the climate to be expected more= or less anywhere on the Black Sea, although= there are, of course, variations from place to place and some microclimates that = are either better or worse than this average.&= nbsp; They will not, however, vary much.&= nbsp; The second is for Sofia= , the capital city. The reason = I am showing the figures for Sofia<= /st1:place> rather than one of the ski resorts is that I have been unable to get accura= te figures for Bansko or any of the other resorts.= I have seen several sets of figure= s that they have been inconsistent to a significant extent. Nonetheless, the figures for Sofia will give y= ou an indication of the difference in climate between the coastal regions and the mountain regions.

Varna (Black Sea Coast) Maximum Temperature

You will see that = Varna enjoys a most curious climate. During the winter -- from November= to April -- the climate is, basically, the same as London as far as maximum temperature is concerned whereas during the summer months the climate is almost the same a= s in Málaga.= This makes this an attractive summer resort. Hence its popu= larity for many years with the Eastern European market.

Varna (Black Sea Coast) Minimum Temperature

Notice how, during the summer months, the minimum temperature is always quite a lot lower than the minimum in Málaga. = Notice, too, how during the winter months -- and especially d= uring the depths of winter -- the minimum temperature is significantly lower than that in London.

Varna (Black Sea Coast) Rainfall

Notice the similarity between the rainfa= ll patterns in Varna<= /st1:City> and in London. Notice, too, how although the summ= er temperatures are directly compatible with those in M&a= acute;laga and there is hugely more rainfall.

Varna (Black Sea Coast) Sunshine

The figures speak for themselves. Much better le= vels of sunshine than in London for most of the year but nothing like the amount in southern Spain.

Sofia - Maximum Temperature

The key point about the maximum temperat= ure in Sofia i= t is how good it is during the summer months. A ski resort with a summer temperatures nearly as good as Málaga! Of course, this generates the potential for significant summer lettings. These lettings are = always the difference between an average performing skiing investment and a well performing skiing investment.

Sofia - Minimum Temperature

Sofia – Rai= nfall

If you avoid April, May and June the rai= nfall pattern is pretty much what you might expect in southern England= . That is not too bad! If, like my wife and I, you come f= rom Scotland and Manchester it loo= ks positively dry.

Sofia - Sunshine<= /span>

Growth of Gross Domestic Product as a Factor in Investment

A growing economy will produce more in t= he way of growth in the value of real estate than a stagnant or declining economy. The gross domestic p= roduct is one way of measuring that growth.

The Exchange Rate as a Factor in Investment

For us, one of the key indicators of any country where investment is likely to prove successful is either a stable exchange rate against other major currencies or a rate that is slowly impro= ving against other major currencies.

A common pattern for emerging market cou= ntries is that when they first get their independence the exchange-rate sinks rapi= dly, improves slowly and then stabilises or, if the country is doing well, slowly gains ground.

If the exchange rate is rising against t= he pound or the dollar the effect is that, in addition to an editing from any increase in the value of the property you have bought, you also benefit from the increase in value of the currency.&nbs= p; The reverse is, of course, also true.

These figures have been adjusted to take= into account a devaluation of 1000% that took place in 2001. In other words, the exchange-rate = in 2000 was 3084.73 to the pound and in 2001 this was revised to 3.10 to the pound.

Notice how the Bulgaria Lev has been alm= ost rock solid against the euro for a number of years. This is all part of the Bulgarian preparations for coming in to the European Union and, they hope, soon into = the Euro zone. The currency has v= aried slightly against both the dollar and the pound in the same way that the dol= lar and the pound have varied against the euro. Given our general feeling that the= euro will strengthen in value against the pound over time this is a promising background for the currency of a country in which you are thinking of makin= g an investment.

Tourism as a Factor in Investment

The UK is, obviously, still quite= a small player in the Bulgarian tourist market. Note, however, that in 2000 the Br= itish were the ninth most numerous incoming tourists in Bulgaria, in 2001 the eighth,= and in 2002 onwards the fifth. Br= itish tourism has gone up 33.5% in 2001, 60.26% in 2002, 43.68% in 2003 and 62.60= % in 2004.

