All Forum Posts by: Mike Lambert

@Maria Murphy, you're welcome. I think this is an interesting part "philosophical", for the lack of a better word and part mathematical.

As the theory tells us, risk and return go hand in hand. The higher the return, the higher the risk. There are exceptions and through hard work, knowledge and connections, that's what I'm looking for and finding. However, let's assume that I can't do that because most readers can't and it's becoming increasingly difficult, including for myself.

So here's the philosophical part:
A. If I'm not mistaken, people like you will look for a maximum level of risk and, within that level, they'll look for the maximum return.
B. People like me will look for a minimum return and then, once that return is reached, they will look for the minimum amount of risk or something like that.

There's no right or wrong. Whether someone is an A- or B- person will depend on their personality (for example how risk averse are they) and/or their objectives.

Irrespective of their personality traits, somebody who's already financially independent or somebody who's happy to become financially independent slowly can be a B-person. But wealthy (adventurous) entrepreneurs will still go for the A-type by choice. However, those who are starting out and wants to leave their job quickly will have to be A-persons in order to reach their objectives, irrespective of their personality type.

I'm oversimplifying but, hopefully, you and other readers get my point.

Neither type is better but the issue you might be encountering is that, as hinted by @Erwin Groenendijk, a high return with low risk in today's market is a bit much to ask, pretty much wherever in the world you invest.

Now, to the mathematical part of the discussion:
I could agree with you that, generally speaking, the income part of your return is more certain than the capital appreciation part, especially with LT rentals. However, again, I care mostly about the capital appreciation (as long as I'm cash flow positive) for the following two reasons:
1) While it's true that real estate prices can go down, for example as a result of a financial crisis or temporary oversupply, property prices in the right locations within developed countries go up over the long term.
2) Applying the Pareto principle, over time, 80% of your total return will come from equity and capital appreciation vs 20% from your net income or something like that. Therefore, I focus on the 80% equity part as the income isn't going to make much of a difference, as long as it isn't negative.

As the educators on BP keep repeating, you build wealth through capital appreciation and you need cash flow to quit your job if that's what you want. Of course, that won't apply to you if you're not looking to do either of those.

@Maria Murphy I think we're all trying to get high returns with risks as limited as possible. You have to balance the two and we might be at different places within the spectrum, even though we might be in the same "region" of it.

I disagree with the idea that capital gains is especially speculative in that everything is speculative, including rents from long-term tenants. They might not pay or your property might not be rented. Also, the idea that you shouldn't buy in areas that have already gone up (a lot) in prices is misguided. It's been proven that properties that have appreciated the most in the past will appreciate the most in the future. It's all about desirability. People from all over the world have wanted, want and will want to own properties in a place like the Costa del Sol, regardless of price and whether ST rentals are allowed or not. By contrast, very few people have wanted, want or will want to own property in, say, Badajoz. Check in a few years the difference in price appreciation and you'll see what I mean.

Moreover, when you can borrow at sub 3% and 70% LTV, you'll make money with equity and appreciation even if the property never increases in value in real terms because it'll at least increase at the rate of inflation, unlike your mortgage that is fixed. There's hardly any speculation here.

You create wealth in real estate through capital appreciation, not cash flow. The role of the cash flow is first and foremost to cover your costs so that you can hold the property and create the wealth that goes with the capital appreciation over time. If you have positive cash flow, even better but having as main objective to get an ROI above 10% with very little risks, even if possible, misses the point of real estate investing in my book. If you listen to the all the successful BP podcast hosts and guests who are very successful, they'll pretty much all going to explain that same thing.

@Maria Murphy it's your best right to be picky but I know many too picky people who don't take action and end up missing on huge gains over time because, what creates wealth (over time) isn't the ROI but the capital appreciation. If I can make a 10% ROI and borrow at 3%, I don't really care that much about whether my ROI is 10 or 15%, as our leveraged capital appreciation over time is paid for by our tenants, with some money left over.

As to the ST regulatory risk, there's a lot of misunderstanding about it. For example, there's a headline that circulated a few days ago mentioning that Spain banned 65,000 Airbnbs. These are illegal ones and it's great for people like us who are legal because it eliminates the illegitimate competition. They've trying to be doing that in so many places without success!

Or you have the ban in Barcelona, which is at a city level only. It's the same across the world. In my home city of Montreal, they just banned ST rentals outside of summer, which basically comes down to a full ban as well. That's only in our city and not reflective of the whole country. There are reasons for such bans: modest families can't find themselves an apartment so politicians act. Therefore, it could have been expected.

Where we invest in the Costa del Sol, there isn't such lodging crisis and we invest in properties that the average Spaniard can't afford anyway. Also, the area is highly dependent on tourism and the dollars of (foreign) investors so banning ST rentals wouldn't solve anything and would harm the economy, which would hit the "average" Spaniard, which the politicians are supposed to help and represent. That wouldn't go so well at the following election, would it? Moreover, ST rentals existed there way before Airbnb was created and not even the hotels ask them to be banned or overly regulated because they're doing well and don't have the capacity to host all the tourists if ST rentals were banned anyway.

Granted, there are measures taken at the national level that have an influence on STRs, like the possibility for a 60% majority of the votes within a condominium to refuse a new ST rental license. But then, again, it's a matter of buying the right kind of assets. You can buy a house instead of a condo, you can verify what kind of owners live in the community you're considering buying into or you can buy within a touristic development. So, like everywhere else, you "just" need to know what you're doing. Of course, some politicians can always make decisions that don't make sense but that's supposed to be a (small) risk you're being paid to take. And, if you don't want any risk, you invest in treasury bonds, not in real estate.

