Should You Invest in Overseas Real Estate?

Here are two propositions for you - you decide which one you like better.

Proposition One: Invest in spectacular real estate in an exotic location like Bulgaria, Malaysia or even a condo on a cruise ship. Proposition Two: Put your money into a rental property investment far from your home, in a country where you don't speak the language, don't know anything about the laws or the government, and can only get to with two days of travel at a cost of more than $1,000.

The first proposition sounds a lot better, doesn't it? But these are actually just two different ways of looking at the same deal. Sales pitches for overseas property investments focus on the "heart" aspects of the proposed deal - the glamour and status of owning property in a place your friends have never even heard of, much less ever visited. The "head" aspects, which go much further to determining if you will recover the cost of your original investment, or earn a tidy profit, aren't mentioned.

On a purely rational basis, investing in your own country usually makes much more sense than investing overseas. Overseas investments only make sense in certain very special cases, for a small percentage of investors that meet certain qualifications (which I'll describe later).

I am writing from the perspective of an American investor, so if you don't live in the United States, the same conditions apply - but in reverse. I think American investors usually should invest in the United States, for common-sense reasons. On the other hand, if you live in Europe, a Bulgarian investment probably makes much more sense than investing anywhere in the United States. It will certainly be less risky on every level. (I am also not singling out any particular overseas area as bad for investment. I picked these examples at random, but they are all heavily promoted for property investment.) The added risks in overseas investing come because you must rely much more on the honesty of both the property seller, and the property manager. (For most overseas investments that are promoted heavily in the US, the seller and property manager are partners, or even the same company.)

Consider: your first job in evaluating a deal is to look at the area surrounding the property. If you are buying year-round rental property, you want the area to show strong job growth, because job growth is the single biggest indicator in predicting future growth in real estate values. If you are buying vacation property, you want a relatively undeveloped area that is becoming "hot", with a stable local and national government, good travel options, and very good weather.

If the potential deal is in your country, you have options to make an independent review. You can find stories about the area in local and national media, read up on the local government, and even call local experts. You can even look up complaints and comments about the seller and property manager. With an overseas investment, you may not be able to find newspapers and web sites that cover the area and report in your language. And good luck calling a local official or expert for information!

Long-distance property investors should always visit the areas where they are investing. There should be at least one visit before the first deal is made, and another visit every six months to a year afterwards to make sure the property is being managed and maintained properly. Just the travel costs of these visits make many overseas investments financially unworkable. Consider that you can get from one corner to the other of the US for less than $400 at almost any time of the year. On the other hand, going from Boston to Kuala Lumpur, Malaysia, costs $2,300 - minimum. And the cheapest flights take nearly 42 hours each way.

Faced with these added costs to the bottom line, many overseas investors simply choose not to visit their investments, before or after making the deal. Once again, they must rely on the honesty of the seller and the property manager. Even if the seller and property manager are honest, overseas investors may run into huge problems because of legal and accounting issues. Investors often shy away from certain cities in the US because they have ridiculously biased landlord-tenant laws. They simply don't know which overseas locations have the same laws or worse.

There are some cases when overseas property investments make sense. If you have a special connection with an overseas area, you will be much more likely to make a smart investment. That is, if you are from a certain region or country, or have other reasons to visit there frequently, you'll know the area far better than other potential investors will. You probably speak the language and have friends who can answer your questions, or even visit your property in your absence. In addition, because you are visiting the area regularly anyway, the travel costs of going there won't be a "real expense" associated with the property investment. You may well decide to record that expense against the income from the investment, but you were planning to go to Bulgaria or Malaysia or Costa Rica anyway.

Even if you don't have this local connection, there is another potentially good reason to make that overseas investment. It's important to remember that many foreign countries are showing remarkable economic growth, much higher than the United States. For that reason, an overseas investment in one of those countries may promise annual returns in profit plus increased equity that are far better than you'll get in most American cities.

That means that if you are the kind of investor who doesn't mind taking a lot of risk for potentially a lot of reward, an overseas investment may work well. Or, here's another way to look at it - why not use some of that extra money to mitigate some of the extra risk? Suppose an overseas investment promises you $15,000 per year in positive cash flow, against an up-front investment of $100,000.

