Monday, January 31, 2011
Buying real estate overseas is fun, and glamorous. It can also be very profitable but you need to be clear about what you want to get out of it… and what you are willing to put in.
First, you need to decide if you are looking to purchase for investment or you want a second/retirement home.
If you are looking for pure investment, your real estate choices will depend on your financial objectives, your existing portfolio (real estate, stocks, bonds, etc.), your tolerance for risk, and the reasons you’re in the game. In other words, it depends on what kind of investor you are. It’s the first decision you need to make before entering the global real estate investment market.
Once you have decided what type of real estate buyer you are, you need to appraise:
-Your level of experience in the market
-Your desired level of involvement
Your level of experience in the market…
An investor’s level of experience should match the type of investments they make. New investors are best suited to—and more comfortable with—some of the less complex investments. As time goes on, some of the trickier endeavors will become more appropriate.
For example, undertaking to develop a real estate project on your own in a far-flung corner of the world may be fine if you have some experience in that country, know the language, and have participated in this type of investment before…but it’s probably not right for your first overseas experience.
Managed vacation rentals can offer a relatively safe and easy investment. So do investments in businesses in which you’ve got significant experience back home—like a B&B—though this does require your personal involvement.
Your desired level of involvement…
Much like investing in the financial markets, the level of participation you want to apply to the venture will tell you something about the type of investment you should be making. There are investments which require minimum personal involvement, and those which will require a lot of your attention.
To give an example of low involvement, you might consider investing in a vacation rental in a choice resort location. If you buy a quality property and hire a trustworthy property manager, you can afford to stay “hands-off”. The property manager will keep your unit rented for you, take care of any maintenance, and in many cases do the advertising that keeps the renters coming in. You can enjoy the property yourself from time to time, and otherwise relax and collect your rental income.
Moving up the scale of involvement, we find that those who want to buy a property and “flip” it when the price rises, require more active participation. They need to monitor that market at least occasionally, and sell when the time is right.
Requiring even more of your attention are restoration projects, developing your own property, or managing your own business. These are not necessarily difficult—depending on your experience—but you have to devote the appropriate amount of time to make this type of investment work.
Before you buy, think carefully about the amount of time you can spend monitoring or managing your investment.
This really is a critical starting point. One contact I know has multiple short-term rentals scattered across several countries. She does extremely well generating strong rental yields. But she works her rentals…almost full time. She has a website which she optimizes for search traffic. She lists her rentals on other listings websites. She buys classified ad space. She works her leads. She also places her rentals with outside agencies. Staying on top of, and in the mind of, your rental managers is one of the major critical success factors in this business.
My point is: She does very well because the way she manages her rentals is more like a business than an investment. In one of the markets where she is active there is a very limited infrastructure in terms of rental management companies. If she didn’t do the work herself the units wouldn’t get rented.
Determining what kind of real estate investor you are takes into account many factors. You should rate and profile yourself ruthlessly. When you know what kind of global real estate investor you are, you’ll have an easier time narrowing down your many options.