If you look at the main sources of touri= sm in Bulgaria for 2004 you will see however, that that the main sources of tourism are from relatively low income countries. This will have an impact upon the likely rental levels achievable if= you are looking to rent to people from outside the UK/German/Scandinavian market. So far, I have not be= en able to locate any research on the impact of this.

<= /span>	Country=	Number<= /span>	2004/2003%	<= /span>	<= /span>	Country=	Number<= /span>	2004/2003%
1	GREECE	707453	+29.17 %		16	U.S.A.	39276	+26.18 %
2	TFYR MACEDONIA*	655974	-2.44 %		17	TURKEY	37600	+13.92 %
3	SERBIA AND MONTENEGRO*	576965	-2.50 %		18	HUNGARY	33028	+51.17 %
4	GERMANY	565337	+5.75 %		19	AUSTRIA	32219	+38.79 %
5	UNITED KINGDOM	259092	+62.60 %		20	BELGIUM	30022	-6.69 %
6	RUSSIA	120523	-0.67 %		21	UKRAINE	29793	-29.71 %
7	CZECHIA	102045	+30.17 %		22	ITALY	28337	+15.28 %
8	POLAND	99684	+61.25 %		23	NETHERLANDS	25874	+19.09 %
9	SWEDEN	96131	+36.43 %		24	NORWAY	21403	+37.15 %
10	ROMANIA*	91539	+19.43 %		25	SWITZERLAND	20085	+39.43 %
11	ISRAEL	79172	+14.65 %		26	CYPRUS	13400	+52.93 %
12	SLOVAKIA	75253	+17.74 %		27	BELARUS	12037	-1.38 %
13	FINLAND	58463	+19.72 %		28	SLOVENIA	11824	+73.40 %
14	DENMARK	52594	+23.15 %		29	IRELAND	11460	+83.39 %
15	FRANCE	48634	+35.98 %		30	SPAIN	9638	+40.27 %

Estate Agents & Property Finders

Estate agents catering to the internatio= nal market are new. The market it= self has only really existed in any volume for the last two years, so you could = not expect anything else. Of cour= se, estate agency as a whole is relatively new in Bulgaria, dating really from = Bulgaria's independence from the communist world which started in 1990.<= /p>

There are some good, reliable Bulgaria and estate agents. There are also= some highly disreputable ones. The= re are also good, reliable overseas agents operating in Bulgaria. There are, unfortunately, also a l= arge number of people who have seen the explosion in the volume of sales and who have decided to get into the business for the quick buck. Many of them know nothing about ei= ther Bulgaria or its real estate market. They are = simply salesmen.

You are much better dealing with a reput= able agent. Seek recommendations.<= /span>

Be wary of the estate agent who says tha= t his fees include his services in checking out the title of the property on your behalf. Some local agents off= er this service. It is dangerous= . Many agents, particularly the fore= ign agents, know little or nothing about the intricacies of Bulgaria title. They are not lawyers.<= span style=3D'mso-spacerun:yes'> They will understand nothing of the interaction between the Bulgarian and the English legal system. Even if their intentions are entir= ely above board and honest, will you really have the confidence that they will alert you to any problems when, if you do not proceed, they will lose their commission? Remember that the Bulgarian estate agent's commission is typically five per cent and, in the = case of a foreign agent, often 15% of the price of the property. That is several years' salary for = the average Bulgarian.

As a preliminary step, check out all of = the websites you can find to get an idea for the prices and types of property available. Remember that not = every agent will sell the same property at the same price.

If you are looking for property in one o= f the main skiing areas or on the Black Sea co= ast the combination of estate agents and sales direct from developers should fi= nd what you are looking for. On = the other hand, if you are looking for a 'different' property, possibly one inl= and or a project for restoration, you may well find it useful to recruit the services of a local property finding agent. See the main section of the book f= or an explanation of their function.

Mortgages

At the time of writing, mortgages to buy property in Bulgaria= are a relatively new phenomenon. They are, however, increasingly available from banks and from develo= pers themselves. They are availabl= e for both houses and apartments.

