The Beginner’s Guide to Riches
Date: 05/30/2008 Author: Lief SimonSaturday, May 31, 2008
Read more about overseas real estate investing in International Living Postcards—Saturday Edition
I’m at IL’s Ultimate Event with 275 attendees looking for paradise…their own personal Eden for living and investing overseas. One recurring question is, “Where is the best place to invest in real estate?” The problem, I tell everyone who asks, is that there is no one “best place” to invest that fits everyone.
The best way to create a real estate investment portfolio is to let the investments come to you. Don’t look for a specific type of property in a certain country at a particular time. If you decide that you want to find, say, a short-term rental property in Mumbai, then that’s what you’ll find...whether it makes sense as an investment or not.
Your real estate investment portfolio should reflect your tolerance for risk and your total net worth. One rule of thumb is to invest no more than 5% of your total net worth in any single investment—be it a piece of real estate, a single stock, or anything else. If you’re beginning to diversify your investment portfolio to include international real estate, it may be tough to stick to this rule. You probably won’t find many opportunities that fit within the “no more than 5%” parameter. Still, you should keep it in mind, and, as you’re growing your portfolio, remembering that rule will help you make better decisions.
Keep an eye out for real estate opportunities that make sense for you. Examine each one as it presents itself, and check how it fits within the context of your overall portfolio and the level of risk involved.
One of the safest and most straightforward ways to get your feet wet in international real estate is to invest in a low-priced land purchase. You can generally find interesting land opportunities for less than $50,000 and sometimes for less than $25,000. Land in this price range isn’t likely to be beachfront in this day and age (at least not beachfront you’d want to own as an investment). The point is that an investment in land, if you buy right, needn’t be capital-intensive (important especially when you’re starting your career as a global property investor). Furthermore, land values, again, when you buy right, tend to be less volatile than, say, condo values.
You could also start with a rental property. The trouble here is that you’ll have to come up with considerably more cash to close the deal. If you don’t want to put $150,000-plus of your own capital into one single deal (I’d caution against this for a first or second deal of your career), you’ll need to leverage. Foreign financing is available in only a handful of countries, so your market options are limited.
In addition, rentals require ongoing management, both of the property and of the rental activity. You’ll need both a rentals and a property manager (sometimes they can be the same person). Still, if you can organize your mortgage payments so that you’re confident you’ll enjoy positive cash flow from the rental income, a rental property can make sense as a first step overseas.
Once you’ve had the experience of your first couple of investments, your understanding of foreign markets will develop, as will your level of confidence. Then you’re ready to begin thinking about more aggressive property investment opportunities, such as pre-construction (high leverage, high potential return), hard-money loans, and investing directly with developers.
Slow and steady wins the race with real estate in any market. It’s a long-term strategy. Give yourself at least a few years to build a well-diversified portfolio with investments in different types of properties in various countries.
Lief Simon
For International Living
Editor’s note: Lief spent the last few days at the Ultimate Event in Cancun, Mexico, explaining how to profit from international real estate, how to understand the global real estate markets, and also what you need to know before you apply for a mortgage overseas. Don’t worry if you couldn’t join us; we recorded everything for you...find out more.
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