{"id":2126,"date":"2019-01-18T20:10:21","date_gmt":"2019-01-18T20:10:21","guid":{"rendered":"https:\/\/staging.eager-kirch.135-181-117-101.plesk.page\/what-do-you-need-to-keep-in-mind-when-deciding-on-financing-the-purchase-of-a-property-for-tourist-purposes\/"},"modified":"2025-12-05T22:00:15","modified_gmt":"2025-12-05T22:00:15","slug":"what-do-you-need-to-keep-in-mind-when-deciding-on-financing-the-purchase-of-a-property-for-tourist-purposes","status":"publish","type":"post","link":"https:\/\/zobnica.hr\/en\/blog\/what-do-you-need-to-keep-in-mind-when-deciding-on-financing-the-purchase-of-a-property-for-tourist-purposes\/","title":{"rendered":"What do you need to keep in mind when deciding on financing the purchase of a property for tourist purposes?"},"content":{"rendered":"\r\n\r\nFor the purpose of realizing an investment related to the purchase of a property for tourist purposes, we received an inquiry from a client for the preparation of a business plan which he needed to raise a loan from a commercial bank.<\/span>\r\n\r\nAt a meeting with the client, we observed the basic elements that are important for the client, the bank, and the sustainability of the investment, all for the purpose of better preparation of the business plan and loan approval.<\/span>\r\n\r\nSince he had determined the amount of the property with the seller, the client’s first step was to go to the selected commercial bank to define the amount and terms of credit.<\/span>\r\n

Defining the Amount and Terms of Credit<\/b><\/h2>\r\nWhen defining the terms of the loan, it is important to determine when (during the year) the investor will make installment payments, taking into account the income generated in a specific part of the year (especially when it comes to businesses with pronounced seasonality such as tourism).<\/span>\r\n\r\nSince it is a tourist activity \u2013 renting out accommodation facilities, the intensity of income generation of which is not the same throughout the year, we advised the client that it is important to define the time of loan repayment, i.e., that the repayment should not begin immediately upon the approval of the credit funds.<\/span>\r\n\r\nSince the investor will not yet be generating income from the rental activity at that time, he agreed on an adjusted repayment method with the bank. The client will repay the loan annuities three times a year during the high season: 30.6, 31.7, and 31.8. This method of repayment is very important for the investor because this is the time when prices and occupancy of accommodation facilities are highest.<\/span>\r\n\r\n\r\n\r\n
\r\n
\"Golden<\/figure>\r\n<\/div>\r\n\r\n\r\n\r\nIt was also defined that the client will pay the loan interest monthly. When projecting the annual financial flow, which represents the project’s “wallet” containing the amounts the investor pays, the conclusion was that, taking into account the total projected revenues, investment, and costs, the investor can service the credit obligations.<\/span>\r\n\r\nHowever, with a detailed, monthly projection, it was visible in the financial flow that the investor would not be able to pay the interest amount for the first three months of repayment from the project. Following this, it was agreed with the bank that the client must deposit an amount of his own funds equal to the three-month interest amount into the bank.<\/span>\r\n

Investor Costs<\/b><\/h2>\r\nAs advice to clients, but also to banking employees, we can emphasize that it is extremely important to request a projection of the monthly financial flow, in which it is clearly visible whether the investor will have enough funds at a certain moment to finance initial investments and interest repayment in the period before the income from the project realization starts to arrive.<\/span>\r\n\r\nThe investor decided to finance the property by using 50% credit and 50% own funds. It is also important for the investor to be aware of the additional costs incurred when seeking credit funds, for which the investor needs to secure funds before the loan approval.<\/span>\r\n\r\n\r\n\r\n
\r\n
\"DIagram<\/figure>\r\n<\/div>\r\n\r\n\r\n\r\nThese are the cost of property valuation (in the case of purchasing a property), and the preparation of a business plan. Other costs that accompany the loan approval, for which the investor also needs to secure funds, are the loan processing fee (usually 0.5% of the loan amount), and the cost of notarizing the loan agreement. It is important to take these costs into account because, depending on their amount, it is necessary to either set aside own funds for their financing or increase the loan amount by a certain amount.<\/span>\r\n\r\nSince the investor did not have a company established, he had to start the procedure for opening a commercial company in the meantime, for which he also needs to allocate funds.<\/span>\r\n

