Investing in International Real Estate For Dummies book cover

Investing in International Real Estate For Dummies

By: Nicholas Wallwork Published: 03-26-2019

Aspiring international real estate investors—expand your portfolio today! 

The real estate world can be a particularly difficult place to do business, and this book helps aspiring international investors of all skill levels avoid some of the pitfalls first-timers often make. Expert author Nicholas Wallwork opens your eyes to how accessible international real estate can be and provides an excellent introduction to some of the main strategies and nuances when investing at home or away.   

Investing in International Real Estate For Dummies covers expert strategies for investing in international real estate, going beyond the more obvious tactics like buy-to-lease and flipping houses. It gives you a solid roadmap for successful property investing that actually works in any market. It lays out checklists of tasks and offers step-by-step guidance and advice based on over a decade of in-the-trenches experience working in the international real estate investment sector.

  • Learn previously unseen expert strategies
  • Find out how to choose which countries to invest in
  • Easily navigate your way around lease options
  • Build an in-country network of reliable contacts
  • Manage your new assets with ease
  • How to build the mindset of a top real estate investor

Looking to start or expand your international real estate portfolio? Everything you need is at your fingertips!

Articles From Investing in International Real Estate For Dummies

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11 results
11 results
What is Passive Income?

Article / Updated 09-20-2021

Passive income is the key to building real wealth. Think of passive income as another name for yield (the money you make on an investment). What makes it passive is that, after it’s up and running, the investment requires minimal input from you for the income, or yield, to keep coming in, month after month. In other words, you invest some of your time and money upfront, and you get money back in return on a regular basis. Your money starts working for you, not the other way around. Sounds good, right? When people think of making money through real estate, their first thought is often capital growth (for example, buying a property for $200,000 and selling it six months later for $270,000). That’s a solid approach to making money, and capital growth projects certainly can make up part of any portfolio. If you’re going to treat your property portfolio as a business, you need to think about income, as well as capital growth. Investing for income tends to be less risky and more reliable than capital growth — because money in the bank this month, and next month, and the month after that is safer than relying on future growth. That’s not to say you won’t achieve capital growth alongside income. If you own a collection of rental and serviced accommodation properties, for instance, those properties will likely grow in value over time. In this way, capital growth is like a cherry on top of a delicious income sundae. Generating income from real estate is so exciting because it’s relatively hands-off compared to, say, working 9 to 5 for a paycheck. In that way, it can be described as passive income. The great Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.” So, if you like the idea of making money while you slumber (and, honestly, who doesn’t?), then the passive income mindset is for you. It’s important to note that passive income isn’t just about making more money (although that is, of course, a big attraction). It’s not about greed. It’s about rethinking the fundamental nature of work and developing the means to live life your way. For you, it may mean putting in a few hours in the morning and having the rest of the day off, or having a four-day weekend, or never wearing a suit again! In short, passive income gives you more freedom — to do whatever you want. Passive income isn’t a get-rich-quick scheme. It takes time to build up a good level of passive income. So, if you’re looking to quit your job and devote yourself to real estate full time, it may be a while before you’re comfortable giving up the security of your existing income. Examples of passive income Anything that generates money and isn’t directly tied to your effort or output (in the way of a regular job) is considered passive income. So, investing in the stock market can be considered passive income. So, too, can real estate. What’s great about real estate investing is that there are so many exciting sub-strategies for generating a regular income, including the following: Property development Rent-to-rent Houses in multiple occupations Student and vacation rentals If you think passive income ventures like these require a lot of upfront capital, think again. Rent-to-rent, for instance, requires nothing more than the first month’s rent and deposit to get started — and sometimes less than that! In this way, property can offer a fairly low-capital route to passive income. This is why I believe real estate is probably the most achievable path to passive income for the average person on the street. It can create serious wealth, too, if done right. Pros and cons of passive income Here are the pros and cons of passive income, as this author sees them. On the plus side passive income gives you: More time and freedom: Assuming you build up to a level of passive income where you no longer have to work 9 to 5, you have much more choice in how you live your life and more time for the things you love. Better work-life balance: You can be there to take the kids to school and pick them up at the end of the day, and manage your real estate investments when it works for you. The ability to indulge your passion — and your talents: Concentrating on passive income has allowed me to invest in projects that genuinely interest and excite me. You can spend time on the parts of the business you find most interesting or are the best use of your time. The rest you can outsource to people who are better qualified. Passive income gives you the means to reach your full potential. What could be more satisfying than that? On the downside, with passive income: You have to take a longer-term view. Passive income isn’t about getting rich overnight. It’s about rethinking the way you work and earn money for the long haul. There’s a cost to being more hands-off. As your portfolio grows, you’ll probably have to outsource some of your workload to other people and/or invest in technology to take care of certain tasks for you. This means sacrificing some of your income to cover these costs. For me, the additional cost is well worth it because it frees me up to focus on new opportunities and profit-enhancing activities. You can’t get away with putting in zero effort. “Low” or “minimal” effort, sure. But not zero effort. You need to invest some time in your investments, both in terms of establishing your new projects and checking in on them regularly. When you’ve got a property up and running nicely, and you’re generating a regular income from it, don’t make the same mistake as a lot of investors and ignore the property. If things go wrong because you’ve stepped off the gas, you’ll have to devote lots of time and energy to get things back on track. To keep your investments on track, you’re far better off spending a little time often than spending a lot of time only occasionally.

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What Is Real Estate Value and Valuation

