Where to Find Low-risk Real Estate Investments
Date: 12/22/2007Saturday, Dec. 22, 2007
Read more about investing in foreign real estate in International Living Postcards--Saturday Edition
You have watched others do it, and you have read about the opportunities in these dispatches. Now you’re ready to make money investing in foreign real estate.
But you also want to be able to sleep at night. So you must ask yourself a key question:
How strong is your stomach?
Are you comfortable with speculation? Are you, for example, game to gamble on a deal that has the potential to return 10 times your money in a short period of time…but requires you to place your hard-earned capital in an emerging, unregulated, unproven market?
It’s important to ask yourself what you will be comfortable with, and then give yourself an honest answer. I don’t know what kind of investor you are. Like most of us, you probably fall somewhere in the middle. You understand that profits come with risk, and you obviously want to minimize these downsides as much as possible.
Where you place yourself along the risk-tolerance continuum will point you toward the “best” opportunities for you at any point in time.
If you can’t afford to lose any of your principal, then your risk tolerance should be low. Limit yourself to more mature markets that tend to be more liquid. Avoid speculative opportunities such as pre-construction. Look for a property with good rental prospects in a city or an area with a proven rental market. This way, you could see cash flow and possibly enjoy capital appreciation. New Zealand and Australia are good markets for this kind of play right now, as are many of the EU capitals. Although I would advise that you stay away from rentals in the U.K. and Ireland.
If you can afford to take a hit on your principal investment or if you have a flexible holding period, then you’ve got a wider range of opportunities available to you. The rapidly expanding economies in some East European countries (particularly Romania and Poland) are good places to start looking. You could buy land to hold for a couple of years or take a chance on one of the many pre-construction apartments that are being built to fill the increasing demand for better local housing.
The due diligence requirement naturally increases with the level of risk. The East European markets require a lot of ground work, and I always recommend that you take time to visit the country and to see the building site, even for pre-construction apartments that you plan to flip or sell on before completion.
If you’ve got guts of iron, then your options become more exotic. High-risk markets that have my attention right now include coastal Mozambique, Cambodia, the Philippines, and Sri Lanka. Exotic options may not make sense for you, however, if you flinch at the thought of presidential coups and hard-to-pin-down restrictions on foreign ownership.
For every opportunity you consider, you must look at both the market and the project/property. A particular opportunity may not make sense, even if it resides in a market that does. Or you could find a specific opportunity in a market that is generally overvalued and over-supplied. In other words, there are good property investments in a bad market, but you don’t want to be in a bad property even in a good market.
Finally, recognize that your level of risk tolerance is likely to change over the course of your investment career. With gained experience, you will begin to develop and diversify your portfolio (with regards to region, market, currency, and type of real estate). Eventually, you may acquire a taste for risk, even if you don’t have one right now.
Lief Simon
For International Living
Editor’s Note: This week, IL’s Publisher’s Roundtable members will get a full report on Lief’s recent scouting trip to Romania. If you join Publisher's Roundtable now, you’ll get this Romania report…plus, you save $899.
Read related articles:
- Three Questions You Must Ask Before Buying a Piece of Real Estate Overseas