Video Briefing

The Wandering Investor: Buying Montenegro Real Estate – a Case Study with ROI figures

Sep 7, 2023Video Briefing29:42Watch on YouTube

The apartment is a 108 m², three‑bedroom unit on the beachfront promenade of Čiči, just outside Budva. It sits on a hill with sea views, a private terrace, and includes a garage space—an advantage in Montenegro where parking is scarce. The asking price is €295,000, furniture included.

Purchase and transaction costs

  • Real‑estate transfer tax (pre‑owned property): 3 % of the purchase price
  • Notary fees: €500‑€600 per contract
  • Oral translation during signing: €50
  • Written translation (optional): €250
  • Legal/administrative assistance (e.g., tax payment, utility registration): €500

Total extra costs are roughly €1,500 (about 4 % of the purchase price). Negotiation on price can typically shave another 4‑5 % in Montenegro.

Rental income assumptions

The property is marketed for short‑term Airbnb rentals from May to October (peak season). Conservative occupancy and nightly‑rate estimates from a local Airbnb manager (115+ units under management) are:

Month Occupancy Nightly rate Approx. monthly revenue
May 60 % €165 €2,970
June 80 % €165 €3,960
July 95 % €220 €6,280
August 95 % €220 €6,280
September 70 % €180 €3,780
October 50 % €150 €2,250

Peak‑season total (6 months): ≈ €25,520
Average monthly gross during peak months ≈ €4,250.

Low‑season rental potential

From November to April the property can be let on a monthly basis. Estimates:

  • Conservative figure: €750 / month (reflects personal usage allowance)
  • More realistic figure for a 108 m² beachfront unit: €1,000 / month

Assuming the higher figure, low‑season gross would be €6,000 for the six off‑peak months.

Ongoing operating costs

Item Cost (per month)
HOA/common charges €0.20 / m² → ≈ €21
Electricity €55
Water €25
Trash collection €5
Internet €30
Property tax (annual 0.25 % of value) ≈ €800 / yr → €67 / mo
Maintenance reserve ≈ €58 / mo (≈ €700 / yr)
Airbnb management fee ~10 % of gross rental revenue (covers listing, bookings, check‑in/out, cleaning)
Misc. repairs & deposits (average) ≈ €50 / mo

Total fixed monthly expenses (excluding management fee) are roughly €250.

Net rental income and ROI

Using the conservative peak‑season revenue (€25,520) plus low‑season revenue at €750 / month (€4,500), the annual gross is ≈ €30,020.

Subtracting:

  • Fixed expenses: €250 × 12 = €3,000
  • Management fee (10 % of gross): €3,002

Pre‑tax net income: ≈ €24,000

Net yield (pre‑tax):
[ frac{€24,000}{€295,000} times 100 approx 8.1% ]

This figure assumes the property is rented as‑is, without any upgrades.

Key risks

  • Nearby construction: A planned building could appear on the hill behind the property; permits are uncertain and could affect views or privacy.
  • Under‑utilized interior: Current layout leaves bedroom space partially unused and the kitchen is closed‑plan, limiting guest capacity.
  • Wear and tear: Beach‑front rentals experience higher cleaning and maintenance needs (e.g., sand, moisture, occasional damage).
  • Seasonality: Income drops sharply outside the May‑October window; reliance on long‑term monthly rentals is needed to smooth cash flow.

Suggested upgrades to improve ROI

  1. Add a small outdoor Jacuzzi on the private terrace (estimated €8,000‑€9,000). Unique amenity can justify higher nightly rates and attract premium guests.
  2. Convert to an open‑plan kitchen/living area by removing the separating wall, creating a more modern Airbnb‑friendly layout.
  3. Install an additional single bed in the currently under‑used bedroom to increase capacity to 4‑5 guests.
  4. Upgrade the main bathroom shower to a space‑saving cabin; retain quality fixtures to keep costs modest.
  5. Refresh furniture and décor (new couch, dining table, linens, towels) to match the high‑end beachfront positioning.
  6. Consider a modest interior redesign (e.g., new lighting, fresh paint) to raise perceived value without a full renovation.

These improvements could raise the average nightly rate by €30‑€50 and improve occupancy, potentially pushing the net yield toward 10 % after accounting for the upgrade costs amortized over several years.

Decision considerations

  • Cash flow: Even without upgrades, the property delivers an 8 % pre‑tax yield, which is strong compared to many European markets.
  • Capital outlay: Initial purchase plus transaction costs ≈ €296,500. Adding the suggested upgrades could require an additional €15,000‑€20,000.
  • Management: A local Airbnb operator handling bookings, cleaning, and guest communication can streamline remote ownership; their fee is roughly 10 % of revenue.
  • Legal: Pre‑owned properties incur a 3 % transfer tax; remote purchases are possible via Power of Attorney, though on‑site inspection is advisable.
  • Market trends: Growing interest from digital nomads (North America, UK, Australia) seeking non‑Schengen stays for a few months boosts off‑season demand.

Overall, the beachfront apartment near Budva offers a solid base yield with clear upside potential if the interior is modernised and a few premium amenities are added. Investors should weigh the modest renovation costs against the expected increase in nightly rates and occupancy before committing.