The 3 Things You Must Absolutely Avoid Buying Property Globally and the 5 Things You Must Do
There are a plethora of real estate global investment opportunities available today. Even the non-sophisticated investor can find tremendous bargains in this economy. The purpose of this report is simply to educate you to put safety first and foremost in front of your investment dollars. Whether you have 100,000 or 10,000,000 to invest, no one likes to lose their money.
If you purchase a solid investment, it will produce income for years to come and provide more wealth for you to invest. A poorly selected investment will rob you of principal and much more importantly; the loss of those investment dollars to earn money for you forever.
Don’t be blinded by greed and with promise of exorbitant returns. Nothing takes the place of your own due diligence and a few simple rules here will protect you from yourself and unscrupulous sales people. I also stuck a little bonus at the end for you.
The 3 Things You Must Avoid
1. Non Traditional Closings.
Never send a down payment or any money to the seller of property. Always use an attorney or a title agent that has errors and omissions insurance. Believe it or not, some people will try to sell property that they don’t own and once you give them the money – they’re gone.
It’s imperative for you to be able to sell a property at a later date and that’s why you need title insurance when you buy. Avoid a quit claim deed as this only gives you whatever title the seller has. If he had bad title; and there are recorded liens on the property – then that’s what you get. An attorney that has their license on the line is always your best bet to make sure that you are getting what you paid for.
2. Avoid Declining Areas of Population.
Just like after the Great Depression, there are tremendous opportunities available for cash buyers today. The key is to be selective on your target area.
Some areas were hit harder than others in valuation drops and others will bounce back much quicker. And some will continue to drop. A key is to avoid areas of declining population because without demand for properties, there will be no reason for values to increase. In fact, what is happening in many parts of the world is that real estate taxes increase because there is not enough revenue to support local governments. This further depresses values in that area. Then, when you take into consideration that state governments can and do increase their income tax, you further drive people out of the area to tax friendly states. The result: a further eroding of future values. This just happened in the state if Illinois in the United States as they increased their state income tax.
Declining population usually translates to older cities, which means older housing stock. Old houses always mean older problems. There is no reason to buy old houses with problems that can’t be seen, especially the problem of lead base paint. Lead base paint, which is found in houses built before 1978, has been the primary lawsuit against landlords in the USA. Avoid houses built before 1978 like the plague!
3. Beware of Estimated Rates of Return
If an opportunity sounds too good to be true – it probably is. This author has personally experienced the “grass is greener on the other side,” lure that cost me hundreds of thousands.
No one can guarantee the future and no one can say with complete assurance of when a house will sell. If you are buying houses and someone is offering cash on cash rates of return over 20% – RUN! High rents on low purchase price usually mean a “low income area” or worse; the ghetto. You’ll never get out what you had hoped for. The problem with these houses is that the tenant usually will never qualify for a mortgage and you’re left selling to another investor – for a lot less than you hoped for.
Use common sense analyzing the anticipated rates of return on a specific property and consider, the age of the house, the area it’s in and the likelihood of it going up or down in value.
The 5 Things You Must Do
1. Buy in Safe Stable Countries.
Let’s be honest. The USA is one of the safest harbors for investment in the World. The government is stable and the rebound of property values, while it won’t be the same in all 50 states, will certainly happen as it does in every business cycle.
The thing is; trillions of dollars of wealth has been lost in the USA over the last four years and 55% of the American population is living paycheck to paycheck. The Americans don’t have the money to buy their own depressed real estate. The other reason is lenders have tightened their lending policies, which have further driven values down. This is the opportunity of a life time to buy USA property for anyone with cash. Those seeking financing need not apply.
2. Buy in the Path of Progress.
Demand for property reduces supply and increases prices. If you are buying for safety and a long term hold position, then always buy in the path of progress. That is: buy where people are moving to, not from. Avoid declining rust belts and look at areas that are attracting people, growth in business and newer houses.
Areas of growth always have new housing stock and today these properties can be acquired for a fraction of what it cost to build them.
Regardless if an area has a current short term over supply of properties on the market – if it’s a growth area – they will be absorbed quicker and prices will rebound once the supply is absorbed. The climate of an area absolutely plays a huge factor for future growth. It’s not a surprise that many people in the North East and Mid West of the United States of America are moving south when they retire. In fact, the baby boomers are retiring at a rate of 10,000 per day for the next 19 years. Additionally, as folks retire, they tend to leave high property tax and high income tax states and move to where the climate is warmer.
3. Have an Exit Plan.
Never buy a property unless you are clear in your purpose. Rates of return, preserving wealth, future growth, are all good reasons to buy real estate. But, how long do you intend to hold it and how will you ultimately cash out? The easiest property type to sell is a house. Really, it is. You can sell it to a person that will live in it, an investor, or in most economies, they are easy to finance.
Not the same with office buildings, shopping centers, mixed-use buildings or apartments. These require a sophisticated buyer and are more difficult to finance.
The point is; you can have a much more predictable exit plan with a house than commercial real estate. With the abundance of foreclosures in the USA, there are a lot of ex-homeowners that are now tenants. Most would like to own again, and with credit restoration and the future resurgence of mortgage money, there is a gold mine of future buyers. Many of these former owners/now tenants are thrilled at the idea of a lease with an option to buy later. This allows the investor to get a predictable rate of return from rent, with a built in buyer, while the market improves. Worse case; the tenant can’t get a mortgage in three years and you either allow them to stay and give them an extension and continue to collect rent or place the house on the open market.
4. Know the Income Tax Consequences on Foreigners Owning Property.
Every country has different guidelines and it is imperative that you follow the rules or the penalties can be severe.
In the USA, a foreigner must file a form 1040NR to report their activity on rental property. The USA has imposed a 30% withholding of rental income rule by the property manager which can be avoided as long as the investor has made an election to treat the rental activity as affectively connected to a USA trade or business.
Beyond that, the investor pays income tax just like residents of the USA and is entitled to all the deductions as such.
It is prudent to hire a local CPA (certified public accountant) that is familiar with foreign investors to prepare these simple forms and to do the tax return.
5. Work With Professionals at Every Level.
Always use an attorney or title company to close. Only buy properties from real estate specialists that are familiar with every aspect of acquisition to disposition. The same is said for property managers. Be wary of buying from real estate agents that are simply working for a commission. Once they get paid, they are off to get another commission. And when at all possible – inspect the property yourself.
Don’t buy commercial real estate in the USA at this time. Many are in foreclosure and many more are coming, but the underlying problem is: who will occupy the space?
With a contraction in the economy, businesses are closing, offices are downsizing and there is a lot of “see through” office space and stores available.
The thing about houses is this: when people close their stores or their offices get shut down; they still go home to sleep and that usually means a house. Bought right, a house will provide a safe haven for investment dollars with a dividend every month and upside potential as the market comes back.