Choosing The Right International Real Estate Investment
In this article I am addressing real estate and investments internationally. There are a multitude of opportunities in the real estate market in the world, ranging form great deals on retirement homes to investments for appreciation, project developments, and rental investments.
Success in entering the real estate market internationally depends on being clear on what you want from your investment. Let me illustrate how you can clarify your real estate or investment objectives.
Are looking for a retirement home? There are many retirement friendly countries with a wide variety of locations from the city to gated communities, beach front property or up in the cool mountains. I feel it is wise to spend some time in the country you are interested in to get a feel for what it is you really want from your investment.
From an apartment in downtown areas, such as Paris, there are many places in the world where you can walk to a different restaurant every night for weeks, and still discover new ones. Spend some time in the city of your interest and get to know it. The more you explore, the more you will find yourself delighting in its offerings and its people. The whole of the world is there for you to discover the best place for you to live. Some great spots are a bit far from the city. Stay awhile; get to know the country and yourself before buying that dream home.
Looking for an investment requires a very different approach. Investments are done by numbers not purely love and feelings. With investments a priority is to look long and hard at the numbers. Location is always very important. With investments one must be realistic. Making a 15% to 20% return is very good return and the higher the return the more work and risk one has to take. So you must become familiar with risk reward assessment.
One of the great things about real estate is that it generally is a very safe investment. Being that it is very safe, you do not often get 40% or 50% annual return on your money. It is a longer-term solid investment with a minimum amount of risk if done right. You want to do a risk reward assessment of every investment you do, know what the risks are and the potential rewards.
There are two main categories of real estate investment. One is often referred to as flipping or development real estate. This entails buying real estate, alter it in some fashion such as a development, or fix up an older property and resell it for a profit. The time frame for these is often one to 5 years depending on the scope of the project. With development type real estate investments you can expect to make between 15% to 30% net gain per year so a 4-year development could easily net you a 100% over the full four years. If real estate continues to go up in value you could make even more.
The profit is made for the most part from the work that is being done to improve and change the land or building. This takes work. It can be done with you doing all the work or by joining an investment group that is run by a manager that does most of the work. The less you do the less the return, although some people do much better working with someone else to get the work done. You need to assess your interests, abilities and available time. What are your resources and what do you want to spend your time doing?
The second category of real estate investment option is solid value investments. You buy a market ready investment property that has a steady return such as a rental or timber properties.
With rental properties your net return on cash invested is often about 4% to 5% from rent net cash flow. In addition to this you accrue over time the increase in the value of the real estate, which could be another 3% to 10%. Some years could yield more but on average real estate has appreciated at about 3%. This gives a very nice total return of 8% or more. If you enter a market that is just starting up and remains strong you can get a return of 14% to 15% for a period of time.
There are a number of world locations where it appears to be the case at this point. Rent increases over time add up as the years go by further increasing your long-term return. This is a very good long-term steady investment. It is one of the safest long-term investments. Once a property is purchased and put into proper management it requires only minimal attention. It builds solid asset wealth. It is well protected from inflation or deflation of the currencies of the world, as rent and asset values tend to adjust upward as currencies go down. It is a very sound value investment. Many commodity investments fall into this category.
Timber investments are also very productive real estate type value investments. There is the land and trees that are constantly growing. Every year there is more wood so through the annual harvesting of timber it is similar to collecting rent, except without tenant negotiations. You get the wood growth plus the appreciation of the asset value.
Many real estate investments are a combination of the two. You purchase a property, put some work into it and rent it out. Doing this can give you some quick appreciation form the initial time and effort invested and the long term steady return from the rent and appreciation starting from the improved value.
With investments and in particular real estate, I feel the first search one needs to do when looking at real estate is an inward search as to what they want from the investment. A home for personal use brings the greatest value in the form of the smile it puts on your face and in your heart; in contrast to an investment where cash return is the main objective.
In the first case it is easier just take time to listen to your heart and observe the life of the place, relax and you will know when you are in the right spot. In the second case you have to look at your financial goals, your time frame and your personality.
How much time do you have to invest, what is your knowledge base? Do you want a slow steady return coming in every month? Do you want it to start as soon as possible or can you put off the return for another 5 to 9 years then have an even greater deferred return that starts to come in just as you are really getting into your retirement. Are you looking to double you money in 4 years in order to have it all available for something else? What is the risk assessment and your comfort level with the risk of each investment.
Take the time to consider what you want and be realistic as to what your return will be. You can get a mix of the options above but know to what degree it falls into which category and is that serving what you really want.
In the end, be clear on what you are looking for. Is it a new home to live in, a long-term steady investment, or a more aggressive growth investment? How much time to you wish to put into the search and development of the investment? Do you want an investment with minimal future work so that you can devote your time to other things?
Finally, have a team working for your interests. International real estate will impact such important areas as banking, currency exchange rates, foreign or domestic tax considerations, and operational expenses. For all matters of finance, have a qualified professional who is experienced in the relevant international issues or can consult with an associate who is. Legal considerations such as how to hold title, formation of necessary foreign or domestic entities also demands you have competent and experienced counsel.
As to the real estate services, you need a full service company, who have a presence and personal and professional familiarity with the market you are interested in, and can provide you the information and knowledge of available inventory, as well as the important and relevant collateral information you will need to understand.
About the Author: Robert Cheesbrough, is with Prestige World Properties, a full service brokerage that transacts real estate internationally through an extensive network of affiliations in a wide variety of the worlds' real estate markets. They offer a multitude of services to the international real estate investor at http://www.prestigeworldproperties.com.