Even when it seems real estate prices hit a temporary ceiling in many countries around the world, that doesn’t mean 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. Today we give you the top ten tips that real estate investors can apply to their property portfolio building strategy to ensure success from their investments.
1) Research the curve – The concept of a property market cycle existing is not myth; it’s a fact and is generally accepted to be based on a price-income relationship. Check the recent historical price data for properties in the area of the country you’re considering purchasing and try to determine the overall feel in the market for prices. Are prices rising, 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. If a market is rising they will try to target up and coming areas, areas that are close to locations that have peaked, or areas close to locations experiencing redevelopment or investment. These areas will most likely become ‘the next big thing’ and those who buy in 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. This is because 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 – Who are you buying property for? Are you buying to lend to young executives, purchasing for renovation to resell to a family market, or purchasing for a short term rental to holiday makers? Think about your market before you make a purchase. Know what they look for in a property and ensure that is what you are going to be offering them
4) Think further afield – Are there emerging economies or real estate property markets around the world where a growing tourism sector is pushing up demand, or where constitutional legislation has been changed to allow for foreign freehold ownership of property? Look further afield than your own back yard for your next property investment and diversify your 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 country to country and sometimes even from state to state. In Turkey, for example, you should add on an additional 5% of the purchase price for all fees. In Spain you will need to factor in an average of 10%, and in Germany, fees and charges can be in excess of 20%. Know how much you will have to incur and factor this amount into your budget to avoid any nasty surprises and 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 growth or social indicators exist to suggest that property prices will increase? If you’re buying with an interest in rental property, 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 find out whether your expectations are realistic.
8) Exit costs – If you will incur substantial capital gains taxation 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 on the other hand property sales are capital gains tax free if the underlying real estate has been owned for four or more years. Of course, when you invest in real estate with a Self-Directed IRA or 401(k), you aren’t liable to capital gains.
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 backwards towards your initial budget to work out your potential profit margins. You should 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 with intent to flip for resale and profit, you should view a real estate investment as a long term investment. Real estate is a slow asset to liquidate, and 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.