Most often success was achieved investors who have long lived, worked or frequently visited in the country where the purchase was made. They actively studied the market, looked at various objects and actively searched for the best option. Here haste is not necessary. Because real estate investment is a long-term investment.
Now consumers accuse the company of fraud, however, the representatives of both companies categorically deny all charges. The fact that the scheme when the buyers of their advances actually funded the entire project, quite legitimate, although it is considered very risky form of investment. Local Supervisory authority the Solicitors Regulation Authority (SRA) repeatedly warned the public about the significant risks of losing money for the buyers in such schemes – as in connection with the unplanned growth of construction costs, and fraud.
The one who searches will always find
One of such investors in 2010-2012 he lived and worked in Germany. The search for a suitable apartment took about a year. It included also the analysis of prospects of development of various cities in Germany. While the buyer at the time lived and worked in the city of Essen, the best option turned out to be apartment in a prestigious district of the city of düsseldorf.
Repairs and construction cost about 20% of the purchase price, but ensured a higher rent. Current yield from rent including all costs is about 6% per annum and with the increase in apartment prices the profitability of investment is currently around 10% per annum.
Some investors in Germany, achieve high yield, buying the cheapest apartments to rent them to refugees, the rent for which punctually pay the German government. The current yield of such options may reach 10% per annum. However, before you look for a cheap apartment, you need to carefully understand the terms and conditions of these government programs.
The most outstanding results were achieved by investors who are not bound by the stereotypes and are ready to solve complex problems. I recently watched with admiration as one friend of the investor tracked down and bought non-residential premises in a quiet side street 50 metres from one of the best beaches of Cyprus.
It was a bar that hasn’t worked because it is set back from the promenade and main streets. But this place was perfect for the apartment. To overcome bureaucratic obstacles and repair in terms of leisurely Cyprus took about a year. The result is a luxurious apartment right next to the beach, market price is almost 2 times the amount of all expenses. It is clear that the yield from renting these apartments is also almost 2 times higher than just buying a finished apartment for subsequent lease. Of course, this investment requires a lot of attention, time and patience, but the end result is fantastic.
The three key rules
We can distinguish three rules, which of course does not guarantee 100% success of investing in commercial real estate, but it certainly reduces the chance of serious loss:
Rule 1: the Choice of many options
Remote unit – this is a big mistake, because only visited the facility to assess its real condition, location and environment. In addition, only the quality to choose from many different options, the analysis of transactions and accounting for forecast changes in prices in the future.
It is clear that the object, located in “Golden mile” of the growing city or resort, has good prospects for further growth in prices and rents. It is important that the current purchase price was reasonable and adequate.
However, preliminary analysis of the situation it is possible to carry out remotely, using information from relevant websites for buying and renting property. The most realistic picture is presented on the Internet resources used by local residents. In Germany, for example, sites immowelt.de and immobilienscout24.de in Spain idealista.com in Italy – immobiliare.it in Greece – en.spitogatos.gr/sale.
Rule 2: Careful calculation of the profitability
Some investors in deciding to purchase the object for subsequent lease are guided only by its price and an optimistic assessment of the rent, considering the other expenses are negligible. This is a big mistake!
It is necessary to conduct careful pre-calculation of the profitability, taking into account all costs and a realistic assessment of future income. Only taxes and fees when buying property may be a few, and in different countries they may be called differently, for example: stamp duty, VAT, tax on transfer of ownership, stamp duty and so on.
In some cases, the fees can reach 20% of the purchase price. Can also be the cost of a lawyer, notary, agent for the sale of real estate (in some countries the services of a realtor are paid by the seller). In addition, after the purchase of the apartment or house is often in need of repair and equipment furniture and equipment, and later in the periodical renovation.
Should find out in advance and take into account the size of the property tax and the cost of its contents, which include utilities and insurance (in some countries it is required). In some countries applies a tax on the rental income.
If renting, cleaning and other things handled by the management company, its services can be 15-25% of the collected rent.
Rule 3: the Objective assessment and monitoring at all stages
You need to objectively assess the condition of the property before purchase. It is important to check the quality of the Foundation and roof, insulation, utilities and wiring, quality repairs, Windows, doors and so on. You should also review the views, the location and surrounding objects.
The legal purity of the transaction must be given special attention. In many countries, the right of ownership is recorded in various ways: by entry in the registry (as in Russia) or by title (Title Deed).
The presence of title from the seller greatly simplifies the life of the buyer. The fact that the title affirms not only the right property but that the property is inspected by the state and complies with legal and technical regulations, and most importantly, that it can be applied only to those encumbrances listed in the title.
The importance of diversification
Real estate in the portfolio of the investor has low liquidity. In a crisis it is impossible to sell quickly without a serious discount. In this light, it is advisable to Supplement the attachment with something more liquid. The last fifty years all over the world are actively growing exchange-traded funds real estate REIT (Real Estate Investment Trust).
To date, the capitalization of the REIT in the U.S. market exceeds $1 trillion. To become a co-owner of the real estate portfolio, the investor should just buy shares in the selected Fund.
Under current law, the US REIT direct on dividends not less than 90% of the collected rent. In this case, the funds have significant tax benefits. Investors are attracted by high returns, transparency and liquidity of REIT, they understand the business is renting of immovable property.
Warren Buffett in 2017 bought for $377 million shares in the Fund STORE Capital Corporation (STOR Ticker). This REIT owns more than 2,000 facilities in the U.S., where there are shops, restaurants, cinemas, fitness centers, medical and educational institutions, industrial premises and so on, and 99.7% of the space leased.
Capitalization of this Fund is $5.8 billion, dividend yield is 4.3% per annum. The company has an investment credit rating by the Agency Standard & Poor’s at BBB.
On the market you can find how widely diversified, and specialized funds of various kinds. Bright representative of the medical Fund is a REIT Physicians Realty Trust (symbol DOC), which appeared after the IPO in 2013.
The company owns 249 medical centers in the US that rents to doctors, hospitals and other health institutions. Fund capitalization is $3.3 billion, a dividend yield of 5.4% per annum. This company also has an investment credit rating of BBB – from Standard & Poor’s.
Fund EPR Properties (symbol EPR), founded in 1997, develops real estate portfolio, which consists of three areas: entertainment, leisure and education. Tenants are cinemas, entertainment centres, Golf clubs, ski resorts, public and private schools. Currently, 99.1% of the space leased.
This company pays a dividend every month, and every year the amount of the dividend per share is slowly growing. Current dividend yield is 6.1% per annum. The capitalization of the Fund is $5.1 billion of the EPR Properties has an investment credit rating by the Agency Standard & Poor’s of BBB-.
When choosing a REIT to your investment portfolio, you need to be prepared for high volatility. The dividend stream behaves very stably and predictably. Therefore, investing in a REIT makes sense for a period of 5-10 years or more. For this you need to take very seriously the security and safety of investments, but rather to the choice of the optimal jurisdiction and the broker. Sad it is to see when an investor buys securities investment grade by placing your funds through a company no one knows about and was in an exotic country.