Over the last year interest rates in Bulgaria have fallen. They are likely to fa= ll further towards the European Union average as Bulgaria prepares for entry i= nto the Union in 2007. Thus it is likely that anyone contemplating taking a mortgage on a property still in the course of construction will be paying an interest rate lower than that currently available. Of course, this ca= nnot be guaranteed.

Low to value ratios of up to 70% are available. The mortgage is only paid to you once the house has been completed.<= span style=3D'mso-spacerun:yes'> This means that you will have to f= ind any stage payments to yourself. Normal interest rates are about 7.5%. The maximum term is usu= ally 15 years. Mortgages are only = available on a repayment basis (i.e. where both capital and interest are repaid by the end of the mortgage term) and they must normally be paid off by the time you are 70. Obviously, the precise offerings vary from bank to bank.

Eligibility for mortgages is calculated = on the "affordability" basis as described in the main section of this book. Generally banks will al= low you to have overall mortgage and long term commitments amounting to 35 to 4= 0% of your available income. Thi= s is a more generous test than is applied in, for example, France or Italy.<= /span>

Because mortgages are new the rules are evolving rapidly. Hardly a we= ek goes by without some new product or variation appearing in the marketplace. It is sensible t= o get independent advice about what is available and what might suit you best.

You need to make sure that the funds wil= l be available in time for the signing of the final contract. If you are unable to pay the money= at that stage you will lose the deposit that you have paid.

See the main section of this book as to whether the Bulgaria= mortgage or a mortgage in the UK is more likely to meet your needs.

The Process of Buying

The most important thing to stress about buying a property in Bulgaria is that there is a lot more risk associated with it than by buying in say, = Spain or England. There is a lot of property with ei= ther bad title or defective planning consent.&n= bsp; Legal advice is essential unless you take the view that the amount y= ou are investing is so small you can afford to write it off.

Freedom to Buy

You can buy land, buildings or apartment= s in Bulgaria.

At the moment, if you wish to buy land or buildings attached to land (but not apartments) you will need to do so thro= ugh a local Bulgaria company which will be the owner of the property. This is because only Bulgarians are currently allowed to own land and buildings in Bulgaria. By owning through a Bulgarian comp= any the property is treated as being owned by a Bulgarian, even if the company itself is 100% owned and controlled by foreigners. This rule will change no later tha= n 2007 when Bulgaria enters the European Union.

You are already free to buy an apartment= in your own name, without the intervention of a Bulgarian company. This is because, technically, the = form of ownership of an apartment is slightly short of 100% ownership of land. It is not the same as an English leasehold interest where you only have the rights over the apartment for a limited number of years. In y= our rights as the owner of an apartment in Bulgaria are much fuller but = still not quite the same as the rights you enjoy when you own the land itself.

A number of Bulgarian developers have st= arted to offer the best of both worlds. The land upon which the apartments are constructed is owned by a Bulgarian limited company. Th= e apartment is owned by you as an individual. When you buy the apartment you are also sold a share in the limited company. The result is that y= ou and your fellow owners collectively owned the land as well as the rights in the apartment. If this can be neg= otiated this is the best solution.

Initial Steps

Once you have found a property that you = want to party you will be expected to sign some form of contract. This will generally either be a Reservation Contract or a Preliminary Purchase Contract. See the main section of the book f= or an explanation of these concepts.

Note that the title Preliminary Purchase Contract is misleading. It is actually a full binding purchase contract.

We recommend that, wherever possible, you insist on signing a Reservation Contract rather than a Preliminary Purchase Contract at this stage if at all possible.

Searches and Enquiries

Once you have signed a Reservation Contr= act your lawyer should make various enquiries.= He should check that the contract is fair, that the seller has good title and the right to sell to you, that the area is zoned for residential building and that the building being undertaken enjoys all of the necessary planning and building consents. Depending on the circumstances of your case there could well be othe= r inquiries that also need to be made.

