Which international markets do you invest in?

Question

Hi there, I’m curious to know which countries outside the US are popular among US-based investors.

Could you share the main reasons behind your choices? Are you drawn to countries with expected market growth, attractive returns, ease of entry, favorable tax policies, or perhaps personal connections?

Are there any other factors that influence your investment decisions?

Mike Lambert · Answer

Hi Jakub,

I'm invest almost exclusively outside of North America nowadays and my main purpose is to maximize my returns. The main factor to build wealth in real estate is the level of interest rates and it's way too high in Canada and the US. Therefore, nowadays, my preferred countries are those in which I can get a mortgage at a very low interest rate (basically get free money), which leads me to the European Union. Then, I look for the lowest rates, the best market growth and the highest returns and Portugal and Spain come on top, provided that you buy the right properties in the right locations and follow the right strategies.

Thankfully for me, I have great personal connections in those places. Also, because I'Km an active investor and have to spend a significant amount of where I invest, I want to like the locations where I invest for lifestyle reasons as well and I do. Because I focus on short-term rentals, the places that are the most profitable will often be where people like to go so both factors will go hand in hand for many people.

Finally, when we come to taxes, what I've learned from other successful investors is that taxes shouldn't be a main factor in an investment decision. If I have to pay a very high amount in taxes, it can just be a sign that I make a lot of money and I'm ok to give back to society that way too. Of course, if the taxes in a given jurisdiction almost amounts to profit confiscation, I'll go elsewhere but that's not the case.

Hope this helps

Mike Lambert · Answer

You're welcome.

Returns vary in function of the kind of deal/property. To give you an idea, we'er talking about a net cash flow return of typically 6% AFTER mortgage payment. This isn't the largest part of the return, which is the increase in equity: loan amortization + capital appreciation. Those very high returns come from the combination of the very low mortgage interest rates and the steady capital appreciation.

Regarding my investment portfolio, I'm still in a growth phase and a phase in which I help an partner with other investors so that they can invest in the most profitable opportunities without having the necessary presence on the ground, time, knowledge and contacts, which is something I really enjoy doing.

The biggest hurdle is finding the right opportunities in a hot market, although it's a matter of time, for me at least, so it's not really a hurdle.

Legal aspects aren't a hurdle from me because I studied in my native Belgium and have been based in Quebec, both of which have a similar legal system to that of Spain and Portugal (civil law).

As to regulations, in Spain, it's a matter of investing in the areas and type of properties that are least affected. Portugal is the only country I know of who recently went backwards when it comes to short-term regulations, making them less strict.

Hope this helps.

Mike Lambert · Answer

The collaboration can take the two forms you mentioned. If I help the investor acquire his own property, it's generally going to be a move-in ready resale. The return will be lower but he won't have to share it (with me) and will have full control.

So why and in which cases would the investor opt for a join venture in which he'll fund the down payment, I do everything and we share the profits? Because we can then do a new construction or heavy renovation project and create a significant amount of equity whereby the investor could get a (significantly) higher return than if he bought his own property. I would also let him have control at least as long as he has money in the deal (until he gets his money back through refinancing). He couldn't do such a deal by himself because he'd need to spend a significant amount of time on the ground, have the necessary knowledge and the right relationships. With the right project, he's make more money, do much less (unless he wants to do more) and face less risks.

The best investments are homes, not apartment buildings so the CAP rate isn't being used as the valuations determined by comparables. If you want to calculate it, you add the mortgage payment to get to the NOI. So, you'd add 4% to the 6% to make it 10% and up which is very high for a high capital appreciation market.

I was born and bred in Brussels. Did you like living there?

Jakub R. · Answer

ps: Where in Belgium, Brussels? I’ve lived there for a while.

Jakub R. · Answer

Hi Mike, thank you for the insights. What level of returns do you see in Portugal and Spain with your STRs, if you dont mind sharing?

What stage in your investment journey are you at, are you still growing your portfolio or just managing what you already have?What are the biggest hurdles in investing there - legal aspects, rental regulations?

Which international markets do you invest in?

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