January 2009

At the moment, property investors, particularly international property investors are stumped by which decisions they should make coming into 2009.

2008 has been a very nervous and disappointing year for some property investors, especially those who have recently bought in the western markets – UK, USA, Spain where prices are truly falling.  Even investors who bought badly in northern and eastern Europe – Baltics (Estonia, Latvia), Poland, Bulgaria and Romania – are suffering due to falling prices and growing unemployment.

Investors bought big promises including “guaranteed” rentals, some which have failed to materialise.  (Which reminds me of an article I wrote a while ago on Why you do not want a rental guarantee).

So how does the recent events influence this years buying decisions, if any?

  • Do I buy?
  • Where do I buy?
  • Do I sell?
  • Do I rent it out still?

2008 will remain an infamous year.  The banks and financial institutions shook our core beliefs in “safe” versus  “risky”.  Their greed has led to one of the biggest financial comedowns of the century.  Where was the regulation?  Where was the sanity?  Why was nobody watching?  Well everybody is certainly paying attention now.  And the first thing investors must do is take stock of their current situation:

  • Currency – the Euro is nearly equal to the Pound.  If you already have a property in Euros you may be celebrating.  If you are making repayments you may need to save more to cover your investment, and speak of a currency specialist on if and when to lock a rate in advance.  And will the US dollar ever be the same again?  Will you be affected?
  • Number of Properties – Is now the right time to look at maintaining, increasing or decreasing your number of properties?
  • Leveraging – Done correctly, leveraging can help you grow your portfolio at a much faster rate.  But investors need to be very careful.  Buying with “no money down” and borrowing as much as you can, may be dangerous.  I always advise my clients on minimum 70% LTV, although 50% LTV is much better.
  • Cash Flow – Yes, it is still king.  Luckily dropping mortgages across the US, UK and Europe seem to be improving cash flow for some investors and freeing up cash surpluses.
  • Countries Invested – Are your properties diversified?  Are they located across a variety of countries or markets?  Believe it or not there will be some countries in 2009 where property prices will actually increase.  Yes every country has been affected by the current crisis, but some less than others.  Albania seems to be doing fine – demand for sea view properties continues and the Tirana skyline is set to be transformed.  Locals keep buying in various hot-spots in Brazil as the middle class continue to emerge.  Argentina’s government cannot seem to put a foot right lately, but looking at the property market, the demand is still there, especially in the best locations in Buenos Aires.

So now you know where you stand, what decision to make?  As the saying goes “It is always a good time to buy property or real estate” and I still believe this, especially if you choose the right market and location, and you keep a long-term view.

If is a good property and all the numbers add up, what does it matter?  Really?

It is a sad fact that most investors buy when most investors are buying – the sheep mentality.  But what about the good investors?  Aren’t they always ready to buy when the opportunity arises?
You can research, research, research, but we believe if you create a core criteria for your property investing, you can spend less time researching and more time getting a good return on your investment property.

So coming into 2009, what criteria should investors have?

We recommend the following starting criteria, but we are open to suggestions and feedback:

  • DEMAND – Is there a strong local market? Is the population increasing in the area?
  • BUDGET – Set a budget and stick to it, taking into account additional 10% – 15% of extra possible costs
  • LOCATION – How far are amenities?
  • PRICE – Is the price good value?  Or undervalue?  Why will it go up in the future?
  • TIME SCALE – How quickly are you looking to decide?  How long are you planning to keep the property?
  • LOCAL SUPPORT – If you are a busy investor and need local support, who on the ground is the best to help you obtain a return on your investment?
  • EXIT STRATEGY – the most important – can you sell or rent at a good price when you need to.

Happy investing for 2009, and may this years decisions lead to increasing your wealth and your portfolio.