In Bulgaria it is quite common f= or work to be started, illegally, before all of these steps are in place. It is also quite common for proper= ty to have a title that is defective. Sometimes these problems are fatal and should put you off having any involvement in the purchase. = On other occasions the risks are minimal and, provided you go into the transac= tion with your eyes open, might not put you off buying if you really like the property.

New Property – Structural Guarantees

These benefit from a 10 year guarantee.<= /span>

Declared Values

It is common for the value to be declare= d in the title to be less than the true value.&= nbsp; This is technically illegal but almost universal practice. The reason for this is, of course,= that the declared value is the value used by the tax office to determine the tax= es payable in respect of the purchase. You should avoid this if possible.&= nbsp; The tax payable on the purchase (the equivalent of stamp duty) is ve= ry low at 2% of the value declared. The main benefit accrues to the seller. He will avoid paying capital gains tax. You will be removing a b= urden from the seller and landing yourself with a potential problem later on if you ma= ke a significant underdeclaration.

In Bulgaria the position is made= a bit more complicated because each property has a tax value, a little like our English rateable values, which are often used as the stated value for tax purposes. These are usually r= oughly half the true value of the property. When buying a property off plan you will not know what the tax value= is likely to be upon completion.

See the main section of this book for mo= re details as to the issues arising out of under declarations.

Bank Guarantees

Bank guarantees under which, if the buil= der is unable to complete the project, you are repaid the money you have invested = are still very much a rarity in Bulgaria. A few developers are now providing them. They are worth having.<= /span>

The Other Main Dangers

The main problems that we come across in= Bulgaria are defective title and defective planning consents. However, there is a new category of problems that is only just beginning to emerge. These are problems generated by gr= eed. I have already explained the diffe= rence between the ownership of the apartment and the ownership of the land. Some developers are trying to rais= e a large charge for the right to use the land upon which the apartment stands. They have, no doubt, = borrowed this idea from the English concept of a lease. Some developers are also trying to charge substantial sums for managing the apartment complex and they are try= ing to tie in the owners of the apartments to using their services for a number= of years. These are to be resist= ed.

The Contract

Once your lawyer has checked out the pro= perty and found that everything is in order you are ready to sign the Preliminary Purchase Contract. This commi= ts you and the seller to signing the full contract transferring ownership shortly afterwards or, if the property is still in construction, once the property = has been fully built.

The Preliminary Purchase Contract contai= ns most of the clauses you would expect to see in an English contract. These will include a description o= f the property, a statement of the legal title to the property, the price to be p= aid, how it is to be paid, the deadline for payment and any other deadlines applicable, what should happen in the event of breach of contract etc. Many Bulgarian contracts are badly drafted. This is because ther= e is really no history in Bulgaria of drafting contracts for the sale of land. The problem is exacerbated by the = fact that many contracts are drafted in English, which is clearly not the first language of the person doing the drafting.= As a result they are unclear or muddled. Specifications tend to be very &qu= ot;thin". The contracts tend to be lacking in detail as to what happens if anything goes wrong.

At this point you will normally pay a de= posit of 10% of the price of the property. In the case of a property under construction ("off plan") = you will start to make stage payments. The size and number of these payments will vary from property to property. A typical scheme wo= uld provide for an initial payment of 30% followed by two further payments of 3= 0% as construction progressed and followed by a final payment of 10% upon delivery. Occasionally scheme= s are found where there is only one preliminary payment of, say, 30% with the bal= ance being paid on delivery. This = is obviously very useful if you are taking a mortgage.

Signing the Contract of Transfer of Title

Once you are ready to take delivery of t= he house you will sign the Final Purchase Contract. This is signed in front of a notary public, in the way described in the main section of this book. It is at this point that the balan= ce of the money is paid across to the seller.

You do not need to be present in Bulgaria to sign this document as your lawyer can prepare a Power of Attorney under whi= ch you can appoint somebody else to sign on your behalf. This is a sensible thing to do as = it saves the need for you to go to Bulgaria, often at short notice, to sign the final title.