Article / Updated 05-26-2021

Value is easy, right? It’s the price you pay for a property? Well, it’s not quite that simple — price and value aren’t always the same thing. Real estate appraisal or property valuation is the process of determining what a property is actually worth. This may or may not be the same as its price. Appraisers go under different names depending on where you are in the world; real estate appraiser, property valuer, and chartered surveyor are the most common names. The terms appraiser, valuer, and surveyor are used interchangeably. Compare price to value in more detail A property’s price (how much the property costs to purchase) can be very different from its value (what the property is worth). For example, a property may actually be worth in the region of $300,000 but the seller may have an inflated idea of its value and insist on putting it on the market at $350,000 — or he may have been guided to set the price high by an especially greedy agent who wants a higher commission. A buyer with a firm grip on valuation will understand that $350,000 isn’t a fair market comparison for that property, and refuse to cough up. But an unsuspecting and inexperienced investor could fall into the trap and end up overpaying. There are a number of reasons why a buyer may gladly pay a price that’s lower than the property’s value. The buyer could, for example, be buying a property from a family member, who is cutting her a favorable deal and pricing lower than the market value. Or it could be a distressed sale where the property is priced lower than it’s worth for a quick sale, or perhaps it’s being sold at auction and the bidding doesn’t reach the expected levels. A buyer may also be willing to pay more than a property’s market value in order to secure a particularly attractive investment in a highly competitive market. That’s right, sometimes an investor may have arrived at her own valuation that’s higher than the comparative market value, maybe because she plans on changing the use for a niche high-income strategy (like short-term rentals, for example). If, when you’re valuing a property, you’re using a different valuation method from the person doing the appraisal, you may well arrive at a different value. That’s not necessarily a cause for concern, as long as you’re sure of your own numbers. The purpose of appraisals In general, appraisals or valuations are used in a number of contexts, from dividing up assets during a divorce to taxation. But for the real estate investor, valuation is used to determine How much you can borrow to purchase a property (because appraisals inform mortgage loans) How much you should reasonably expect to pay for a property How much a property could generate in ongoing income (where income is the investment goal) How much you could sell the property for after adding value (where capital growth is the investment goal) Valuation is particularly important in real estate because each property is different. As an asset class, property is unique. When you buy two shares of stock on the same day, both shares are identical. But that’s not the case with real estate. Even two properties on the same street can be very different. In fact, even two houses next to each other, even if they’re both identical in size and layout, will vary a great deal in terms of condition, fixtures, and fittings and presentation. Their value will differ accordingly. Valuation is also necessary because most people fund their investments through some sort of financing, like a mortgage. And when you’re borrowing the money to buy a property, the lender will want to know that the property is worth what it’s loaning you. If you default on the loan, forcing the lender to foreclose on the property and sell it, the lender wants to know that there’s enough equity in the property to get its money back. In this way, real estate valuation protects the bank, as well as you. Factors that influence property value So, what kinds of factors impact a property’s value? The key factors are The size of the property: For example, it makes sense that a four-bedroom, three-bathroom house will be worth more than a two-bedroom, one-bathroom house in the same town. The condition of the property: This is key because it’s how so many investors add value to a property. By renovating and improving a property, even if you’re not doing major structural remodeling, you can increase its value in a relatively short amount of time. How the property is (or can be) used: For one thing, a commercial property will be valued differently from a residential property. What’s more, various usage restrictions may also impact the value. For example, if zoning restrictions mean it’s impossible to turn a commercial property into a luxury block of apartments, then that restriction may impact how much buyers are willing to pay. The property’s location: Compare a four-bedroom, three-bathroom house with a smaller house in the same town and it makes sense that the bigger house is worth more. But things get foggier when you bring different locations into the mix. Compare that generous family home in Des Moines, Iowa, with a studio apartment in Midtown Manhattan and the smaller property is likely to be worth more. That’s because different locations are more desirable and valuable than others. Additional local factors like a nearby, highly rated public school or great transportation links can also drive up a property’s value. Supply of property: A few years ago, there was a lot in the real estate news about Bulgarian apartments. Investors were piling into the country in droves, and new apartment buildings were being thrown up left, right, and center in coastal and ski resort towns. The result? A market that ended up with way more supply (new-build apartments) than demand (actual buyers) and apartment blocks sitting empty and unsold. Compare that with, say, a sought-after coastal village location in Cornwall, in England’s beautiful West Country, where supply of properties is relatively low. Because few properties come onto the market, their value is higher than if there was a deluge of available property. Demand for property: Think back to the tiny studio apartment in Midtown Manhattan, and you can see how being in a buoyant real estate market, like New York, can impact a property’s value. In a market where there’s a wealth (pardon the pun) of motivated buyers keen to purchase property, combined with plenty of money to buy, demand goes up — and with it, market value. Who values real estate? So, who has a hand in deciding a property’s value? Depending on the circumstances, the following people may all be involved in the process at some point: Sellers: Plenty of sellers do their own homework on what their properties may be worth before they put them on the market. And, at the end of the day, it’s the seller who weighs the agent’s recommendation and agrees on the final price. Buyers: Informed buyers do their own research and analysis, and reach their own conclusions on the fair price for properties. Real estate brokers and agents: Any good real estate broker or agent knows her market inside and out, and she’ll have a really good handle on the likely value of a property. That said, it’s not uncommon for an agent to quote a higher valuation to get a seller’s business (and a juicier commission), even though this can result in an overpriced property languishing on the market for longer than it needs to. So, when an agent gives you a valuation, do your own homework to determine whether that’s a correct and fair price for your market. Professional appraisers, valuers, or surveyors: Whenever you’re seeking funding to buy a property, the lender will send a professional appraiser to value the property. (By “professional,” I mean that many countries require appraisers to be qualified and certified.) Depending on the lender and type of funding, you may have some flexibility to appoint the appraiser yourself, or choose from a shortlist of the lender’s appraisers (this is not unusual on a commercial mortgage in the United Kingdom). Many times, though, the lender will simply appoint its own appraiser, and you’ll have no say in the matter. Either way, you’ll ideally have the option of being present at the valuation. Be aware that a lender-appointed appraiser may not have a ton of experience in your type of investment; for example, he may specialize in standard residential properties rather than income-generating rentals.

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3 Main Real Estate Valuation Methods

Article / Updated 07-31-2019