Spend $5,000 of that money doing extra due diligence to make sure the property deal works well, and will continue to perform well. Make another trip, find another expert, and do some additional research. You'll still get a 10% return, but with far less chance of losing money.

Historical Returns on Real Estate Investments

There are many emotional factors connected with the ownership of Real Estate. Do the historical returns on Real Estate investments justify the confidence so many investors have in them?

The ownership of land has been something that has been rooted deep in the minds of man. Land is seen as the one investment that is solid and permanent. The American Dream has long included the ownership of your own home, but when you move beyond this natural impulse to own property that you can call yours and look at Real Estate purely from an investment opportunity, how does the picture change? Have the historical returns on Real Estate Investment measured up to the confidence it has received.

The answer is a cautious yes. Between 1926 and 1996, the annual average rate of return on Real Estate was 11.1%. During the same period the rate of inflation was around 3%. So, it was obviously a better investment to buy Real Estate than to bury cash in jars in your backyard. However, the rate of return for small stocks checked in a bit higher at around 12% while the Dow Jones Industrial Average was a bit lower at 10%. These figures would suggest that Real Estate investments were right there at a par with Stock Market Investments.

Real Estate Investors might want to make the claim that land ownership and its value as an investment predates the Stock Market by thousands of years. They will point to the role that the ownership of land played in the Middle Ages in determining wealth and even nobility. This is true, of course, but in many ways irrelevant to a discussion of the historical returns on Real Estate investments. The new global economy has created a whole new playing field and return of investment must be determined within the scope of this. It is all well and good to study the past to get clues to the future, but in investment the past only offers clues and not answers.

A look at the historical rates of return on Real Estate investments shows that they tend to be more stable and less likely to spike up and down in erratic and unpredictable fashion like the Stock Market. Many investment advisors suggest all portfolios have at least 10% invested in Real Estate for a hedge against market fluctuations. On the other hand, Real Estate investments tend to have high transaction costs and to be in larger units. All properties are unique and each has its own characteristics and potential.

These negative factors have led to the popularity of investments in Real Estate through REITs which are Real Estate Investment Trusts. REITs are a sort of mutual fund of Real Estate which gives investors a way to invest in Real Estate without the problems of high transaction costs or property uniqueness. If you are considering Real Estate investment, either on an individual basis or through a REIT, the historical record should give you some confidence. As much as past performance can reassure us of future success, Real Estate's past has indicated that it is a safe, sound, and high return investment.

Real Estate Investments in Sofia

Where else would someone consider investing in real estate but the wonderful capital of Bulgaria, Sofia? Sofia is a great city that is the largest city in Bulgaria with a population of over 1.3 million. The city of Sofia is said to set the tone for every other city in Bulgaria because it is said to be undisputed in its economy and other things. Sofia is a great place to search for real estate to invest in.

Sofia has the most dynamic property market in Bulgaria and one of the major things to invest in is apartments. As Sofia is a large city some places are better than others to find real estate in the form of apartments. The first place you should look to find good investment apartments would be in the center of Sofia. Then you might check some of the good residential areas, like Lozenets, Lagera, and Iztok. The next best place to find apartments in Sofia is the fast growing business districts. These areas are great for investing in apartments because business and leisure travelers as well as the people who work for the business's in Sofia. Many people would love to have an apartment to stay in close to where the need to be. One other way to make the most out of your apartment investment is to consider also buying a parking space, as with any big city, parking can be hard in Sofia. Although Bulgaria has the best property prices in Europe, prices in Sofia will be more than in other cities because property here is in high demand, but the more you pay for your apartment, the more rental income you can get back.

You do not have to buy new apartments in Sofia to get a good investment. Sometimes it can be difficult to get a lot of people interested in renting a new apartment because it will cost more. The other option is to find and old apartment that needs some work done to it. Older apartments in the center of Sofia may, actually, turn out to be a better investment because you will buy it for cheaper and potential renters will be more likely to rent it because the prices will be lower for them as well. Your real estate agent may be able to help you find the stuff you need to refurbish your new/old apartment. Also, you will have the pleasure of personalizing the apartment with your tastes.

