Investments with a limited budget
The first question that an investor with a budget of up to $100,000 should answer for himself is whether he wants to use his real estate, partially or completely. It is equally important whether he is ready to take out a mortgage loan, using his capital as a down payment and then paying off the bank with the funds received from renting out his property.
Those who plan to use their real estate themselves and cannot or do not want to take out a mortgage are forced to limit their search to those countries where it is still possible to buy habitable properties for less than $ 100,000.
Choosing a specific region is a matter of taste. New buildings with a budget of up to $100,000 are not difficult to find in some European countries, such as Montenegro, Bulgaria and Turkey. As a rule, these prices imply a purchase at one of the earliest stages of construction. There are similar offers in more remote regions – in Brazil and Cape Verde. And the minimum price level – about $ 50,000 per object – investors will find in Thailand and Indian Goa.
If you want to buy high-quality real estate on a small budget, then it makes sense to consider buying a so-called fraction. This is a relatively new concept, it means an unconditional right of ownership, valid for a certain time, proportionally distributed among several owners.
Sunset Estates sells fractions in residential complexes in Murcia and Costa del Sol. Each faction owner buys a quarter of the unconditional ownership, all four owners are indicated in the ownership documents. The relationship between them is regulated by a shared ownership agreement for a period of 25 years, which is accompanied by a schedule that specifies in detail which weeks of the year the owners can use the property. Each owner assumes responsibility for paying his share in the maintenance and upkeep of real estate, and if he sells real estate, he must give the right of first choice to other owners before placing his faction on the market.
If personal use of real estate is not essential, then there are significantly more options. The main strategy is to purchase real estate for subsequent rental. Many invest in the purchase of only about $25,000-50,000 in cash, and take the rest, up to 85% of the value of the property, on credit. That is, with a capital of up to $100,000, an investor can buy two or even three properties, thus reducing risks and ultimately obtaining higher profits.
Having bought an inexpensive property, an investor should not expect a huge profit from hiring. However, the costs are low, so with the right choice of an object and its competent promotion, rental income is quite capable of covering mortgage payments. In some cases, the developer offers the buyer to take over the property and guarantees a certain rental income.
The main point when investing in real estate should always be the assessment of capital increase. From this point of view, the countries of Eastern Europe look very attractive, among which Slovakia and Poland stand out. The security of investments here is ensured by their accession to the EU, and rapid economic growth is observed in these countries, accompanied by the growth of real estate markets. Capital gains in Hungary have recently slowed down, and Romania, where potential income can be very high, is still a risky destination.
For those who are ready to consider distant regions, experts advise paying attention to Shanghai. This city is rightfully considered the fastest growing in Asia, it is becoming the financial and business center of Southeast Asia, multinational corporations are establishing their headquarters here. All this combined has led to a twofold increase in capital over the past few years and to a huge demand for rental real estate from expats and local residents.
One-bedroom apartment in Shanghai Pudong Business District, Shanghai Vision offers an object at a price of $130,000 with guaranteed rental income. Additional costs include the purchase of furniture, the cost of registering ownership, the commission for obtaining and insuring a loan, paying for the services of an agent and all necessary government fees. Taking into account these expenses, as well as at the rate of 30% of the deposit, the initial capital for investment should be about $ 75,000.
In general, wherever you buy real estate, you need to think about the amount of total costs. In Poland, for example, if you sell a property less than five years after the purchase, you will face a capital gains tax of 10%, unless the investor re-invests in Polish real estate. In Slovakia, the resale of real estate in less than three years may be unprofitable, since taxes and the cost of intermediary services will "eat up" profits.
Another alternative for low-budget investors is to purchase a plot of land with a construction permit. The company Someplace Else offers plots in the coastal areas of Brazil with a construction permit and connected utilities for $40,000. A 10-year mortgage is possible with an initial deposit of 50% and a rate of 3%. Buyers can build villas on the plots or resell the plots at a good profit when the main part of the complex is built.
Whichever option the investor chooses, he needs qualified expert advice. After all, even if $100,000 is not a large amount by the standards of the real estate market, this does not mean that it can be risked.
Investments with an average budget
If the investor's budget is higher and amounts to about $ 500,000, then much more opportunities open up for him - but there are also more problems when choosing the optimal strategy. We constantly have to monitor changes in the situation - not a week goes by without a new emerging market appearing on the horizon or an increase in activity in the established market.
After the investor determines the location, it will be necessary to decide how to achieve the best combination of investment security, capital appreciation and high rental income. You can purchase one object, but with significant rental potential - for example, apartments at a golf resort, where the season lasts long enough for tenants. There are more and more such resorts, for example, on the coasts of Turkey, especially in Belek, near Antalya. The peak of the golf season is from March to June and from the beginning of September to the end of November. If, in addition to golf, there are beaches and ski resorts in the region, then the investor will not feel a shortage of tenants almost all year round.
However, there is another option – to purchase several facilities, in other words, diversify risks and expand the range of opportunities. If it is possible to take out 10 mortgages for 10 real estate objects, the investor can form a balanced investment package. It is more practical to purchase objects in the same region. Although investing in different countries is very tempting, due to the problems associated with the maintenance of real estate, it often turns into a real headache for the owner.
