International Real Estate Investment Guide

With a presently unpredictable economy in the United States, it makes sense to look at the international Real Estate markets. With rising oil prices and a faltering US dollar, no one can accurately predict how long it will take the United States Real Estate market to rebound. Some speculators have put the range between six months and three years for the market to rebound, but remember this is just speculation. While the US dollar is low, there is a strong real estate market internationally and with 193 countries to choose from you are sure to find a market to meet your unique investment needs.

The key to international Real Estate investing, as with all investing, is diversification. There is no denying that the Real Estate market is cyclic. While the United States market is on the down side, countries such as Australia, Europe and even Argentina are currently experiencing the high side of the Real Estate market.  By investing in the international Real Estate market there is the assurance of sufficient diversification and even distribution of risk. By distributing the risk level you can be assured that, you will optimize your over all return on investment. By investing internationally, you gain the opportunity of always having high performing property, by reducing the impact of the poorer performing properties.

As an international Real Estate investor, you are able to analyze are larger market area so that you can identify properties which have proven indicators for substantial growth. When you only invest in the domestic Real Estate market, you significantly reduce your earning potential. With a Real Estate market which is becoming increasingly globally interconnected it is an essential tool for avid Real Estate investors to take advantage of properties available. To limit your Real Estate investments to only the US market you miss many opportunities for significant growth and a Return on your Investment.

The Current United States Market

Without even considering the current Sub Prime Mortgage crisis there are some serious issues that are predicted to affect the growth of the United States Real Estate market for at least the next ten years. To be successful a successful Real Estate Investor in the United States now you need to have a very good grasp and ability to overcome the following national issues:

• The United States Credit Crisis
• The Trade Deficit
• High Oil Prices
• A Rapidly Ageing Population

These issues are out of the control of most individual investors so the opportunities to identify and secure financially feasible Real Estate investments are limited. That is not to say the opportunities are all gone; it simply identifies that you need to have the tools and resources to overcome the present market volatility.

The Fundamentals of International Real Estate Investment

As with domestic Real Estate investments, it is essential to identify the fundamental issues which will ensure that your investment is positive with minimal disruption to your investment strategy. There is a significant difference between domestic and international Real Estate and to achieve the Return on Investment that you desire, you need to be aware of the fundamental issues which will make your Real Estate investment prosperous or disastrous. You may know what is happening in your own city or even throughout the United States. However, can you identify country specific issues relating to-

• The Economy?
• Population and Growth?
• Cyclic pattern of the Real Estate market?
• Governance?

Chances are that at this stage you can not answer those fundamental questions. So before venturing into the international Real Estate market you need to have a thorough understanding of those fundamentals in the country and region you are looking to invest.

The Economy

A diverse national economy is a positive sign for obtaining investment Real Estate in any country. When the economy of a country is reliant upon several industries for their national income, you can be assured, in most instances, which the cyclic nature of all industries will ensure that the country’s economy will continue to perform because of its diversification.

The Population

It is of no benefit for you to purchase a Real Estate investment in a country with a stagnant population. The key to success is to ensure that you identify a country or region, which is, has strong population growth both internally and through immigration. Strong population growth will ensure that your investment will actively work for you because there will be a strong demand for rental properties. When looking at the specific population it is also advisable to look at the population demographics. An ageing population will present opportunities to sell Real Estate but will not be a positive indicator from rental returns on your property; older generations have acquired significant wealth already and own or are working towards owning their properties. Conversely, a younger population indicates a strong rental market coupled with higher disposable incomes; investing in a country driven by a younger population will allow you to command a higher rental return on your property.

Real Estate Cycle Status

You need to identify the current Real Estate status in the country you are looking to invest in. It makes no sense to purchase Real Estate if the market is at its peak, you need to identify markets that have moved past the peak and are in the process of re-growing in property value. This will assure you that you do not over capitalize in your Real Estate investments.