@Maria Murphy

I'm confused. You were talking about 10% ROI outside of STRs so I'm not sure what the STR regulatory risk has to do with it. This being said, regulatory risk can indeed be high in Spain, depending on where you invest. If you're an STR investor, you "just" need to avoid certain parts of the country. MTRs could work where STR regulations are too heavy and, in certain markets, they could even be more profitable.

@Maria Murphy

You seem to be like me in that you like low-hassle high ROIs. However, in today's world of very expensive assets from real estate to stocks, what's wrong with a 10% ROI.

At the moment, I only invest in STRs. When it comes to LTRs, they only work as a serious wealth building tools in Canada and the US IMHO. This is because we have commercial financing (and refinancing) that aren't available in most parts of the world. The problem is that you need low interest rates for that model to work and we currently have high interest rates and high prices. Not a good mix.

When it comes to STRs, it's more profitable first in certain European countries given the much lower interest rates and, second, in certain Latin American countries given the low prices. So, that's where I invest.

Mind you, we're considering making an exception because there are very strong MTR and STR markets in Spain's Costa del Sol. Given the commissions we're having to pay to OTAs and property managers for STRs, we're going to test what we could make with MTRs or LTRs, considering the power level of hassle.

Hi Christopher,

First, kudos to you to start investing early. I'm a fellow Montrealer here and, for the reasons you mentioned, I've been investing internationally over the last few years. Because it's much more profitable, I can hire property managers and still make much more money than at home. I'd want to hire or at least be able to hire property managers anyway given that these are short-term rentals, which are time consuming to manage. And, the nice thing about it is that, poor me, I'm "forced" to go on tax-deductible trips to beach destinations in Latin America and Europe.

But that's not for everybody. Some people want to invest close by. In which areas are those properties you found?

@Michael Baum you guys should and don't wait until it becomes too overcrowded! Of course, I see the tourism statistics breaking records year after year but people visit from all over the world so I'm still a bit surprised that, when I'm in Canada and I tell people what I'm up to in Portugal, so many tell me that they've been there recently or going shortly!

The only danger is that you might never want to go back home. From the sub $1 coffee to the $4 bottle of great wine to the beautiful landscapes and architecture, the great climate, beautiful beaches, the culture, the kindness of people and lack of political divisiveness, I still have to hear a negative word from anyone who's visited.

By the way, did you know that the number of Americans moving to Portugal permanently has increased by 626% in just 7 years? And, since this is an investment forum, I might mention a huge sea change. Until recently, these people used to keep their assets and money in the US and would move money to Portugal as needed. Now, they're moving their money to Portugal with them, which is a smart thing to do given that both the real estate and the stock market are doing much better than in the US.

@Michael Baum

Thank you. You'd just avoid the areas that are subject to regulations or potential regulations, like you invest in areas that are dependent on tourism and where there's no acute affordability issue.

Or you invest in Portugal instead, which is likely the only country in the world who recently withdrew country-wide STR regulations. The issue in Portugal, like in many other countries, is affordability for the middle class. If you buy a (luxury) villa, which is the best investment there anyway, you're not subject to the regulations since these aren't the kind of properties that the middle class wants to buy or can afford.

@Michael Baum

I'm not sure whether you wanted me to answer on the original post or your reply, so I'll do both.

I've been investing in Mexico since 2017 and obviously been there many times and in different areas and I've met countless fellow investors, local professionals, locals, visitors of all sorts and from pretty much any country. I haven't met a single visitor that went to Mexico who went there for a concert. I know concert travellers who go to Europe for Taylor Swift because it's much cheaper. But Mexico? Anyway, I don't think you'd need my expertise and contacts to answer that kind of questions as it also boils down to common sense IMHO. Would you go to Mexico for a concert? Do you know many people who have? That might just do it.

As to your own question/comment, you could go to Mexico to buy and then get your property managed, provided you find trustworthy people to do that on the ground. Buying and managing ain't the problems. The main issue is that, if you do that today, the profit margin isn't high enough to justify the risk, in particular in the Riviera Maya, which is overpriced and overbuilt. If I wasn't already owning property there, I would only buy for lifestyle, not for investment.

We've been divesting from there and our policy has been to only keep trophy assets. What I been by that is prime properties in prime locations that are fully built. That naturally limits competition and, whatever competition we have, we can beat because we bought so much cheaper than today's prices years ago that few owners could compete with us in prices (and amenities).

A couple years ago, we started focusing more on Spain and Portugal, which are unbeatable by all accounts from prices to cheap borrowing to capital appreciation to safety. These are the best places to invest in the whole world right now IMHO, including the US and my home country of Canada. Interestingly, even though I haven't mentioned this here or in many other places. I used to get many messages from people asking me about investing in Mexico. Now, it's much less and I get many more people asking me about Europe. That should tell you something and, sometimes, I'm asking if all these people are reading my mind or have put a microchip in my body without my knowledge LOL.

@Andrew Steffens it's not only difficult to get financing in Colombia, it's just not possible for a foreigner non-resident. Mind you, if you buy the right property, you could get a better return that you can get in the US by investing 100% in cash and the few properties that would work would be great for lifestyle as well. So you don't necessarily have to give up!

@Keegan Rosett

I'm not sure I understand what's the business like explained like that but feel free to shoot me a DM.