One thing you need to watch is if you are a foreigner trying to purchase an apartment. Buying an apartment by itself is not a problem, it is only if the apartment comes with a land plot, or a yard. Then you need to register a company in Bulgaria to hold the title, which your real estate agent can help you with, because as of the moment, foreigners are not allowed to own land in Bulgaria. It is a simple issue to fix but it will cost a little extra. All in all, Sofia is a great place to invest in real estate if you know where to look.

European Real Estate Prices To Drop In 2006

Areas of Europe popular with holiday home buyers could see property prices fall by ten per cent or more in the year ahead, according to overseas property specialists Tribune Properties.

2005 saw the first signs of a property slow down, and even the reverse of sharp gains in holiday home prices over recent years in Spain and Portugal.

With owners unable to sell their property likely to drop their asking prices in 2006 to secure a sale, buyers will be in their strongest negotiating position since the mid to late 1980's when prices dropped by nearly a third on the Spanish Costas.

Europe's worst drought in living memory had an affect on the markets in Spain and Portugal earlier this year, with many would be buyers wondering if they would be able to use their pool in years to come, with consequential rentals possibly tailing off.

'Some buyers rely on renting their holiday home out as they take out a mortgage to buy', says Roger Munns of Tribune Properties, 'and if they can't rely on this it creates doubt as to whether to buy or not. Some buyers were taking the view that they should wait to see what happens'.

But it isn't just the possibility of more droughts and unreliable rental income that is beginning to see prices drop in some areas, according to Tribune Properties.

The emergence of new European markets in the former Eastern Bloc has seen British, Dutch, Belgian and German buyers head for countries like Bulgaria where apartments and houses can be bought at a fraction of the price of Spain and Portugal.

'Second home buyers are seeing properties offered in Bulgaria at less than half the price they thought they would need to own a home overseas, and the traditional markets of Spain and Portugal are losing out.

Already we have seen villas in Menorca drop in value by around ten per cent, and they could, and probably will, go lower still.

In addition the rate of new builds on the Costa del Sol and Costa Blanca hasn't slowed down to any great degree, and before long there could be a price correction as there is going to be quite an oversupply in the market.'

European Tax Havens

In contrast to lower prices on the Spanish Costas and Menorca, Tribune forecast that prices on the Algarve and Malta are likely to stay steady or increase as their domestic markets are strong.

The two countries they see in Europe with growth potential for 2006 are the tax havens of Andorra and Monaco.

Monaco and lesser known Andorra both offer no income tax for residents, and Andorra has seen double digit property price inflation for the last two years, with the 2005 figures likely to match. After a slow start to the year Monaco has seen strong buying in the last quarter.

With the new government in Germany increasing the top rate of income tax, Tribune forecast demand continuing through to 2006.

'Andorra and Monaco are small countries with little room to build new property', says Tribune's Managing Director Roger Munns, 'Despite the German economy being slow for the last few years it remains a very important market. The raising of the top level of tax will mean more Germans seeking residency in a country with low tax levels. Andorra and Monaco are the two most likely candidates for them to buy in and take residency'.

Tribune's advice to potential overseas property buyers is to find out how long a property has been on the market for, and to make provisional offers of between five and ten per cent off the asking price on a shortlist of three or four properties as one owner is likely to accept. Their longstanding advice is to always employ an independent lawyer to handle any sale and deposits.

Significance of Historic Properties in the Real Estate Sector

The historic properties have much significance in the field of real estate. If you are planning to buy such a property, there are a few things that you should know.

The advantages associated with owning such a property makes the deal a good option for a large number of people. The most important advantage of an historical property is their potential to turn out to be a highly profitable investment. These historic properties can be made to a museum or tourist attraction. Considering the importance of tourism in today's world it would not be a bad option.

