| How to Minimise Risk in Real Estate Investment - part one - part two - |
Basic rules to remember when investing in property in Hungary or anywhere abroad:
1. At least take the same level of care and caution when buying property in a foreign
country as you would in the UK (i.e. hire a real estate expert lawyer to advise you or act
on your behalf, as opposed to one recommended by a vested interest, or entirely rely on
a commissioned sales person).
2. Take everything people with vested interests say (i.e. developer/sales agents or a
lawyer recommended by them) with a large pinch of salt and test their statements
against factual / market reality; do your own due diligence.
3. If the price / deal seems too good to be true it usually is. In fact focus on ‘value’ and
the opportunity for it to increase, be added to and realised. Don’t fall into the common
trap of comparing a property investment abroad with prices in the UK or elswhere, as it
is meaningless in assessing ‘value’.
4. Always take into account the cost of buying and selling when doing your due
diligence. Also gain a detailed / realistic budget of the running costs of the property and
taxes you will incur as an absentee owner. Investment properties abroad always cost
more to own / run and generate lower income than budgeted for.
5. Never pay over your deposit unless you have a bona fide Bank Guarantee or it’s held
in escrow. To pay the deposit into the developers / sales agents cash flow is to invite
disaster, let other mugs do this and move on.
6. Take time to research what drives the market locally (both historically and currently).
Take Florida as an example: Average annual property price rises in Florida historically
being 3 to 4 % per annum and with 2004/05 being circa 15% and 27% respectively, and
with interest rates being raised every month it was ‘buyer beware time’. Remember
fundamentals need to underpin the market and locals/local economics can’t afford the
prices wet back Brits seem willing to pay. There won’t always be a 'greater fool' to off
load to.
7. Never believe that your property has gone up just because the developer is charging
new buyers ‘fresh off the plane’ a higher price than you paid six months or so earlier.
Resales abroad (especially where there’s over-development and/or, a none existent or
weak resale market), do not command ‘new property premiums’ and can take years to
sell if incorrectly priced. Bulgaria is a classic example of where Brits have paid £50k for
2 bed apartments and think they have made £10k profit because the developer is
selling the next phase at £60k, only to find they can’t even find a resale buyer at their
original purchases price! Many also made the mistake of taking the developers advice
to buy two units, one to keep and one to sell at a profit!!
8. Buying a property abroad is not a ‘passive’ investment; you are starting a business
the main asset of which is hundreds of miles away.
Buyer beware!
source:
Pablo Escobar, askaboutmoney.com
1. At least take the same level of care and caution when buying property in a foreign
country as you would in the UK (i.e. hire a real estate expert lawyer to advise you or act
on your behalf, as opposed to one recommended by a vested interest, or entirely rely on
a commissioned sales person).
2. Take everything people with vested interests say (i.e. developer/sales agents or a
lawyer recommended by them) with a large pinch of salt and test their statements
against factual / market reality; do your own due diligence.
3. If the price / deal seems too good to be true it usually is. In fact focus on ‘value’ and
the opportunity for it to increase, be added to and realised. Don’t fall into the common
trap of comparing a property investment abroad with prices in the UK or elswhere, as it
is meaningless in assessing ‘value’.
4. Always take into account the cost of buying and selling when doing your due
diligence. Also gain a detailed / realistic budget of the running costs of the property and
taxes you will incur as an absentee owner. Investment properties abroad always cost
more to own / run and generate lower income than budgeted for.
5. Never pay over your deposit unless you have a bona fide Bank Guarantee or it’s held
in escrow. To pay the deposit into the developers / sales agents cash flow is to invite
disaster, let other mugs do this and move on.
6. Take time to research what drives the market locally (both historically and currently).
Take Florida as an example: Average annual property price rises in Florida historically
being 3 to 4 % per annum and with 2004/05 being circa 15% and 27% respectively, and
with interest rates being raised every month it was ‘buyer beware time’. Remember
fundamentals need to underpin the market and locals/local economics can’t afford the
prices wet back Brits seem willing to pay. There won’t always be a 'greater fool' to off
load to.
7. Never believe that your property has gone up just because the developer is charging
new buyers ‘fresh off the plane’ a higher price than you paid six months or so earlier.
Resales abroad (especially where there’s over-development and/or, a none existent or
weak resale market), do not command ‘new property premiums’ and can take years to
sell if incorrectly priced. Bulgaria is a classic example of where Brits have paid £50k for
2 bed apartments and think they have made £10k profit because the developer is
selling the next phase at £60k, only to find they can’t even find a resale buyer at their
original purchases price! Many also made the mistake of taking the developers advice
to buy two units, one to keep and one to sell at a profit!!
8. Buying a property abroad is not a ‘passive’ investment; you are starting a business
the main asset of which is hundreds of miles away.
Buyer beware!
source:
Pablo Escobar, askaboutmoney.com
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