There are several different methods used to value property, but here are the three most common methods: Market comparison approach: Compares the property being valued with other similar properties that have recently been sold in that area Income or investment approach: Looks at how much income the property being valued is already generating or could potentially generate Cost approach: Looks at how much it would cost to build an equivalent property Each valuation method is independent of the others, meaning an appraiser will mainly use only one approach rather than a combination of all three approaches to determine the value of any one property. The method used may be dictated by the lender in question. And, each approach can arrive at quite different valuations, so it’s important to know which valuation method your chosen lender is using. Different valuation methods are used for different situations. Sometimes more than one valuation figure is quoted in reports, particularly for commercial mortgages where the market comparison (or bricks-and-mortar) valuation is used as a fallback if the investment valuation use of the building changes (for example, a paying tenant leaves and the income reduces to zero until a new one is found). That’s not to say that one approach is better than the others — only that one approach will be more applicable or appropriate for a certain property than the others. You need to understand the differences between each approach, and know which approach the appraiser is using for your investment. Market comparison approach If a total novice wanted to roughly work out the value of his home before putting it on the market, what would he do? He’d go online and look at how much similar properties nearby (ideally on the same street) sold for. “Well, honey, the Jeffersons at number 59 sold their home six months ago for $280,000, and they only had a single garage, not a double like ours. So, our house is bound to be worth a bit more.” That, in a pretty crude nutshell, is how the market comparison valuation method works. Also known as market value approach or bricks-and-mortar valuation, market comparison is a valuation method that’s based on local comparables — in other words, how much similar, nearby properties have sold for recently. It’s the most common valuation method and the one typically used by mortgage lenders to assess residential properties. Common considerations for market comparison valuations Your average market comparison valuation will define a property’s value by looking at prices of properties on the same street or prices of other properties of a similar size and condition from the local area. The value will be adjusted according to variances like the size, specification, and condition of the property being valued. Other variables may also be factored in, such as supply and demand in the local real estate market at that time or the availability of financing. In addition, appraisers who are appointed by a lender may also be constricted by the lender’s valuation criteria, which may lean toward the lower end of comparables in order to reduce their risks as much as possible. Therefore, the inherently cautious nature of lenders and appraisers means you won’t necessarily get the valuation you hoped for. Just because the house down the street sold for $280,000 doesn’t mean you’ll get the same valuation. Of course, no two properties are exactly alike. Properties A and B may be the same size and on the same street, but Property A may have a beautiful view of rolling hills, while Property B may have a rather uninspiring view of other houses. But maybe Property B has been stylishly renovated, while Property A is straight out of the 1970s, complete with peach satin drapes and brown shag carpets. That’s why appraisers try to find a few comparable properties to help them determine a fair market value, not just one or two. The limitations of market comparisons If there’s one sticking point with the market comparison approach it’s this: To get an accurate valuation, you do a good number of comparable properties. That’s fine for a standard residential property, like a single-family home or an apartment, where there are lots of similar properties to look at. But when you start to get into bigger, unique properties, finding enough accurate comparable market data is challenging. Although it’s a straightforward valuation method to understand, the market comparison method isn’t always the best judge of value. Imagine a huge nine-bedroom rental property. Although it is a residential property, the market comparison approach just isn’t reliable because there aren’t any similar nine-bedroom rental properties nearby. In that example, the first two valuers, who were using the market comparison approach, had to look at larger properties elsewhere in the town. But that wasn’t a fair comparison because the location of my investment property was far more desirable. Essentially, the property was unique in that market, meaning the market comparison approach just wasn’t a reliable indicator of value, so these valuers took a cautious approach. For that investment, the income approach was much more appropriate. Income or investment approach Instead of looking at the bricks-and-mortar value of a property, this valuation method treats the property as an income-producing business. Focus on income not comparables The income approach or investment value approach to valuation assesses the value of a property as an investment. Also known as commercial investment valuation, this method is commonly applied to commercial properties like offices, but it may also be used for income-producing residential properties, such as rentals or blocks of apartments. At its heart, the income approach is based on the understanding that the higher the income potential of a property, the more an investor is willing to pay for it. A property’s income or investment valuation can be higher or lower than its market comparison value — in my experience, it’s often (but not always) higher. How the income approach works The best way to describe how this valuation method works in practice is with an example. The example is based on a UK investment: a small block of four apartments. Let’s say each of the apartments is rented out for £750 per month. That’s a gross annual rental income of £36,000. Now, based on her appraisal of the property, the UK valuer will apply two concepts to arrive at an income-based valuation of that property: Discount: A discount that’s applied to the gross income in order to establish a realistic picture of the net income. A discount of 15 percent to 25 percent is typical on a UK income valuation, but it depends on a number of factors, such as the quality of the property, how strong the rental market is right now, location, costs, and how likely it is that one or all the units can stand empty without tenants for a period of time (the void period). Basically, the lower the discount, the better the property. But let’s say the discount applied to our £36,000 annual gross rental income is 20 percent. So, our estimated net income is then £28,800. Yield: The return on investment the investor can expect to receive, expressed as a percentage. To determine the yield, the valuer will look at comparable properties, local rental incomes for similar apartments, demand in the local market, and so on. In a busy town with lots of renters, the yield will be better than in a rural setting, with lower demand from renters. Let’s say the yield on our example investment is 7 percent. To calculate the income valuation, the valuer will take the discounted net rental income (£28,800) and divide it by the yield (7 percent). The income-based value of that block of apartments is therefore £411,429. Valuers will usually round the figure down as well. Don’t be shy about calling a couple of local surveyors and asking what sort of yield they’re currently applying to your type of investment property in your area. It’s part of my process when I’m evaluating the potential of an investment deal because the end value is so important. Although this example gives a useful overview of the concept of valuing based on income. The nuances of the income-based approach will depend on which country the investment property is located in. For example, in the United States, a revenue multiplier or capitalization rate (rather than yield) is applied to net income. Always research the income valuation method that’s used in your particular market. Cost approach The third approach to be aware of looks at neither income generated by a property nor local comparable properties. The cost approach is used to establish the cost of replacing the building being valued. It’s widely used for insurance replacement purposes (so, if the building burned down, how much would it cost to replace the building on that spot?), but it can also be a useful method for brand-new buildings, proposed constructions, and unique properties that don’t have local comparables and don’t generate an income. When using the cost approach, an appraiser will look at the estimated value of the land, as well as the cost to replace the building as new (minus depreciation, such as wear and tear).