Another benefit of having such a property is that it can easily be sold to any of the preservation societies available today. The profit from the deal can be enormous. In some areas, tax benefits are provided for those who want to buy and maintain properties of historic value. Also, there are several options for those who are willing to invest in historical homes. It is possible to buy old stores or barns and convert them to good houses without having to spend a large amount of money.

The information regarding the historical homes and the various ways in which they can be used should be acquired. Professional help can be easily obtained. If you are well-versed with the industry of real estate, conducting a research on these properties would be highly helpful. You have to go through the inspectors, preservationists, historical societies, local as well as national agencies etc as part of your search.

In short, these historical properties can fetch you a good profit provided you acquire the knowledge on the various features concerned. With the availability of all the information, acquiring and maintaining historical properties would not be a difficult task.

Foreign Real Estate - Speculative but Profitable

A would-be real estate investor at a conference in Puerto Vallarta in April said he'd researched the Costa Rican property market for five years, considering making a buy. Meantime, prices appreciated, maybe, 200% in that period. The market became too expensive for him and he never did act.

Another investor at a Real Estate Forum in Puerto Plata, explained that he'd been watching the market in the Caribbean island nation of the Dominican Republic, for more than two years but was still uncertain as to whether or where to buy. He lamented the rate of appreciation of property values during those 24 months.

Two pieces of advice: First, yes, do your homework. But, second, don't become paralyzed by the analysis. Nothing is guaranteed. You'll rarely identify a "perfect" time to buy. You'll never know you're making the right move. In any market, at any time, you could lose everything you invest.

If those things make you uneasy...you shouldn't be thinking about investing in international real estate. This is risky business...often speculative...in unregulated, Wild West markets. Dealing with people you wouldn't do business with if you had any choice (sometimes you don't). If something goes wrong, you'll likely have little or no recourse.

That's the game. Investing in foreign real estate is more risky and more complicated than investing in U.S. real estate. Recognize these truths. Choose your markets. Do your research and due diligence.

You must have the answers to the six primary factors to consider when making a real estate investment--and how each one affects your level of income: 1. Why you're making the investment. Do you intend to use and enjoy the property? Or, are you only looking at the investment potential? That's important to your initial outlay and your long-(or short-) term returns. 2. What's your tolerance for risk? Learn your Risk Comfort Level, is this investment within those parameters? 3. Your options for financing. Cash or credit? Your answer helps determine your investment. 4. What fits well in your existing portfolio? To be well-balanced, your portfolio should have a range of assets including real estate--and your portfolio should include a range of properties. 5. Your level of experience in the market. Experience is the roughest teacher--because it gives the test before it gives the lesson. 6. Your desired level of involvement. Your level of participation will help you determine your type of investment.

Then act. Take a first step. Don't invest money you can't afford to lose. Control the circumstances as much as possible. But don't wait for a sign from above that the timing and the opportunity are ideal. The sign won't come...and the market won't wait. For a first deal, you should probably invest no more than $50,000. Here are six buys you could make right now (May '06) with that budget:

1. A small apartment for short-term rental in Buenos Aires, Argentina. Three years ago, in the wake of the peso devaluation, you could have bought a big apartment in a prime neighborhood for less than $50,000. Values in this market, however, have more than doubled in that period. Still, you can buy a decent apartment in a neighborhood appealing for the short-term renter for about that amount today.

2. A colonial apartment for short-term rental in Montevideo, Uruguay. Our Roving Latin America Scout Lee Harrison reports that Uruguay's is the best buy real estate market in the Americas right now. Real estate costs about the same in Montevideo as it does in Buenos Aires, except in the Old Towns. Today, you can buy an apartment in Montevideo's Old Town--just beginning to be rediscovered--for as little as $540 per square meter. Compare this with $2,000 a meter or more for a similar buy in B.A.

3. A condo in Panama City, again rentable on the short-term market. Here, though, to stay within the budget, you'll have to finance...which is possible in Panama. Put $50,000 down on a $150,000 apartment...and your rental income could cover your monthly mortgage payments. At today's values, that $150,000 could buy you a one- or two-bedroom condo in a new building, which is a good product for this rental market.

