Buying, Selling, and Profiting in the Russian Real Estate Market (4/4)

After four years in Russia and after our work had come to a conclusion and we began to make plans to return home to the U.S. This, of course, meant that we needed to sell our beloved apartment. It had been home to us for 3 years (we rented an apartment during our first year). We had so many sweet moments in that apartment. Our daughter, Maddie had taken her first steps in that apartment, and we brought our newborn son, Brennan back there during the spring of our fourth year in Russia. But, sadly, it was time to move on and put the place on the market.

I called Svyeta, our attorney/real estate agent to enlist her help. This part was easy. I knew that Russian real estate prices had been increasing quite a bit. Oil prices had increased significantly, which boosted the Russian economy and inflated most hard assets. Also, the Russian banks the year before had rolled out a mortgage system countrywide. Previous to this there had been nothing. This meant the real estate market was getting flooded with cheap capital. Additionally, although you could see new buildings popping up all over the city, the developers just couldn’t keep up with demand. Russians were leaving the villages and moving into the cities in droves.

A few days after I called Svyeta to list our apartment, she called me back and told me that she had listed the property at $160,000. Good news since we bought it for a little over $70,000 and had the notes paid down quite a bit. Svyeta informed me that she already had buyers lining up to see our apartment.

After a few showings we had an offer at full asking price. Wow! Remember this was my first real estate deal ever! My wife and I invested $16,000 of our savings and raised the additional capital needed through friends and family paying them varying rates of interest over different periods of time. At the time of sale our outstanding debt to our friends and family was about $25,000. Our cost of selling was $2,000, most of which was paid to our attorney/real estate agent. We had no tax liability since we qualified for the homestead exemption in both Russia and the U.S. This meant that we would walk away from the closing table with $133,000 after sales costs and debt were paid off. Our $16,000 investment in that apartment yielded 830% return. Obviously this math does not include mortgage payments and some home maintenance, but I figured we’d ended up paying those costs if we rented also, so this idea of buying really paid off well for us. We were excited now because we could return to the U.S. with a healthy down payment and have money left over to invest.

After closing our deal, we did have to deal with the issue of physically transferring large amounts of cash from one bank to another. We were able to transfer $80,000 from the buyers bank to our bank account, but for some reason the second half we had to accept in cash and take it over to our bank. This is never a good idea anywhere, but we were careful and made sure we were with trusted people. After we deposited our money in the Russian bank and made the transfer we had to hold our breath for 24 hours before the money appeared in our bank in the U.S. That was a great feeling! I had expected lots of questions from the local authorities about transferring this sum of money out of the country, but I was told because it’s clear that it was real estate and it was my home, I would have no trouble.

I have to say I love the efficiency of the Russian real estate market. The costs to buy and sell during those days were quite low. I paid $500 to my agent and she did a fantastic job. The escrow fees were $60-$70 total for everything. I’m sure this is because there aren’t the same legal protections that we have and the lawyers there are not making the kind of money they make in the U.S. Nevertheless, as one transacting real estate, it was great to see such low costs. When we bought our first U.S. home in Austin, needless to say, I was blown away at the closing costs. My bubble had burst. But the upside was that I was back home and buying a house that I knew was in a strong and growing economy. There was more equity to be made and a new chapter of our lives was beginning.