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How and Where to Educate Yourself on International Real Estate

Article / Updated 07-31-2019

Knowledge is power, as the saying goes. But knowledge also is a tool — a tool for building wealth and personal freedom. A bit like a spanner or a wrench, only slightly more glamorous. In most professions, continual education is key to staying on top of your game. The people who progress well and succeed are the ones who are continually evolving. Real estate is no different, and if you want to become (and remain) a successful real estate investor, you need to invest time in your education and improvement. Even as your real estate portfolio becomes more established, never be fooled into thinking you know it all. You’ll be missing out on so many important opportunities to grow and learn. I love learning from those who know more than I do, whether that comes from networking, reading books, or wherever. Even if I only get one useful nugget from a book — a tidbit that changes my mind-set or improves the way I do something — it’s well worth my time. Tap into a wide variety of educational sources Well, real estate is a very accessible industry with little in the way of formal qualifications needed to succeed, so you’ll have to think outside the formal education box when looking at ways to continually learn and grow. Thankfully, these days it’s easier than ever to access information quickly and easily, often for free or extremely cheap. Your mission is to make like a sponge and soak up all that information. This may include Reading as many books as you can get your hands on about your chosen real estate strategy: If you struggle to find time to read, try listening to audiobooks in the car or while you’re at the gym. If you commute to work every day for 30 minutes each way that’s a potential hour of audiobook training time every day, which equates to 240 hours a year! It soon adds up… . Becoming a general business, entrepreneurship and self-help book junkie, like me: I love reading both the practical how-to-succeed-in-business types of books and the more mind-set/self-help kinds, and even autobiographies by business leaders and entrepreneurs. I find it particularly inspiring to read about how people became successful and their personal formula for success. You’ll be surprised how many similar traits successful people have — and you can learn these traits and techniques, so keep reading! Staying alert to potential new real estate strategies that are a good fit with your portfolio, skills, and passion. Keeping up to date on the latest technology developments, from social media platforms to productivity apps and software for managing your real estate investments: You don’t need to be a tech genius to thrive in real estate, but you don’t want to miss out on opportunities to connect with people more easily and streamline your processes. Harnessing the wealth of information available for free online by joining property forums, delving through relevant thread archives on forums, signing up for relevant industry newsletters, and subscribing to blogs. Attending education seminars held by property investment and development companies: These seminars often free to attend because the goal of the seminar is usually to sell you a product or investment. So, although I wholeheartedly encourage you to tap into these free sources of education, never buy anything on the day. Always go away and do your homework after the seminar because there are plenty of paid courses not worth the paper they’re printed on. Signing up for online real estate and business courses, such as those available through Udemy and Coursera. Attending big annual property shows and exhibitions: These shows provide fantastic educational and networking opportunities and are a great way to immerse yourself in the market and to learn what others are doing. Being open to new mind-set-related, self-help techniques and approaches (for example, positive affirmations, visualization, the law of attraction, and meditation). Taking the time to build mind-set-related, self-help techniques into your daily routine: As in any industry, there are operators out there looking to make a quick buck from inexperienced real estate investors who are keen to learn. So, don’t automatically believe everything you’re told by someone in a seminar where the end goal is to sell you something. Soak up their information; then assess that information against other sources as well. If multiple different sources are telling you that Morocco is a great place to invest, that’s very different from one guy pushing Moroccan investments at a seminar. Take time for education before you put your real estate investment money on the line Although continual education is an important part of success, take the time to immerse yourself in real estate and learn as much as you can before you embark on your first investment. Learning as you go is great, but mistakes in your early days can be costly. Immerse yourself in property education for at least six months before you put your money on the line with an investment. Why not set yourself some education targets to hit before you start seriously scouting for investment opportunities? For example, you can set yourself a target of reading one inspirational book a month, attending six property shows this year, and participating in property forums once or twice a week.

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Real Estate Investment Strategies for a Credit Crunch

Article / Updated 07-31-2019

A financial crisis that leads to a credit crunch (a sudden drop in the availability of financing) is challenging for most real estate investors, especially in the first 12 to 24 months of the crisis. There’s a lot of uncertainty, verging on what can sometimes feel like pandemonium. The value of assets is dropping, perhaps sharply, meaning your properties are worth less than they were the year before, or even the month before. During the first 12 months of a financial crisis, it’s not a great idea to go running headfirst into a new strategy that you’ve never deployed before. In my experience, those early months are the worst. Depending on your overall goals, your level of expertise, and your financial situation, this may be the best time to sit tight, focus on the investments you already have, and see how things shake out once the initial market panic subsides. My intention here is not to get you jumping into investment decisions at the first sign of crisis; instead, it’s about positioning yourself and your portfolio in a way that means you can still make money during a credit crunch. Because, even in falling or stagnant markets, there are still many strategies that can work brilliantly. How to work with the challenging market It stands to reason that the middle of a credit crunch is not a great time to be trying to sell a property, or property leads for that matter. Without ready access to finance, fewer people are willing or able to purchase your properties, no matter how great your product is. In a tough market, your income-focused strategies are your best friends. For the most part, this will mean rental income — after all, people who can no longer get a mortgage will be forced to rent until the banks will lend to them. If you’re investing for income, you’re better positioned to weather the kind of storms that negatively impact capital-growth strategies. These may be the ideal conditions for income-based strategies, but you still have to work hard to make a success of it. You’ve still got to make sure that your product is right for your target audience (so, don’t try to target a property as a student rental when it’s 20 miles away from the university). And you still need to add value for your customers. If your customers are tenants, that means offering the kind of quality accommodation that makes them want to stay put. When times are tough, managing your cash flow properly is more important than ever. And that means carefully factoring in fluctuations in your income and costs — for example, by planning for void periods (where a property or a room is sitting vacant). If you’re feeling confident and you’re financially able, this can be an excellent time to expand your real estate portfolio. It’s a buyer’s market after all, with low prices and highly motivated sellers, meaning you can pick up some bargain properties. Suitable crunch strategies Take a look at some of the income-based strategies that work well in a challenging market: Rent-to-rent: This strategy involves renting a property from an existing landlord and then (with permission) subletting it out on a room-by-room basis. What’s great about this strategy is that, in the middle of a credit crunch, if you’re struggling to access financing for your property ventures, rent-to-rent requires little startup capital, at most the first month’s rent and a security deposit. Houses in multiple occupation (HMOs): This is a fast-growing strategy, particularly in the UK and Europe. An HMO strategy involves renting out rooms in a property to multiple individual tenants (typically three or more separate tenants to qualify as an HMO). It’s a bit like rent-to-rent, except you own rather than lease the property (which is even better if you can buy the property cheap in a market slump). Because you’re renting rooms to multiple separate tenants, rather than renting a property to one tenant, you can significantly increase your income — and still cover the mortgage and bills even if a room or two stands empty for a while, also making it, in my view, a low-risk strategy. Renting to students and low-income-housing tenants: Students and low-income-housing tenants tend to get a bad rap, and many investors avoid these target markets like the plague. But with the right product and careful management, this strategy can deliver steady-as-she-goes income in a down or flat market. Variations on the rent-to-rent theme can offer some “outside the box” opportunities in a credit crunch, even if you’ve got little capital to grow your real estate portfolio. Say, for example, someone in your circle of contacts is struggling to pay his mortgage because he’s been let go from his job. You can agree to cover his mortgage costs; lease the property from him; and get stable, long-term tenants in there to more than cover the cost of the mortgage. Likewise, someone who’s looking to sell up and downsize as she approaches retirement, who has been unable to find a buyer for her large property, may be very open to your renting the property from her and subletting rooms to tenants. It provides both of you with a steady income when others are feeling the pinch. In tough times, there are lots of examples of people who would be very open to having their mortgages paid.