"The acquisition of several properties is attractive because if an investor needs to release capital, he can sell one of the properties without affecting the rest," says James Fleur, senior consultant for foreign real estate at Buy Abroad. - Another advantage of this approach is the constant income from renting. At least one property will be occupied by tenants every month, whereas a huge villa with sea views will be idle at times and will not provide income stability."
James Fleur believes that one of the best regions to invest in is Cyprus, where high capital gains and market stability are combined. Bulgaria is another good option for an investor with an average budget. Real estate in this country is inexpensive: as a rule, apartments in new houses cost less than $100,000. The country's accession to the European Union and the active development of tourism infrastructure will help the real estate market to be competitive for many more years.
In Bulgaria, it is more profitable to purchase real estate not on the Black Sea coast, but in one of the mountainous regions, for example in Bansko, in order to extend the rental season - a golf course will be built near Bansko, in the town of Razlog, which will create prospects for year-round rental of real estate.
"If an investor chooses between one property worth $500,000 and five worth $100,000, it is wiser to invest in five properties in different countries and from different development companies," says Edward Letterstone investment managerStevenson. – I believe that Slovakia, Poland and Croatia are among the countries that are profitable to invest in now. As in most Eastern European countries, Poland and Slovakia have an overabundance of Communist-era buildings. People want to change their lives, and they are willing to buy new houses, which cannot but please investors. The situation in Croatia is somewhat similar, but this country is attractive for both developed tourism and beautiful views.
" For those who invest in different countries, it is easier to avoid losses in case of a decrease in market activity in a particular country. Emerging markets have a higher potential for growth, but the risk of stagnation is also higher. It is profitable to purchase real estate in Cape Verde, Turkey and Morocco, where investment costs are minimal, but there is potential for significant capital gains and rental income. The Governments of these countries are interested in increasing the influx of tourists and are developing infrastructure, in particular the construction of airports.
"Investors investing in developed markets do not need risk diversification so much," says Andrea Hill, manager of Escapes 2. "For example, we have a project in Spain where the owner is guaranteed an annual profit of 5% of the value of the object for 10 years. With a down payment of 20% of the value of the property, you can get a loan with a rate of 3.75% for the remaining amount. However, those who invest in established markets should also take certain precautions, primarily regarding the assessment of possible rental profits.
Investments with a high budget
Big investments mean big opportunities and difficult decisions. What should we focus on – the growth in the value of real estate or rental income? How much should I take out a loan for? What role do property taxes play? All this and much more needs to be analyzed in the most thorough way.
So, the investor has $1 million, and he wants to form an investment package in the best possible way. Most large investors bet on significant capital gains by using a bank loan to maximize profits.
One of Advantage Portfolio's clients currently intends to invest $1 million in several properties worth $1,843 million - these are three apartments in Warsaw with a total value of $380,000, three apartments in Prague for $418,000 and two villas in Cyprus for $570,000. At the same time, the investor will purchase 47.7% of the value of real estate with borrowed capital, and it is assumed that the current costs of maintaining real estate and loan payments will be carried out by renting out real estate. Although it is possible to take out a loan for a large amount and purchase an investment package worth up to 2.5 million, the risk of non-repayment of borrowed funds in this case becomes too high.
"It is important for an investor to minimize risks," says Alice Savage of Hattan and Grand, "many factors must be taken into account: the characteristics of local infrastructure, building density, and transport accessibility. Another important consideration is to always be able to exit the project, as prices can both rise and fall. Of course, rental income plays an important role. But the main priority should be to increase the value of real estate. It should be consistently high, but not excessive, so that the owner can sell his property in the future.
The rental market is not sufficiently developed in all regions. For example, significant capital gains are projected in Istanbul, but due to the lack of activity in the rental market, it may be difficult to cover current costs. Leveraged investments here involve a lot of risk, but when investing their own funds, the investor remains a winner.
A very reliable investment can be considered the purchase of real estate under the leaseback scheme. This scheme is especially popular in France. According to it, the investor transfers his property to management for 9-11 years and receives a guaranteed income of 2 to 5% of the value of the property. This is not very much, but the management company takes care of all the costs of maintaining the property and provides the owner with the opportunity to use his property for several weeks a year.
Property taxes are another factor that an investor should take into account. For example, in Switzerland, the purchase tax and commission fee amount to about 2.5%, which is significantly less than in France. Carl Bailey, tax consultant at Tax Cafe, argues that "often a project that looks very profitable without taking into account taxation turns out to be unprofitable or even unprofitable as a result."
It is pleasant to think that in a country where income tax or capital gains tax are insignificant or absent, a good situation has developed for investors. In some cases, this is true, but there are a huge number of additional, indirect taxes that buyers forget about. For example, stamp duty, inheritance tax, or some other unusual form of taxation that was not initially taken into account.
The general rule for investors with any budget is to first understand all the legal and tax nuances. If all the necessary aspects are carefully studied and a well-thought-out strategy is developed, then the profit from real estate abroad will be stable and quite high.