Registration of Title

Once you have paid the balance of the pr= ice the seller will authorise you to register your ownership of the property in= the local title register. Once th= is has been done you -- or the local Bulgarian company that you have set up to own= the property -- will be the full legal owner of the property in much the same w= ay as you would be in B= ritain.

It is likely to take from two to six wee= ks for the registered title deeds to be made available to you. How long will depend how busy the registry is in the place where you are buying. With the current explosion of dema= nd these periods are getting longer.

The Expenses of Buying

The main expenses of buying are as follo= ws:

Tax -- the equivalent of stamp duty -- 2= % of the price.

Estate agents' fees, if these are not pa= id by the seller, -- typically 5% of the price if you are using a local Bulgarian agent.

Notary's fees -- these will vary from ca= se to case but will typically not exceed £200.

Legal fees -- these will depend upon whe= ther you use a Bulgarian or an English lawyer.&= nbsp; The English lawyer's fees will inevitably be higher but you will be = able to sue them if they get it wrong and they will be able to give you lots of advice, particularly concerning the vital issues of who should own the prop= erty to minimise your tax and other problems, which the local Bulgarian lawyer w= ould not be able to help you with. They will range from about £350 if you use a local Bulgarian lawyer to £1500 if you use a specialist English lawyer.

Fees to set up a company -- if you are b= uying a piece of land or a house on a piece of land (but not an apartment) you wi= ll need to set up a Bulgarian company. This is likely to cost £500.

Conversions & Renovations

There are many properties on sale in Bulgaria, particularly in the rural areas, that need huge amounts of work. As yet there= is not much of a market for these properties.= The problems associated with the renovation project can be huge. Not least will be your probable inability to speak Bulgarian. If you are contemplating a renovation project it is vital to get good advice r= ight at the outset.

Building costs are low. A full restoration project is like= ly to cost about £200 per square metre.&nb= sp; If simple repair is necessary you might end up paying about £1= per hour for a skilled labourer, though more if you employ a contractor.=

As is the case with many countries, it i= s very easy to find that once you have finished your project the cost of buying the property and the work you have undertaken is more than the value of the property as it stands. Keep control.

Renting out your Property

If you are renting out your property you should make sure that you use a proper rental contract. Your lawyer will be able to supply= you with a draft that you can change as necessary.

Renting on short term lets to tourists produces the least problems in terms of what you can do if the tenant does = not pay the rent or refuses to leave.

Rental yields in Bulgaria are, at the moment, = a little unclear. Generally ski apartm= ents will produce higher rental yields and coastal properties and this is likely= to continue into the future.

At the moment, we would expect to see a = net rental yield (i.e. net of all expenses apart from your finance costs and personal taxation) of about 5% on the coast and perhaps 8% in a popular ski area. In the longer term I ex= pect to see demand increase but also supply to increase. These may well cancel each other o= ut leaving yields more or less as they stand today. The one factor that it is likely to= spoil this picture is the rapidly rising price of property. A person who bought an apartment f= or £30,000 and who rented out for £250 per week will be much happi= er than the same person who spent £50,000 on the same property and will = also rented out for £250 per week. When thinking of your rental yield we always suggest that you work it out on the basis of current value, not purchase value as that will allow yo= u to compare the performance of your investment with opportunities elsewhere.

At the moment, and with the substantial qualification that there are huge variations in the marketplace, we would expect to see you rent a good one-bedroom apartment on the coast for about £200 per week during the main season and a similar apartment in a ski resort for £250 per week. Two bedroom apartments will, generally, produce a slightly lower return in term= s of their rental income but, often, a higher return in terms of their potential capital growth.

Visas and Residence Permits

UK visitors to Bulgaria can visit without any type of visa for up to 30 days. They can only do this once in any six-month period.

If you wish to visit for longer than 30 = days or more often than once every six months you can obtain a visa from the Bulgarian consulate in the country where you live. This is the type C visa. The formalities are minimal. This will allow you to remain in <= st1:country-region w:st=3D"on">Bulgaria for up to 90 days in any six-month period. You can download an application form from www.bulgarianembassy.org.u= k.