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Real Estate Investment Strategies for a Boom Market

Article / Updated 07-31-2019

Picture a buoyant property market and what that means for real estate investors. Prices are strong, and rising month after month (maybe even, as we saw in the last property bubble, rising steeply month after month). There is an ample supply of buyers. Demand is high, and properties sell fast. This is what’s known as a seller’s market. These conditions are clearly ideal for strategies that are based on sales and capital growth. That’s not to say these are the only strategies that will work well in a strong market (they’re not), but strategies where the end goal is to sell a property (or sell property information) are particularly well suited to these market conditions. How to work with the booming market When the market is especially strong, you gain added uplift from that market and even very short-term strategies can bring capital growth. Before the financial crisis of 2007–2008, plenty of investors were making money by buying properties and quickly reselling them (what’s known as flipping houses) for a profit. Many of these investors did minimal or no work on the property at all, but the rising market still delivered nice returns. With a sales-based strategy, I always advocate adding value rather than relying on a rising market for profit. Adding value may mean changing the property’s use (for example, from an office block to an apartment block), refurbishing the property, or anything else that helps to increase the property’s value. The important thing is not to gamble solely on the market. In my opinion, the housing bubbles of the future won’t be as dramatic as the last one — we’re more likely to see slow, steady increases and prices rising at a more sensible rate. My hope is that this will deter inexperienced investors from clamoring to flip properties quickly without adding value. Even so, there are still lots of reasons to be cautious with a sales-based strategy, particularly if you’re financially reliant on selling the property quickly. If you get your timing wrong and the market is changing, or for some reason the sale takes longer than you think, you’re stuck with the property in the meantime. If you’ve funded the property through finance, you’re stuck paying the mortgage and bills. In this way, the risks are higher than if you’re investing for income. That’s why the lion’s share of my portfolio is about investing for steady, long-term income. For any investment where the goal is to sell the property, have a plan B in mind. For example, if the market shifts, you may feel more comfortable knowing you can easily rent the property instead of struggling to sell it. This may mean you focus less on luxury family houses (which would have a fairly niche target rental market) and more on smaller, more affordable houses and apartments (which would rent well). Suitable boom strategies Here are some of the sales-based strategies that are well suited to a strong real estate market: Developing properties: Property development is a broad term and can mean anything from a simple refurbishment or remodel, to building a whole block of apartments. As a strategy, it can work in both booming and challenging markets. But combined with the characteristics of a booming, seller’s market, property development is a particularly attractive option. Dealing in property information: Generating and selling property leads and sourcing properties for buyers is a great strategy to deploy in a strong real estate market. There are lots of people buying property, and wanting to buy property. Plus, there’s the added bonus that, when prices are strong, so is your commission! This strategy is particularly worth considering if you’re interested in being more hands-on and learning about the property market firsthand. Flipping houses: Again, I have to stress the importance of buying, adding value, and then selling, rather than buying and quickly reselling purely on the basis of rising house prices. If you’d like to flip (pardon the pun) through more information on the buy-and-flip strategy, check out Eric Tyson and Robert Griswold’s book, Real Estate Investing For Dummies (Wiley).

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The Role of Finance in International Real Estate Investments

Article / Updated 07-31-2019

Finance is a key element of success and growth when you're investing in international real estate. Think of how a regular business grows from a small startup to a large multinational. Rarely do the business owners have the cash to fund the necessary expansion themselves — and even if they did, they might have other uses in mind for their cash. (That villa in Saint-Tropez isn’t going to buy itself, after all!) Businesses that really want to grow seek external investment to fund their expansion. In a similar way, finance, or more specifically, leverage, is your path to growth and building real wealth. The link between leverage and growth in real estate finance The best way to demonstrate the importance of leverage is with a simple example. Say, thanks to a large inheritance, you have $200,000 that you’re looking to invest. You want to use that money to generate a solid income and create capital growth (growth in value) for the future that will serve as a retirement nest egg. You can use that money to buy a $200,000 house outright, that you rent out, generating a monthly rent of, say, $1,000 (just to stick with a nice round number). Then, when you retire in 20 years, you have the option of selling that property for a tidy profit. Let’s say the value of real estate in your area is doubling every 20 years, so you can sell it for $400,000. Not bad! But what would happen if you applied the concept of leverage to that inheritance? In this case, you can buy four $200,000 properties by putting down a 25 percent down payment (that’s $50,000) on each house and taking out a 75 percent loan-to-value (LTV) mortgage on each house to cover the remaining cost. With each property earning $1,000 a month in rental income, you’re generating significantly higher returns than you would have with just one property (granted, you have mortgage payments to cover, but you’re still making a higher profit each month). Then, when you come to sell 20 years later, after the mortgages are paid off, if each property has doubled in value, you pocket a cool $1.6 million instead of $400,000. Now that’s a nest egg. This demonstrates how finance is key to growing your real estate portfolio and your wealth. The following figure also neatly demonstrates the link between leverage and growth. Let’s not forget that you can also leverage existing property itself to finance future growth. In other words, you can borrow against your already owned property (through secured loans, second-charge loans, releasing equity, and so on) to release funds for further investment. This is what makes property particularly attractive as an asset class: The larger your real estate portfolio, the more options you have for using leverage to fund future growth because you’ll have more assets (properties) to secure the loans against. The full range of international real estate finance options Understanding the full range of finance methods and products is a huge part of investing successfully in real estate. For me, it’s right up there alongside choosing the right investment strategy — it’s that important to success. If you can get a really good handle on finance, you’ll have a serious advantage over other real estate investors. Understanding and maximizing finance can be your competitive edge. Without money, it’s difficult to get a foot on the property ladder. So, if you don’t fully understand the financing methods and products that are out there, all you can really do is spend your own money. And from a business point of view, it’s hard to get agents, sellers, and potential business partners to take you seriously if you don’t understand what sort of financing might be available to you. But if you grasp both the concept of leverage as an investment strategy, and the different financing options available, not only do you know what’s realistic for you as an investor, but you’re also able to move much more quickly and secure appropriate finance when great opportunities arise. This ability to move fast can be a big differentiating factor in real estate success. For example, mortgages take time to arrange and may not even be an option for the type of investment opportunity you have in mind. So, when you need to move fast or you’re looking at a not-so-standard project, a bridge loan may be a suitable short-term option. But even a simple mortgage isn’t as straightforward as it sounds. There are still lots of nuances to get your head around, such as the term (length) of the loan, fixed or variable rates, the LTV percentage (what percentage of the property’s value you can loan up to), and the value of the property. It’s a good idea to learn about these finance products and other means of financing investments before you embark on your real estate journey. This is one area where learning on the job can cost you a lot in wasted time, wasted fees, and wasted opportunities.

