10 Tips for Successful Real Estate Investment in Emerging Markets
Updated July 7, 2020
By Bill Manassero
Just because real estate prices seem to have hit a temporary ceiling in many countries around the world doesn’t mean that profits from property investments are hard to come by.
Even during a real estate market slowdown, stagnation or depression profits can be made locally and overseas. This article shows you the top ten tips that real estate investors apply to their property portfolio building strategy to ensure success from their investments.
10 Tips for Investing in Emerging Markets
1.) Research the Curve
The concept of current property market cycles is not a myth; it’s a fact and is generally accepted based on a price-income relationship. Check the recent historical price data for properties in the area of the state or country you’re considering purchasing in and try to determine the overall feel in the market for prices currently. Are prices rising, are prices falling, or have they reached a peak?. You need to know where the curve of the property market cycle is in your preferred investment area.
2.) Get Ahead of the Curve
As a basic rule of thumb, professional real estate property investors seek to buy ahead of the curve or as close to the base of the bell curve as possible. If a market is rising, they will try and target up and coming areas, areas that are close to locations that have peaked, areas close to locations experiencing redevelopment or investment. These areas will most likely become ‘the next big thing’ and those who by before the trend will stand to make the most gains. As a market is stagnating or falling, many successful investors target areas that enjoyed the best levels of growth, yields, and profits very early on in the previous cycle. These areas will most likely be the first areas to become profitable as the cycle begins turning towards positive once more.
3.) Know Your Market and Who You Want as Tenants
Are you buying to rent to young executives, purchasing for renovation, reselling to a family market or purchasing to rent out real estate for short term rental or holidaymakers? Think about your market before you make a purchase. Know what they look for in a property and ensure that you are offering them what they want.
4.) Think Further Afield
There are emerging real estate property markets around the country and the world areas where local economies are going from strength to strength. For example, think about markets where a growing tourism sector is pushing up demand, or where constitutional legislation is changing to allow for foreign ownership of the property. Look further afield than your back yard for your next property investment and diversify that real estate portfolio for maximum success.
5.) Purchase Price
Set yourself a budget that will realistically allow you to purchase what you’re looking for and profit from that purchase, either through capital gains or rental yield.
6.) Entry Costs
Research fees, charges, and all expenses you will incur when you buy your property. They differ from state-to-state and country-to-country. In Turkey, for example, you should add 5% of the purchase price for all fees. In Spain, you will need to factor in an average of 10%, and in Germany, fees can be more than 20%. Know how much you will have to incur and factor this amount into your budget to avoid any nasty surprises and to ensure your investment can become profitable.
7.) Capital Growth Potential
What factors point to the potential profitability of your real estate property investment? If you’re looking overseas at an emerging market, which economic or social indicators exist to suggest that property prices will increase? If you’re buying to rent out, are there any indications to suggest that demand for rental accommodation will remain strong, increase or even decline? Think about what you want to achieve from your investment and then research and determine whether your expectations are realistic.
8.) Exit Costs
If you incur substantial capital gains tax liability if you sell your property investment for profit, will that render the investment profitless? In Spain, a foreign buyer can incur up to 35% capital gains tax; in Turkey, property sales are capital gains tax-free if the underlying real estate has been owned for four or more years.
9.) Profit Margins
What levels of capital growth can you realistically gain on your property investment, or how much rental income can you generate? Work out these facts and then work backward towards your initial budget to work out your potential profit margins. At all times, you have to keep the bigger picture in mind to ensure that your real estate investment has good potential for profit.
10.) Think Long Term
Unless you’re buying property off-plan and intending to flip it for resale and profit before completion, you should view real estate investment as a long term investment. Real estate is slow to liquidate assets; cash tied up in property is not simple to free up. Take a long term approach to your property portfolio and give your assets time to increase in value before cashing them in for profit.
Smart investors will seek out these emerging markets first and find the best areas to invest in both the short and long term.
About the Author: Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years.
If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.