Governance

It is of no use to you to even consider investing in Real Estate in a country which is politically unstable or does not possess the financial experience to grow the countries. To make sure your Real Estate investment meets your individual needs you need to ensure the political climate of the country of consideration is growth orientated. We would all like to make $100,000.00 a week by collecting rents, but a Zimbabwean $100,000.00 note is not going to do much for your US bank account. Look to the long-term strategies which countries are putting in place to create a strong economy, if the strategies are sustainable and there is no visible political breakdown then you will be able to better project Real Estate performance.

Profits in International Real Estate

By investing in the global Real Estate market you are no longer just dealing with physical property, you are also dealing with foreign currencies. As an international Real Estate investor, you will need to have an understanding of the world currency markets so that you can increase your investment return as the country’s currency increases or decreases against the United States dollar. This is also known as Forex Investment and it is essential that those entering the international Real Estate investment arena have a basic understanding.

International Real Estate Investment Risks

As with all investments, you will need to weigh up the competing risks with the overall return that you are seeking. Any investment has risks but the risks can be magnetized for International Real Estate Investors if they do not closely monitor factors such as:

• Political Weakness
• Economic Changes and Fluctuations
• Legislative Changes
• Government Policy Changes
• Taxation Changes

As an International Real Estate Investor there is also the need to consider systematic risk, this is a risk which affects the whole of the Real Estate market within a country. Systematic risk is unavoidable but you can safeguard your overall Real Estate portfolio by spreading your investments over a broad and diversified property market.

If you sufficiently spread your Real Estate portfolio and nine out of ten of your properties return 10% and the tenth property returns no income then at least you have internationally spread your portfolio to ensure you make an overall return of 9%. That is why it makes sound investment advice to spread your Real Estate portfolio globally; to take advantage of the cyclic Real Estate market.

International Real Estate Market Linkages

In the international Real Estate market shares and property move in line with each other. The reasons for this are varied but mostly because:

• Interest Rate levels affect yields in both markets.
• The international economy affects end users in both markets.
• Investors can switch between the two markets.

     If prices in the two markets are ever regarded as unbalanced then new money can be directed towards the sector providing the better return. This in turn pushes prices up until the equilibrium is restored.

Practically however, in a global market the two markets will never follow this theoretical model because:

• Markets are imperfect.
• The international Real Estate market has longer time frames and the stock exchange is a much more liquid market.
• There are financial differences in the markets. Property is generally requires a higher investment price.

In reality however, in a country experiencing a period of high prosperity through share profits, it is a reasonable assumption that tenants who have shared in this profit will have an increase in disposable income. This is the time that they start looking for better rental properties and gives you the opportunity to demand higher rental levels.

Seasoned International Real Estate Investors make a point of looking at the local Stock Exchange of the country that they are considering on investing in. Simply for the reason that it allows them to see which individual countries are having higher than normal financial growth and where they can achieve the maximum Return on Investment.

Dealing with International Real Estate Agents

There are many companies and individuals proclaiming to specialize as International Real Estate Professionals. But as with any occupation an individual can only have a broad understanding of all market indicators and current affairs. Before proceeding to use an International Real Estate Agent it is essential to identify a professional who has a network connection with the Real Estate market that you want to enter.

Before engaging a professional to work on your behalf you need to be sure that they have the connections and knowledge of the country that you are trying to invest in. You will be relying on the advice of this professional so it is important to make sure that you can feel comfortable with the advice that they give you. Do they know about Foreign Investment restrictions? Do they know about the Taxation conditions? Do they know about the legal aspects of your investment intentions? Do they know how to make sure that your Real Estate investment is structurally sound? These are very important questions to have answered before you take the step of using the professional.

If you are not comfortable with the advice of the professional it may be worthwhile to do your own research and analysis and then engage a local Real Estate agent in the country. This will give you control to make the best investment decision for your own needs.

Current Trends of US Real Estate Investors in the International Market

The current trend of US Real Estate investors is to venture into Costa Rica in Central America. Having a population of 4.1 million citizens and confirmation from the World Tourism that visitors to the country generate over $1.6 billion into the economy Costa Rica has shown itself to be a financially beneficial Real Estate investment.