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How to Manage the Development of a Real Estate Investment

Article / Updated 07-31-2019

You’ve sourced a promising investment property, you’ve arranged appropriate financing, and you’re ready to start your project. So, what now? Do you need professional help? You might. Know where you need professional help You can’t do it all yourself. Even if you’re an extremely skilled jack-of-all-trades, personally handling every element of the build or refurbishment is probably not the best use of your time — not if you want to really grow as an investor and build multiple income streams. You’ll need professional help if you’re going to complete the project on time, on budget, and to a high standard. The key professionals you’ll likely work with are Architect and/or planning consultant Project manager Building contractor and tradespeople Successfully managing development projects is about building a great dream team around you, and ideally that same team will work with you on many projects to come. Work with an architect and/or planning consultant If your project is a straightforward refurbishment, with no structural changes and no changes to the footprint of the building, then you probably won’t need to hire an architect or planning consultant. However, if your project is more complex than that, you’ll want to employ an architect to turn your vision into detailed drawings and plans. On large or complex projects, it’s vital to have accurate drawings done before you start work — builders need drawings to work from, after all (and, in many cases, they won’t even be able to give an accurate quote for the work until they’ve seen the plans). Depending on the scale of your project, the types of drawings/plans that you may need include Existing and proposed floorplans for the interior. Mechanical and electrical (M&E) drawings for the design and installation of plumbing, electrical, and other main services: This is often as detailed as how many sockets will be in each room, what sort of lights you want in each room, location of switches, how many lights are needed in each room, and so on. Exterior elevations (again, existing and proposed), showing the features and design of the property’s exterior and what changes are to be carried out there. If the changes you’re making to the property require planning permission, you’ll need to work with a planning consultant, or for more simple applications hire an architect who can work with you to apply for the appropriate permissions. Work with a project manager The project manager is the person who’ll oversee the project as a whole, booking tradespeople and generally keeping the project moving along as it should. When you’re just starting out, you may prefer to act as your own project manager. Managing a big project can be a full-time job, so you’ll need to weigh the pros (saving money, learning opportunities, and so on) and cons (time pressures, inexperience, sleepless nights!) of doing it yourself. As you get more established and take on more complex or larger projects, it’s certainly worth hiring a professional project manager so you can concentrate on building your business. How to work with builders and tradespeople If your project is a fairly straightforward refurb, then you may prefer to complete some of the work yourself. You may, for instance, have a passion for landscaping or love decorating. If so, that’s fine. But there will no doubt be areas where you need professional help. Structural changes, plumbing, and electrical should always be left to the pros, for instance — not least because they’ll be insured for any blunders! When it comes to sourcing good builders and tradespeople, the basic rules for any dream team member apply. Word-of-mouth recommendations are a great way to source good people, but you should still check out reviews of the company online and ask to see some of their previous projects. If you’re employing a project manager, he’ll be able to help or manage this process for you. Your architect may also be able to recommend good contractors. When it comes to organizing the practical building/trades stuff, you have two options to choose from: Work with a master or managing contractor, who’ll run the build and manage all the subcontractors (plumbers, electricians, and so on) from start to finish. You’ll pay more for the privilege (perhaps as much as 10 percent or 20 percent more), and you won’t learn as much about the development process, but you’ll benefit from the master contractor’s experience and knowledge (provided he’s reputable and good!), and you’ll have more time to concentrate on growing your business. You (or your project manager) employ separate builders and tradespeople for every element of the project, sourcing, booking, and overseeing the work yourself. This can save quite a bit of money and is certainly a good way to learn about property development, but it can suck up a lot of your time. As your portfolio grows and you take on more and more development projects, you’ll build a team and find a method that works for you. Create a detailed budget You’ll have had a ballpark development cost in mind when deciding on the project and seeking finance, but now’s the time to really flesh out the details and create a thorough budget. Pull together costs If you can build for less, that’s more profit for you. So always shop around and get three different quotes for every substantial element of the project to find the best deal for you. Doing the legwork at this stage can really add value for you further down the line. Don’t be afraid to try to negotiate a discount either! The nitty-gritty of your budget will depend on the scale of the project and the specification that you’re going for in terms of fixtures and fittings (which, in turn, will depend on your end goal and target audience), so there’s no real rule of thumb to follow. However, to give you an idea of the types of costs to consider and budget for, the following table shows an example cost breakdown for the conversion of a large family home into a large multi-tenant HMO. Example Cost Breakdown for a Refurbishment Project Item Cost Mains services connections (possible upgrades) £1,100 Demolition, site preparation, and strip out £800 Enabling works, ground works £650 Waste disposal, including skips £1,800 Drainage installation and upgrades £750 Roof work and repairs, including guttering £650 Carpentry, first fix £1,750 Plumbing, first fix £6,250 Electrical, first fix £4,500 Fire alarm, first fix £2,250 CCTV (more common for larger or commercial sites) £1,500 Broadband Internet/phone line installation (often included in electrical) £350 Drywall/plasterboarding £2,500 Plastering £2,300 Insulation (wall, ceiling, and floor, including acoustic flooring) £3,250 Bathroom(s)/en suite(s) supply and fit £5,500 Kitchen(s) supply and fit £3,450 Carpentry, second fix £2,500 Plumbing, second fix £2,500 Electrical, second fix £3,250 Fire alarm second fix and fire protection measures £750 Ironmongery supply and fit £1,475 Windows (replacement or refurbishment) £3,250 Painting and decorating £4,100 Fixtures and fittings £4,350 Exterior garden/landscaping works £400 Bike and bin storage creation (often a planning requirement) £850 Carpet supply and fit £1,800 Appliances (oven[s], washing machine[s], dishwasher[s], etc.) £2,250 Furniture (if being rented or sold furnished) £4,500 Builders clean £400 Contingency (about 10%) £7,173 Total development cost £78,898 Note: All costs are simplified to include labor and materials, although for further accuracy, these two elements should also be separated. All costs will vary depending on the type and size of your own project. If you’re planning on doing more developments in the future, it’s well worth signing up for trade accounts with key suppliers of materials. It’ll save you money (trade customers often get better prices than regular retail customers), and you’ll get more favorable payment terms. Build in a contingency It’s clear that you’ll need to monitor your cash flow extremely well throughout the project, particularly if you’re funding the project through development finance because you’ll need to plan carefully for loan installments. But it also helps to build a contingency fund into your development budget at the outset. The appropriate contingency depends on the scale of the project, the budget, and your risk profile. Ultimately, the bigger the contingency, the better, certainly in your early days, but 10 percent to 15 percent is a fairly standard rule of thumb. As you grow in confidence and experience, you may find you can get away with a smaller contingency of around 5 percent to 10 percent, especially on smaller sites. It’s a trade-off between using the cash available wisely (because you’ll likely be paying interest on it!) and maintaining a safety buffer for unforeseen circumstances or delays. For larger projects I tend to keep a larger buffer. Create a realistic schedule In addition to creating a detailed budget, you’ll also need to create a detailed schedule that shows the different stages and trades involved, how long each stage will take, and when it’s supposed to take place. The following figure shows an example schedule for the conversion of a large family home into a multi-tenant HMO. There’s a natural order to the work flow on a typical project, as illustrated in the example schedule. As a very obvious example, a plasterer can only come and do his thing after the walls have been built! As you get quotes from builders and tradespeople, be sure to ask them how long they’ll need to complete the work, but also ask them what needs to have been completed before they can start. This will inform the order of work and your overall schedule. Learning how the trades work together and overlap each other is a key part of successfully project managing a real estate development. Microsoft Project is a really useful tool for planning a project schedule. In addition, I like to pad out or overestimate each stage ever so slightly to build that little bit of contingency into my schedules. You may want to do the same. Communicate to keep the project on track After the project is up and running, you or your project manager will need to keep a close eye on the project from start to finish. Good communication is key to keeping a project on track. So, if one part of your project is running slightly behind schedule, and that means your plumber may have to delay his work by a week, you need to keep that plumber (and any other future trades) informed as you go. The last thing you want is to lose good tradespeople because delays or changes to the schedule haven’t been properly communicated. Similarly, if anything changes about the plans or specifications for the work (not ideal, but it does occasionally happen), you need to be informing everyone who needs to know as early as possible. Most projects are a fluid process, and it’s not uncommon for timing and costs to shift slightly as the project progresses. Therefore, it’s vital that you continually communicate with your team and continually monitor and update your budget and schedule as you go along. Prepare the property for sale or rent Whether you’re selling or renting the property, you want to present an attractive finished product that’s perfectly tailored to your target audience. Most buyers (and renters, for that matter) will look at multiple properties before they make a decision, so you want your property to stand out from the crowd and make a great impression. Sell buyers on a lifestyle, as well as a property Before you list the property, consider staging or dressing the property to make it attractive. This means temporarily furnishing the property so it looks like a home rather than an empty property. Dressing a property is an additional cost to factor into your budget, but it’s usually money well spent. In my experience, it’s much harder to sell an unfurnished property because people struggle to visualize how they’d use and live in an empty space. But when the property is beautifully dressed, you’re painting a compelling picture of what it’s like to live there. In essence, you’re selling a lifestyle as much as a property — which, again means you absolutely need to know your target audience and what would appeal to them. If you have zero flair for design, consider connecting with an interior designer as part of your dream team. Particularly if she specializes in presenting properties for sale, she’ll have useful contacts for renting furniture at a good price, which cuts down the expense and hassle for you. For larger projects, you may be looking to sell off-plan (before the project is completed). In this case, it’s well worth having good-quality computer-generated imagery (CGI) drawn up to help prospective buyers visualize the end result. And if it’s a multi-unit development, you could complete one unit first and present it as a “show home.” If you’re renting out the property For a rental property, you have the option of renting it out furnished or unfurnished. There are pros and cons to both, but in my experience tenants generally prefer the simplicity of a furnished property. You can also charge more in rent if the property is simply ready to move into. One option may be to furnish the property but offer prospective tenants the choice to rent the property with or without the furniture. That way, you’re able to market the property to a wider audience, and you get to present the property in a more attractive way (like buyers, renters like to see furniture in a space because it helps them visualize living in the property).

