All about investment

1. Don’t let your emotions cloud your business judgement If you are buying for investment purposes particularly, try not to become emotionally involved, remember this is a business transaction and unless you plan to stay and use your overseas property choose an area with strong capital appreciation and just because you wouldn’t live there yourself doesn’t mean it’s not a good investment. Markets that are rising fast now are Cyprus, Macau and parts of the UK and according to the Royal Institute of Chartered Surveyors review in 2005 the top 2 markets with the highest capital appreciation in 2005 were Estonia and Denmark.

2. Research and understand your rental market Be careful if purchasing in large blocks of apartments exclusively sold to investors, which can often complete together bringing large supply into the market at one time. Twenty or thirty apartments can easily find tenants, but prepare to wait longer if you’re the owner of an apartment in a block where hundreds of apartments become available to rent at the same time.

3. Remember transaction costs seriously reduce your returns Remember transaction costs reduce your overall yield. For example in Germany apart from transfer taxes (stamp duty) the buyer pays the estate agency fees, not the vendor. Transaction costs also increase in countries where the loan to value rates are low, the more cash you have to put into a deal the less the return on investment. Check all your transaction costs before buying, ask your solicitor for a full quote in writing outlining all taxes and fees, but remember to ask for it in writing before you commit.

4. When is a discount not a discount? It is easy to get discounts on higher value properties, over priced properties and over supplied destinations. Remember list prices are developer driven and they always tend to price at the top of the range. Just because you receive a 10% discount doesn’t mean you secured a bargain. You are better off buying the right property at list price provided there is good local sales and rental demand. It is more important to buy in areas where there is a good resale market and a strong rental market rather than an area where developers are offering discounts. Currently Bulgaria and Poland have weak resale markets. Spain in particular is seriously oversupplied especially in the Costa Del Sol region.

5. Achieving short term capital appreciation There is limited capital appreciated prospects if you purchase a two bedroom apartment in an area with hundreds or thousands more two bedroom apartments either completed or in the planning stage. If you wish to beat the market you need to establish which segment within a given market has the least supply and the most sales demand both by local and foreign buyers.

6. Negotiating skills Negotiating skills are your most underestimated asset, always haggle and you will be surprised how much discount you can get especially if you’re a cash buyer! Estate agents often over estimate values and many often test the market with high unrealistic prices. Estate agents have a built in habit of implying there is more actual demand than there really is. The Irish are seen as a “rich gravy train” and have a strong reputation for being cash rich buyers and some unscrupulous estate agents may take advantage of this. Remember to play a long game, make a lower offer and stick to your guns. The best negotiation strategy is to be able to highlight comparable properties selling in the area, basically if you can show the agent that a similar property in the same area is selling for less, and then it’s easier to justify the price you are offering.

7. Rental schemes Beware of guaranteed rental schemes, as they are just a sales tool cash flow exercise. Rental guarantees are sometimes offered in areas where there is an over supply of rental properties. Ask the developer to give you the value of the rental yield by way of a discount, this way you won’t be taxed on the rental income and at least you will know that you have your rental guarantee in the bank, as rental guarantees are often provided by separate shelf companies with no financial strength.

8. Dealing with estate agents Buy through a local Irish agent, if a problem occurs it will be easier to resolve through a local Irish based agent, dealing with problems in a country with a completely different culture and law may be difficult if you are dealing with the developer direct

9. Decide on your strategy There is no ideal strategy in terms of trying to find the right way to purchase investment property. The strategy that will work best is a strategy based on your long-term goals in line with your financial position. If you are a first time investor with limited resources be careful to choose a property with good rental income, otherwise you will end up sending large monthly top ups to your mortgage provider.

Author

Henry Davis is an Irish based Property Investor developing in Manchester and Liverpool www.internationalproperty.ie or +353 87 2344000