4. A sea view apartment in Croatia, again for the short-term rental market. You can find a good buy on a renovation in some parts of this country for less than $50,000, but it'll likely require substantial further investment to make it what you need for rental...perhaps as much as another $100,000. Instead, look for new-build. Specifically, right now, there is an opportunity on the island of Ciovo (note that the locals don't consider it an island, as it is connected to the mainland by a bridge that you won't even notice driving over). This is a destination for middle-class Central Europeans who drive down easily from Hungary, Austria and Slovenia for vacation. It also boasts easy access to the Split airport, which offers flights each day connecting through Zagreb and a few direct flights from outside Croatia. There's a new-build studio apartment on this island available for $58,000. Yes, it's a little outside the parameters of the budget suggested above, but it'd potentially make a good rental.

5. Cyprus is struggling with reunification problems. But, with some of the remarkable real estate opportunities --and the EU about to impact--the rewards may well be worth the risks. In the popular resort town of Kyrenia, northern Cyprus , you can get a three-bedroom sea-view apartment-- for just $55,000! (To put that into perspective, a similar property would cost you $110,000 in southern Cyprus...$250,000 in Corsica...and $330,000 on the island of Mallorca.) Property taxes are almost non-existent. Inheritance taxes have been abolished. And capital gains taxes don't even kick in until your gains are in excess of $20,200.

6. Bulgaria is a quiet, picturesque country--once home to world-class European ski resorts-and it has become one of Europe's fastest developing nations. It could easily become one of your fastest growing investments. Bulgaria's mountainous countryside is studded with ancient farmhouses begging for restoration. Many compare it to Tuscany in the 1970s. And, if you act now, you can pick up an abandoned farmhouse nestled in the verdant hills-- for just $9,800!

Borovets is the oldest and largest ski resort in Bulgaria . It's also one of the hottest Alpine investment opportunities in the world. And right now, you can get a two-story, 1,200 sq. ft. house situated in a peaceful village minutes from Borovets...with a large garden and views of the slopes-- for under $30,000!

Good luck.

2007 Real Estate Property Investment Prediction Series

2006 has been an exciting year for real estate speculation in many of the world's emerging nations with a good few pleasing surprises emerging from some of the more established countries in the world as well.

Furthermore, as more people become aware of the attraction of real estate as an investment commodity and as an alternative to pension planning for example, so an increasing number of property investors have been born in 2006.

So, in 2006 profits have been made by many investors and these people have reaped the financial rewards of their efforts - but still, don't we all wish that we could see into the future and be able to second guess governments and policy makers' decisions that could affect the economy of a nation or its overall attraction for a property investor?

What if we'd all had a crystal ball that foretold London winning the 2012 Olympic Games Bid - prior to the decision we could all have bought properties in the run down areas of the city that are now benefiting from millions and millions of pounds worth of regeneration investment and we could have made ourselves property millionaires overnight!

Well, the good news is that the forthcoming 25 part 2007 Real Estate Property Investment Prediction Series will offer property investors and potential real estate speculators insight into the likely 2007 residential and commercial property market movements in Australia, Bahrain, Belize, Bulgaria, Canada, Costa Rica, Croatia, Czech Republic, Dubai, Egypt, Estonia, Ghana, Latvia, Malaysia, Malta, Mexico, Montenegro, Morocco, New Zealand, Northern Cyprus, Poland, Romania, Thailand, Turkey and Ukraine.

Each of the single nation focused reports in the 25 part series will cover everything from developments affecting the foreign freehold ownership of real estate in each given country, it will highlight relevant recent, current and future expected or forecast political, economic and social developments likely to affect the attraction of a country's residential and commercial property markets and specific advice will then be given relating to factors likely to create property investment hotspots on a country by country basis.

Finally, each of the 25 reports in the 2007 Real Estate Property Investment Prediction Series to be published throughout December will give speculators, investors and interested readers an overview of the property investment potential of each country meaning that each report is applicable even for an investor at the initial stages of their research into the viability of a given country for their own personal real estate property investment objectives.