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10 Real Estate Investment Strategies to Consider

Article / Updated 07-31-2019

Besides simply buying and selling property, you can invest in real estate in several different ways. Take a look at a range of ways investors and entrepreneurs get into property investing or build property-related businesses. As with any strategy, education is a key part of success. So, if something in this list interests you, invest some time in learning more about the strategy or business model before you put your money (and your reputation) on the line. Buy-to-rent (single-tenant) properties “I’m investing in real estate,” you say to Beth from the gym. “That’s interesting,” she replies. “My uncle Dave does that.” Chances are, Beth assumes you’re buying a property and renting it out to tenants in a straightforward single rental (renting the whole property to one tenant or household). That’s what most nonexperts think of when they hear the words real estate investing, which makes sense — single rentals are extremely common among first-time investors, or those who want a simple, fuss-free investment as a retirement nest egg. Single rentals are a good investment because they’re very simple to understand, easy to set up, and, generally, straightforward to run. However, they’re unlikely to deliver very impressive rental yields, certainly not market-beating returns. In my experience, renting out rooms in the property to separate tenants is a much better way to maximize your rental income. Most investors get started with a single-rental strategy, but this book is designed to help you progress beyond that, grow your portfolio faster, build wealth quicker, add more value, and overcome the common challenges of single-tenant rental investments (such as how to maximize your rental income in a highly competitive rental market). If you want to really get into the nitty-gritty of being a successful buy-to-rent landlord, I highly recommend two books that will help you on that journey. The first is Real Estate Investing For Dummies, by Eric Tyson and Robert Griswold (Wiley), which is designed for U.S. readers. The second, for readers in the United Kingdom, is called Renting Out Your Property For Dummies, by Melanie Bien and Robert Griswold (Wiley). Flipping houses In very simple terms, flipping a house means buying it and quickly selling it for a profit. To achieve that profit, you may do some minor cosmetic work to the property. But, generally, this strategy relies more on a rising market (or buying at a great discount) as opposed to adding any real value. The idea is to get in and get out as quickly as possible, so you don’t want to be doing any expensive, time-consuming development work on the property. Done well, this strategy can turn a tidy profit, and it can really help you grow your real estate business. However, there are some significant downsides to consider before you take the plunge: This strategy is only really successful in areas with extremely high demand for property, where demand outstrips supply. Under these circumstances, the housing market moves quickly, and prices rise faster. If there isn’t excessive demand, it can be extremely hard to sell quickly for a profit. (Unless you somehow managed to buy the property for a bargain price, in which case you can simply sell it for retail price and pocket the difference, this is how a good property sourcing agent can add value.) In a strong, fast-moving market, where demand outstrips supply, buying at a good price can be a real challenge for would-be flippers. If you pay too much, and the market changes before you can sell the property, you could find yourself in financial hot water. In general, any strategy that relies on rising house prices is risky business. In my opinion, you’re far better off adding real value to the property in order to generate a profit, or earn steady, long-term income from the property. Too many investors overlook the costs involved in flipping houses. It’s not just about buying a house and making cosmetic improvements. You’ve got all the costs associated with acquiring the property (agent fees, legal fees, taxes, and so on), plus covering the mortgage and bills for the period that you own it. If you flip several properties a year, the acquisition costs alone can really add up. There are lower-risk ways to earn money from property — ways that, unlike flipping houses, will work well under a variety of market conditions. Run a bed-and-breakfast, guesthouse, or hotel As a big fan of passive income, I have to say that the thought of running a bed-and-breakfast (B&B), guesthouse, or hotel sends shivers down my spine. I love hotels. I’ve stayed in some wonderful hotels around the world. But would I want to run one? No. That’s because this is an extremely intensive, hands-on business. Even if you’re just running a small B&B by the seaside, you still have to be there every day to greet guests, give them a tasty breakfast, clean the rooms, change the sheets, deal with bookings and guest inquiries, and so on. The devil’s in the detail, and if you’re not a details person, you’ll probably struggle to run a successful operation. Sure, you can simply employ people to run your B&B, guesthouse, or hotel for you, but that’s not an easy solution either. You still need to find and oversee awesome people who can handle all the little details on your behalf. And finding awesome people who can take care of things for you is very tricky in itself and comes with a cost. Broadly speaking, running a B&B, guesthouse, or hotel is never going to be a get-rich-quick scheme. But if it’s something that ignites your passion, this strategy can work well alongside other, much more passive income strategies. Alternatively, if providing guests with a great experience appeals to you, but the intensity of running a B&B, guesthouse, or hotel doesn’t, you may want to consider serviced accommodation or vacation rentals instead. Own or run a care home The costs of elder care in the United Kingdom are staggering. At the time of this writing, the average cost of housing in a residential care home (nursing home) is around £30,000 ($38,000) per year. And that’s just the cost of living there — nursing care costs even more. On the flip side, owning or running a nursing home or assisted living facility is clearly a strategy with high income potential. There’s enormous demand for quality, safe accommodation for older people, and this demand is only going to increase. Those are some big plus points: rising demand and high income potential. However, there are plenty of other serious considerations around owning or running a care home: This strategy is extremely hands-on, and details matter. In fact, details can mean the difference between life and death. The care industry is (rightly) highly regulated, so expect to cope with a lot of oversight from authorities. People management is a critical skill in this business, not just in terms of the residents but the staff, too. You need highly trained care staff with excellent people skills, and they need to be managed extremely well. Reputationally, this can be a high-risk strategy. When things go wrong in the care industry, it often makes the headlines and provokes national outrage. This is a strategy with potentially very high returns, but passion and commitment to the details are key to making it work. Investing in long-term-care facilities is less about a real estate investment and more about providing a service (compassionate and high-quality care) to a vulnerable population. Become a real estate agent, rental agent, or property manager If you’re looking to build your knowledge and expertise in real estate, but you don’t have the money to invest in property yourself, you can do a lot worse than becoming a real estate agent (selling homes), rental agent (marketing rental properties), or property manager (looking after properties on behalf of landlords). This strategy is a great way to learn the industry from the inside. You can develop contacts, earn income, and build a successful business for yourself. It’s pretty accessible, too, requiring little in the way of startup money (if you’re going into business for yourself). Later on, if you want to invest in properties, the knowledge and contacts you’ve gathered will be a huge help. But you may find it turns into a rewarding, lifelong career! Becoming a real estate agent, rental agent, or property manager isn’t for everyone, though. At the very least, you’ll need to be A great salesperson A fantastic communicator and real people person Highly driven and self-motivated Very organized and able to juggle multiple projects and clients at once If you tick all these boxes, you’re passionate about real estate, and you’re willing to learn, this could be the career move for you! Check out Success as a Real Estate Agent For Dummies, 3rd Edition, by Dirk Zeller (Wiley), to discover how to become a top-performing agent and build a successful real estate business. Invest in real estate investment trusts Do you want to achieve the generally steady returns of real estate investments, but you don’t want the hassle of owning and actively managing property yourself? Then real estate investment trusts (REITs) can be a good solution. Real estate investment trusts are investment products where property is the underlying asset. A REIT is a company or trust that owns and operates properties, such as office blocks, apartment blocks, retail properties, and other kinds of buildings that people or businesses rent. REITs can be private or public, with public REITs being traded on the major stock exchanges, just like regular shares. Public REITs are subject to all the scrutiny and regulation of any publicly traded security, which tends to make them a safer bet than private REITs — so, unless you really know what you’re doing, steer clear of investing in private REITs. When investing in public REITs, you can choose and buy shares in specific REITs yourself or you can invest in a fund that specializes in REITs (many focus on a specific type of property, such as commercial offices). Investing in a REIT fund is great because it cuts out some of the hard work on researching suitable REITs; the fund managers choose the best investments on the investors’ behalf (and, of course, they charge a management fee for the privilege). But why choose REITs at all? Well, on the plus side: You get a totally hands-off investment, without having to devote your time and energy to finding and managing properties yourself. REITs are a great option for those who have money to invest, but not really the time (or inclination) to actively manage properties. You usually get returns that are broadly comparable to buying stocks, with (generally speaking) less to worry about in terms of short-term volatility and a performance that mirrors that of the underlying asset (real estate). But on the down side, with any hands-off investment, returns are generally lower than they would be for an investment that you actively manage. In other words, investing in a REIT fund will usually deliver lower returns than buying a property and renting it out yourself. REITs are a useful way to further diversify your real estate portfolio, but combine them with higher-earning, actively managed investments for better returns and a more well-rounded portfolio. Offer emergency housing accommodation Emergency accommodation is similar to low-income housing in terms of the tenant profile, but the way it works is slightly different. Emergency housing is short-term shelter accommodation for people who have no other options available to them, usually because they’re homeless or in crisis. Emergency accommodation is arranged through the local authority housing department, which means, as a landlord, you rent the property to the local authority, and they find and place tenants in it. There are, as you can expect, some big factors to consider before you turn one of your properties into emergency housing. For one thing, you can expect a high turnover of tenants — with some people perhaps staying for as little as one night — which means the property will be used very intensely. You can also expect to be welcoming some pretty challenging tenants, people who may be at the lowest point in their lives. You need to have a good understanding of their needs and be prepared for some potentially difficult tenant behavior. That said, there’s a clear need for this kind of accommodation, so the demand is there for a well-run business to be profitable while helping provide a valuable service to local authorities. Win/win again. Because you’re being paid by the local authority, not the tenants themselves, you can usually charge a reasonable nightly rent for the extra work these tenants require and rest assured that you’ll get paid on time and in full. To really make this strategy work for you as an investor, you need to develop a very clear understanding of the local nuances in your target area, and build good links with the local housing authority. Commercial property Commercial real estate is much more subject to the ebbs and flows of the wider economy than residential property. If business taxes go up, you’ll see more empty shops on Main Street. If the economy contracts, businesses go bust or downsize, leaving large empty warehouses and offices in their wake. You’ve likely seen this with your own eyes in your area at one point or another. The success of commercial real estate investments hinges on having good, stable business tenants in place. Without a tenant, it’s just an empty building costing you money. “Duh, that’s obvious,” you say. But what’s not immediately obvious is that it can take a long time to find good commercial tenants, which means your chances of void periods (where the property stands empty) are usually higher than they are with a residential property. And even if you do find a great tenant, will they be able to stay put if the economy changes? That’s a couple of big “ifs” to consider. So, clearly there are some key downsides to be aware of. But what about the upsides? There are some attractive advantages to investing in commercial property: Commercial leases tend to be much longer than residential leases (at least 5 years, often 10 years, or maybe even 20 years!). If you can find a good tenant, that gives you some stability and potentially lowers your risk. The longer the lease, the more value this adds to the property. Depending on where you are in the world, you may receive more generous tax treatment on commercial investments than residential. Your tax advisor or accountant will be able to tell you whether this is the case in your jurisdiction. Tenants are responsible for customizing and maintaining the property to suit their needs, which keeps your costs low (again, providing you can find, and keep, a good tenant). Often they have a full repairing lease and have to hand the property back at the end of the lease term in the same condition at which they took it on. So, that means you often have no wear and tear to contend with like you do with residential investments. All things considered, and unless your tenant is a big name like Microsoft or Coca-Cola, for example, commercial real estate investing is often considered higher risk than residential investments, but if you get it right, you can be in for relatively hands-off income for several years at a time. This strategy may be worth considering as part of a larger real estate portfolio or for larger investors if the right opportunity (with the right tenant) arises. Trade in freeholds A freehold essentially means the outright, indefinite ownership of a building and the land that it sits on. If you buy an apartment with a lease of, say, 99 years, that’s not a freehold (it’s a leasehold) because you only “own” the apartment (for a term of 99 years), not the whole building, and not the land. Take the example of a large block of 100 apartments. Each apartment is owned leasehold by individual owners, who pay what’s usually known as ground rent to the individual or company who owns the freehold on the building. The freehold of that large apartment block can be traded, just like any of the apartments within the block can be sold. Trading in freeholds is best left to experienced investors. The legal technicalities are stringent, regulation in this area is evolving, and, unlike a regular house or apartment, it’s difficult to add value and increase the amount earned through ground rent. What’s more, these opportunities are difficult to source and sell, compared to a regular residential property. For this reason, only ever consider trading freeholds as part of a wider, diversified portfolio and never as a main source of income.

