Choosing the Right International Real Estate Investment
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.