10 Tips for Successful Real Estate Investment in Emerging Markets
Just because real estate prices seem to have hit a temporary ceiling in many cities, states and countries, that doesn't mean that profits from property investments are hard to come by.
Even during a real estate market slowdown, stagnation or depression profits can be made locally and overseas. This article shows you the top ten tips that savvy real estate investors apply to their property portfolio building strategy to ensure success from their investments.
1) Research the curve - The concept of existing property market cycles is not myth, it's a fact and is generally accepted to be based on a price-income relationship. Check the recent historical price data for properties in the area of the city, state or country you're considering purchasing in and try to determine the overall feel in the market for prices currently. Are prices rising, are prices falling or have they reached a peak? You need to know where the curve of the property market cycle is at in your preferred investment area.
2) Get ahead of the curve - As a basic rule of thumb, professional real estate property investors seek to buy ahead of the curve, or as close to the base of the bell curve as possible. If a market is rising, they will try and target up and coming areas, areas that are close to locations that have peaked, areas close to locations experiencing redevelopment or investment. These areas will most likely become 'the next big thing' and those who buy before the trend will stand to make the most gains. As a market is stagnating or falling, many successful investors target areas that enjoyed the best levels of growth, yields and profits very early on in the previous cycle because these areas will most likely be the first areas to become profitable as the cycle begins turning around towards positive growth once more.
3) Know your market and who your prospective tenants are - Are you buying to rent to young executives, purchasing for renovation, renting or reselling to a family market or purchasing to rent out real estate for short term vacation rentals? Think about your market before you make a purchase. Know what they look for in a property and ensure that is what you are going to be offering them
4) Think further afield - There are emerging real estate property markets around the country and around the world where economies are going from strength to strength, where a growing tourism sector is pushing up demand or where constitutional legislation has been or is about to be changed to allow for foreign freehold ownership of property. Look further afield than your own back yard for your next property investment and diversify that real estate portfolio for maximum success.
5) Purchase price - Set yourself a budget that will realistically allow you to purchase what you're looking for and to profit from that purchase, either through capital gains and/or rental yield.
6) Entry costs - Research fees, charges and all expenses you will incur when you buy your property. They differ from state-to-state and country-to-country. In Turkey, for example you should add on an additional 5% of the purchase price for all fees. In Spain, you will need to factor in an average of 10% and in Germany, fees and charges can be in excess of 20%. Know how much you will have to incur and factor this amount into your budget to avoid any nasty surprises and to ensure your investment can become profitable.
7) Capital growth potential - What factors point to the potential profitability of your real estate property investment? If you're looking overseas at an emerging market, which economic or social indicators exist to suggest that property prices will increase? If you're buying to rent out, are there any indications to suggest that demand for rental accommodation will remain strong, increase or even decline? Think about what you want to achieve from your investment and then research and find out whether your expectations are realistic.
8) Exit costs - If you will incur substantial capital gains, taxation liability, or if you sell your property investment for profit, will that render the investment profitless? In Spain, a foreign buyer can incur up to 35% capital gains tax. In Turkey, on the other hand, property sales are capital gains tax free if the underlying real estate has been owned for four or more years.
9) Profit margins - What levels of capital growth can you realistically gain on your property investment or how much rental income can you generate? Work out these facts and then work backwards towards your initial budget to work out your potential profit margins. At all times you have to keep the bigger picture in mind to ensure that your real estate investment has good potential for profit.
10) Think long term - Unless you're buying property off-plan and intending to flip it for resale and profit before completion, you should view real estate investment as a long term investment. Real estate is a slow-to-liquidate asset. Cash tied up in property is not simple to free up. Take a long term approach to your property portfolio and give your assets time to increase in value before cashing them in for profit.
Smart investors willing to do the research to seek out emerging markets first can find the best areas to invest for both the short and long term.