Costa Rica recently signed and agreed to the Central American Free Trade Agreement which has already seen an increase of international company investment. Large organizations have identified the political and economical stability of Costa Rica. Because of this stability international organizations are increasingly setting up their off shore operations in Costa Rica which has seen a demand to accommodate international workers and business visitors. The biggest winner in this situation is the Real Estate investors who can take advantage of the demand for accommodation. The demand for both short term and long term accommodation currently outweighs accommodation availability so US Real Estate investors can take advantage of the high return on their investment.

Unlike many other countries, Costa Rica allows foreign Real Estate investors the same property rights as its citizens when buying fee simple property. US Real Estate Investors have the same benefits of reduced property taxes as the local population, which is currently set at 0.25% of the registered value. The low ongoing and purchase costs in Costa Rica allow for savvy US Real Estate investors to benefit from the high Real Estate investment returns.

As there are already over 50,000 United States citizens residing in Costa Rica local financial institutions have found that it is politically and financially stable to the extent that US Finance Brokers can obtain financing packages to assist with your investment. The annual inflation rate which consistently remains between nine and thirteen percent ensures that you will achieve high returns year after year. That is the great thing about the real estate market here you can purchase a low priced piece of real estate and gain a high Return on Investment. And for your long term investing needs the yearly equitable increase for Real Estate has been estimated to remain between eight and twenty percent.

Is the US Real Estate Market Necessarily a Bad Choice?

With the recent volatility of the finance and real estate market in the US it is pretty unnerving for many US based Real Estate investors to further enter the local market. The current down turn in real estate prices has caused many local Real Estate investors to lose money. This is a concern for local Real Estate investors but to international Real Estate investors the current US market is seen as a great opportunity. Why do they see an opportunity you ask; Quite simply because of the fluctuating US dollar and the decline in real estate prices they are able to take advantage of the dollar conversions and purchase low priced real estate when they respective dollar is competitive on the US Dollar, similar to Forex Trading.

A good friend of mine and fellow Real Estate investor, Ben Doman from Australia has himself taken advantage of the current US Real Estate market. Some of you may have already read some of Ben’s tips in his book, ‘Retiring Young through Real Estate’. Recently when I was talking with him he told me of some great Real Estate investments he has recently obtained here in the States. I was curious about the steps he took to invest in the US as an international investor and asked him what he considered were the essential processes to gain maximum return on an international Real Estate investment. His processes were quite simple:

1. Identify what type of Real Estate you want to invest in and which style of Real Estate is generating a greater Return on Investment. You have options such as Residential (Houses or Condos) and Commercial (Office Blocks, Retail business properties, Car Parking lots).

1. Scan the National Real Estate listings for properties which meet your investment choice and list potential properties according to geographical location.

1. Profile the geographical and demographic benefits and negatives of the property locations. Paying particular attention to the community economy, local development, population growth statistics, business growth statistics and local government infrastructure including any plans, which the local government has in place.

1. Gain details from local Real Estate Brokers on the current demand and supply needs of the local area.

1. Identify local Financial Institutions and ascertain the banking and financial services that they can provide you with as an International Real Estate investor including financing, international money transfers and currency exchange (and costs), the ability of the Financial Institution to establish a direct deposit system for people renting your property, as well as the general fees and charges. It is of no use finding a perfect international Real Estate investment if the local Financial Institutions cannot manage your funds.

1. Rate the Properties: Once you have gained all of the information rate the benefits and viability of the Real Estate and select a Real Estate Broker to negotiate the best deal on the top rated properties.

1. As you can see this is a very process and makes sure that you have all the information that you need to make the best investment choice.

Conclusion

While many Real Estate investors will continue to prefer the domestic market it makes sense in the current economic times to consider the benefits of the global Real Estate market. For many people it will not be a feasible investment strategy but for some the global market will allow for their Return on Investment to dramatically increase. The international Real Estate market provides many opportunities for investors willing and able to dedicate the time and effort to diversify their Real Estate portfolio.

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