Decision on Purchasing a Property for Tourist Purposes<\/b><\/h2>\r\n

1. Purchase of a property that has been rented out<\/b><\/h3>\r\nThe property subject to purchase was owned by another legal entity for the previous two years, which placed it on the market for which interest was proven to exist. Since the tourist activity will be performed by a new company that has not performed this activity so far, the data of the previous owner were used as relevant data for comparing prices, occupancy, and revenue levels. The mentioned data were also used for revenue projection in the business plan.<\/span>\r\n\r\nIf we are buying a property that has been rented out, the investor has a certain degree of security that they will be able to achieve similar revenues as before their investment.<\/span>\r\n

2. Purchase of a property that has not been rented out<\/b><\/h3>\r\nIn the event that the property being purchased has not generated income from the tourist rental activity so far, a market analysis needs to be done beforehand to get relevant data on prices, occupancy, and demand for the property in question, in order to make a revenue projection.<\/span>\r\n\r\nThere is a greater risk for the investor if we are buying a property that has not been rented out because in that case, he must work more on the marketing and recognition of the property being rented.<\/span>\r\n\r\nIn the revenue projection in the business plan, it is important to define realistic, market-based revenues. It is undesirable to inflate revenues and be unrealistic in their projection, as such an investment often “falls through.” On the one hand, in case of loan approval, the client may run into repayment problems, and on the other hand, the bank may determine that the revenues are not realistic, which can ultimately result in the rejection of the loan application.<\/span>\r\n

Project Risk<\/b><\/h2>\r\nOne of the elements that a business plan must contain is certainly a sensitivity analysis in which the bank checks the risk of the project primarily from the aspect of revenue reduction. When analyzing the business plan, specifically the sensitivity analysis, the bank uses the data on how much the revenues from the mentioned activity can be reduced, while the financial flow remains positive throughout the entire observed life of the project, i.e., that the investor can repay the loan.<\/span>\r\n\r\n\r\n\r\n
\r\n
\"Line<\/figure>\r\n<\/div>\r\n\r\n\r\n\r\nThe percentage by which the amount of realized annual income is usually reduced is between 15% and 20%. It is important that even when revenues are reduced, the loan repayment is not jeopardized.<\/span>\r\n\r\nBased on all the data contained in the business plan, especially the financial ones: revenue projection, expenditure projection, profit and loss account, financial flow, and economic flow, calculated indicators such as the net present value of the project, and the internal rate of return of the project, a final decision is made on the project’s profitability and the decision on the approval of credit funds to the investor.<\/span>\r\n\r\nWhen defining the financing of the investment, it would certainly be good to explore other options for financing the investment or at least part of it, such as, for example, EU funds, support from local and regional self-government units, tourist boards, and similar.<\/span>\r\n\r\nAuthor: Jelena Bari\u0107, Consultant at Zobnica d.o.o.<\/span>\r\n\r\n","protected":false},"excerpt":{"rendered":"

For the purpose of realizing an investment related to the purchase of a property for tourist purposes, we received an inquiry from a client for the preparation of a business plan which he needed to raise a loan from a commercial bank. At a meeting with the client, we observed the basic elements that are […]<\/p>\n","protected":false},"author":1,"featured_media":2118,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[51,50],"tags":[],"class_list":["post-2126","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","category-loans"],"acf":[],"yoast_head":"\nWhat do you need to keep in mind when deciding on financing the purchase of a property for tourist purposes? - Zobnica<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/zobnica.hr\/en\/blog\/what-do-you-need-to-keep-in-mind-when-deciding-on-financing-the-purchase-of-a-property-for-tourist-purposes\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What do you need to keep in mind when deciding on financing the purchase of a property for tourist purposes? - Zobnica\" \/>\n<meta property=\"og:description\" content=\"For the purpose of realizing an investment related to the purchase of a property for tourist purposes, we received an inquiry from a client for the preparation of a business plan which he needed to raise a loan from a commercial bank. 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