Residence permits come in two flavours, = both of which are pretty easy to obtain after a certain amount of paperwork. The first permit is a temporary pe= rmit that lasts for one year. In o= rder to obtain such a permit you need to obtain a type D visa from the Bulgarian consulate in your country of residence before you travel to Bulgaria. You need to show proof of health insurance and that you have sufficient funds to support yourself in Bulgaria. This generally requires you showin= g that you have about £1000 deposited in a Bulgarian bank. This permit can be renewed annually. After five years it= can be converted into a permanent residence permit.

Taxes for Non-Resident Property Owners

Local Property Taxes

These are the equivalent of your English Council Tax or our old rates. Local property taxes in Bulgaria are very low. They are assess= ed on the basis of the official tax value of your property which, in itself, is normally only about half the true value of your property. The normal rate of local property = tax is 0.15%. This means that if you= only an apartment worth £50,000 it is likely to have an official tax value= of £25,000 and you will have to pay an annual property tax of £37 = 50. This is not enough to get excited = about.

In addition to this tax, in some areas y= ou will have to pay a local garbage collection tax. This might be £10 per year.<= /span>

Management Charges

Management charges are not taxes but thi= s is a convenient point to think about them. If you live in an apartment complex or in a group of buildings that share a common facility (such as a swimming pool) you will have to pay a management charge to cover the cost of providing those common facilities. In the case of a block of apartmen= ts, those facilities will include the cleaning and electricity for the general areas, any gardening, the maintenance of pools, lifts, car parking areas et= c. Obviously the cost of the manageme= nt charge will vary dramatically dependent upon the quality and number of facilities provided for you. £200 per year provides a lot of facilities.

Income & Capital Gains Taxes

The Bulgarian rules for income tax are i= n the process of being reviewed.

A foreign investor can invest in properties in Bulgaria either directly, in = his own name, or through a local company.

The tax treatment of a foreign investor depends on whether or not their activit= ies constitute a 'permanent establishment'. The definition of a permanent establishment is very wide. I= f they rent out their apartment (except through an independent agent) they may wel= l be treated as having a permanent establishment under local Bulgarian law but t= he double tax treaties may contain a narrower definition.

If the activities of a foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate= is applied under their double tax treaty.

If the activities of a foreign person owning real property in Bulgaria do constitute a permanent establishment the taxation is as follows.

Rental income – Company Owned Pr= operty

The basis of the taxable income of a company, investing in Bulgarian real prope= rty is the gross income from the property less any tax-deductible expenses and depreciation. These expenses include any management costs, repairs, maintenance, insurance etc and interest on any loans used to buy the proper= ty. Depreciation is at a rate of 4% per annum. Real estate acquired f= or purpose of re-selling it is considered as "investment property" a= nd is non eligible for tax depreciation. It is also subject to annual revaluation to current market value.

A Municipal Tax at a rate of 10% of these profits is also due, but this is deductible in calculating taxable profits.<= /p>

The corporate tax rate is a flat rate of 15% (incidentally, down from 25% in ju= st two years).

Rental income – Individually own= ed apartment

This is paid only if you are resident in= Bulgaria, at rates from 15% - 29%. For non-residents, at present, ther= e is only a 15% withholding tax, which can be set off against your UK tax liabilities on the same income. It is, however, soon likely to be clarified that rental income form Bulgarian property will also attract norm= al Bulgarian tax, even if you are not resident in Bulgaria.

Capital Gains Taxes

These are treated as part of your income= .

Wealth Taxes

None

Inheritance Taxes

These are being abolished for gifts to y= our spouse or children. The= re are very low taxes for other recipients. They only apply to your assets in Bulgaria.

Taxes for Resident Foreigners

This is beyond the scope of this book.

Double Taxation Treaty

The Double Taxation Treaty determines wh= at happens if, under local tax law and UK tax law, you are deemed to= be liable to pay tax in both countries.

The general principle behind all Double Taxation Treaties is that it is unfair that you have to pay the same tax tw= ice, so the rules are designed to help the two countries decide which of them sh= ould get what.

The treaties are long and complex. Seek advice as to their effe= ct in your case.