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Is Investing in International Real Estate Right for You?

Article / Updated 07-31-2019

When choosing whether to invest abroad, consider two simple questions: Do you have a passion or affinity for a particular country? If so, how much do you know about that market? These questions often surprise people, because they’re not about money, specific investment strategies, real estate expertise, or experience. Other important factors, such as your budget, will obviously impact your decision, but these two basic questions get right to the heart of why some people succeed in overseas real estate investments where others fail spectacularly. Play on your passion The considerations for purchasing a vacation or retirement home are quite different from the ones outlined here. (Of course, if you occasionally want to use an investment property for your family vacation, that’s great!) Building a robust real estate portfolio, whether at home or abroad, means treating your investment(s) as a business. This is why it’s so important to find your passion. Passion is what fuels successful businesses. Passion brings out the best in people and gives them the drive to succeed. After all, every business venture hits the odd bump in the road, and passion keeps your enthusiasm alive when you get that call about a burst water pipe in Berlin at 6 a.m. Have you always jaunted to Jamaica, for example? Are you fanatical about all things French? Do you dream of Denmark? Bottom line is, when you like what you’re doing, you do it better. So, although crunching the numbers and doing the research are important, don’t be afraid to let your personal passion inform your decision making. And if your passion lies closer to home, go for that instead! Tap into available knowledge Just because a country appeals to you or looks great on paper (in terms of growth prospects, return on investment, and so on) doesn’t mean it’s accessible for you personally as an investor. If you have no prior experience or knowledge of that country and no contacts there, you may struggle to set up and manage your investment. After you’ve identified where your passion lies, you need to realistically assess how accessible that country is for you as a first-time investor in that market. If your own knowledge and experience of a particular country is limited, don’t be shy about hitting up your friends, family, and acquaintances for advice. Make a list of your contacts who have some experience of your chosen market, whether it’s your colleague’s brother who has a holiday home or the local barista who grew up there. Most people are happy to help by answering questions and recommending useful contacts. Ultimately, it’s not all about the numbers. Some countries, no matter how attractive they look financially, just won’t stack up for you personally. Be realistic about what’s achievable for you at this point in your property journey. Consider your budget Passion aside, unless you’ve got plenty of funds to play with, your budget will absolutely impact your decision on whether to invest at home or abroad. Simple budget constraints have driven many real estate investors into exciting foreign markets. For example, the London real estate market is so buoyant that beginner investors are often priced out altogether. So, if you’re renting an apartment in South London and looking to get into property investing, chances are, you’ll have to look farther afield. You’ll certainly get a lot more for your money in Bulgaria than you will in Balham! When you’re deciding which country to invest in, budget is an important factor. You may well have a passion for Monaco, but if your budget is more slot machine than high roller, the world’s most expensive property market will be way out of your reach. It’s fun to see what you can get for your money around the world. On sites like rightmove and PrimeLocation, you can get a feel for average property prices all over the world. Your budget may not be your own cash. Taking out a mortgage or other form of finance means you need less upfront capital to purchase a property. However, if you plan to buy your investment property with a mortgage, availability of financing in a given country is another factor to consider. Some of the more mainstream investment countries like Portugal, France, and Spain will do mortgages for overseas buyers, which makes those countries more accessible to investors with limited capital. In less developed markets, however, obtaining a mortgage may not be an option. In addition to getting a mortgage in your chosen investment country, other financing options include the following: Taking out a mortgage in your home country: Some specialist providers offer mortgages for overseas properties, although these mortgages tend to be more expensive and difficult to obtain. Releasing equity from your home or another property you own: This approach is a great low-barrier way to purchase affordable property overseas, because it means you can pay cash and avoid any overseas financing. On the downside, it ties your investment to your home and can put your home at risk. Taking out a personal loan: For investors on a budget who have no equity to release and limited access to mortgage funds, a personal loan can provide a relatively quick and easy way to raise funds. Buying with friends and family: Pooling your resources with like-minded friends and family can be a great way to boost your budget. However, you should always have a legal agreement in place that sets out who owns what proportion of the property and be clear from the outset who will be responsible for managing the property. The low property prices in many overseas markets means you can be a bit more creative with financing options. I know one couple, friends of friends, who purchased a ridiculously cheap property in Eastern Europe by borrowing on their credit card! Taking on additional mortgage debt or a personal loan isn’t for everyone, and whether it’s right for you will depend on your tolerance for risk. A risk-averse investor may only be comfortable with a small mortgage of, say, 30 percent of the value of the property — or even no mortgage at all — while someone who’s more comfortable with risk may be willing to stretch to an 80 percent or 90 percent mortgage. Never borrow more than you can afford to repay, no matter how mouthwatering the investment opportunity. And always talk to an independent financial advisor before making any decision. They’ll be able to help you decide what you can afford and which financing option, if any, is right for you. Assess Your Risk Profile Every investment is different, and the success of each investment depends on a wide range of factors or risks. In an overseas market, there are even more factors to consider. So, before you dive into the cool, sparkling waters of overseas property, you need to understand your personal risk profile. Why? Because your attitude to risk in general should inform any investment decision, especially whether investing overseas is the right move for you. Your risk profile can best be defined as how much risk you’re willing to accept, or how much risk you’re comfortable with, as you work toward your real estate goals. Of course, you should be concerned about any risk that may affect your ability to make money on a property, but some people have a greater tolerance for risk than others. Understanding your attitude to risk is an important step in deciding whether to invest overseas or closer to home. Identify where you sit on the risk spectrum Consider someone purchasing an apartment in the Algarve, Portugal. Let’s call our fictional investor Dave. Dave doesn’t know the Algarve well, and this is his first overseas investment. So, in addition to getting up to speed on running a property as a vacation rental, Dave also has many other specific barriers to overcome: The language barrier Lack of local contacts No knowledge of local laws Currency risk (Portugal being in the eurozone) Limited ability to manage the property himself (because he lives 2,000 miles away) All these factors make the investment a higher risk than, say, a buy-to-rent apartment in Dave’s hometown. Understanding Dave’s risk profile essentially means understanding how concerned he is about these factors. No investment is absolutely risk free, so there’s always an element of risk to contend with. The key is to work out what you’re comfortable with and not push yourself beyond that point. If Dave were very risk averse, this investment may be too high a risk. If Dave were a very adventurous investor, he may see the Algarve’s stable real estate market, which is a favorite among foreign investors, as too “safe,” not delivering high enough returns. Dave sits somewhere in the middle: He’s comfortable with the risks associated with investing in Portugal, but he wouldn’t be comfortable venturing into markets that are relatively untested for overseas investors. In this way, risk tolerance is a spectrum, not a black-or-white issue. Are you the sort of person who likes jumping out of planes, bungee jumping, and climbing mountains? Then, in general, you have a greater tolerance for risk than I do (I’m a guy who enjoys fishing, playing guitar, and taking my family on vacation in our vintage camper van). But having started my own business in my twenties, I have a greater tolerance for risk than, say, someone who has worked for the same company, in the same job, for 30 years. Even if your general attitude to risk is pretty gutsy, and you do enjoy jumping out of planes in your spare time, that doesn’t mean you’ll feel comfortable with high-risk real estate investments. The goal isn’t to push yourself into one form of investing over another — it’s to figure out what you’re comfortable with. Consider country-specific risk factors You’ve got a passion for a particular country. You’ve got a base level of local knowledge, either through your own experience or existing contacts. It’s within your budget. Now, how can you tell whether that country suits your risk profile? Assessing countries for risk is kind of like assessing companies when investing in the stock market. Do you go for a newer company with huge potential for growth (and, let’s be honest, utter failure), or do you go for an established blue-chip company that’s expected to deliver steady returns over many years? It’s the same with international real estate. If you want a safer investment (as “safe” or reliable as any investment can get), you’ll probably opt for a country that: Has a stable economy (steady economic growth, minimal fluctuations in exchanges rates and interest rates, and so on) Enjoys political stability You understand and know well (or have the ability to access and gain knowledge more easily) Has an established real estate market that’s already welcoming lots of international investors With a fairly low-risk country like this, you may see smaller gains in terms of capital growth than you would in a higher-risk real estate market, but you’ll also probably experience fewer crazy swings in terms of income and costs. Like stocks and shares, as a rule of thumb, higher-risk real estate markets tend to offer higher returns. Someone with the foresight to purchase a two-bedroom apartment in East Berlin in the early 1990s, just after the fall of the Berlin Wall, would have paid as little as $9,000. Now, it would be worth easily $300,000. But investing early in untested markets like this may mean weathering years of political and financial uncertainty before you see real gains. Even a country with an established real estate market that attracts thousands of foreign buyers each year isn’t immune to risk. If the economy isn’t stable, you can still get burned. Take Greece, for example. After years of political and economic uncertainty and a crippling financial crisis, property prices in Greece have fallen more than 40 percent (at the time of writing) since 2008, while property taxes and rental taxes have increased multiple times. For the gung-ho investor, these low prices in Greece may represent an opportunity for a bargain. But if the country were to be ejected from (or opt to leave) the eurozone, prices would likely plummet further. Depending on your ultimate goal, this risk may not be a deal breaker for you, but for many people, it would be a huge concern. Factor your goals into the equation When weighing the risks of overseas investments, you need to understand your ultimate goals, because your goals will affect your risk tolerance. Consider the following: How long you intend to hold the investment: If you’re planning to hold the property as a long-term investment, short- and medium-term fluctuations will be less of a concern. In the context of decades, housing bubbles will pass and political landscapes will (often, but not always) smooth out. However, if you’re planning to turn the property around as a short-term investment, perhaps as a development project, then political and economic fluctuations can have a huge impact on the success of your investment. Whether you’re looking for capital growth (an increase in the property’s value) or regular income (for example, as a rental property): If you want to be earning income immediately and consistently, you need to invest in an established market with a ready-and-waiting target audience. You can’t afford to wait for an emerging market to catch up to your vision. What strategy you intend to employ: This ties in closely to the previous point. An ongoing income strategy like houses in multiple occupation or vacation lets likewise requires an established market. One of my investments very much falls into the emerging market field: an apartment in Egypt. In the short and medium term, financial and political instability (compared to, say, Europe or the United States) means returns are, for now, small. But my goal for this investment was to get into the market early, buy cheap, hold the investment for ten years (maybe longer), and get a great return. In the context of this goal, short-term fluctuations and uncertainties aren’t such a concern.

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