However, like any investment method, this one has its unique characteristics and potential pitfalls. What should you pay attention to, and how can you invest your money wisely to avoid regrets later?
These questions will be addressed by S.I. Tereshkin, the founder of "Oil Resource Group." You can explore the results of his entrepreneurial activities on his website org-company.ru (орг-компани.ру).
Investment Characteristics
Specialized websites often feature listings for properties in Europe or America. With the right selection, real estate can yield considerable income. However, there are underlying issues that are better to be aware of in advance.
America
Recently, there has been a growing number of listings for properties in Florida. The expected appreciation of property values, reportedly exceeding 25%, is often cited as a main advantage. Additionally, returns can exceed 10% annually. This offer is certainly enticing. However, before making a deal, you should consider the following factors:
- Methods of calculating property value appreciation. Many realtors mislead buyers by referencing prices from 2006-2007, which was a market peak, and should not be relied upon. Moreover, real estate companies often sell properties to foreigners at significantly inflated prices, as buyers cannot personally assess the market. To avoid overpaying and to evaluate potential resale opportunities, it is advisable to send inquiries to several real estate agencies in America to determine the realistic selling price of the property. It is likely that the actual price will be considerably lower.
- Income calculation methods. Realtors often fail to account for property tax, income tax, fees, and various expenses. This is done intentionally to make the property appear more appealing. To assess actual profitability, it is crucial to request all payment documents from the seller, along with an expense statement for renovation works. If the response is unsatisfactory, you can clarify details with neighboring owners or local lawyers.
- Tenant turnover frequency. It is important to inquire in advance about how frequently the property changes tenants, as well as the management company's fees for finding new ones. A frequent turnover can result in the owner receiving significantly lower income, leading to increased periods of vacancy.
Additionally, the owner will incur costs related to filing tax returns in America, translating services, and hiring a tax consultant.
Europe
The European commercial real estate market is very attractive and promising for investment. The prices for properties are significantly lower than in the United States. Numerous financial institutions and developers offer to purchase property with a mortgage at minimal interest rates.
It is important to pay attention to several factors:
- Loan terms. European banks often issue loans with a specific repayment percentage. This figure can be as low as 1%. As a result, at the end of the loan term, the property owner may still have an outstanding debt to the financial institution. This means that they may have to either renew the mortgage agreement or fully pay off the remaining balance. Otherwise, the bank will sell the property on its own.
- Contractual amount. Oftentimes, property owners request to state an amount in the contract that is significantly lower than the actual value. This allows the previous owner to minimize taxes. It is essential to understand that the property might later face challenges in resale, and not all buyers will be as accommodating. Thus, the seller may end up paying high taxes on the difference between the purchase and sale price.
- Clarification of expenses. It is necessary to ascertain the total amount of all utility payments, property taxes, and other fees beforehand. There is no guarantee that a tenant will be found immediately after the investor acquires the property. There may also be periods when the property remains vacant, during which taxes and utilities must still be paid.
- Need for repairs. Before making a purchase, it is crucial to thoroughly inspect the property and evaluate how much investment will be required. A tenant is unlikely to want to enter into a lease for a dilapidated property. The cost of repairs may be prohibitive for the investor, resulting in funds being tied up indefinitely.
Do not blindly trust any real estate agency. It is essential to carefully review online feedback about it. Additionally, you should personally visit the investment property, speak with the owner, and verify the neighborhood's safety and the presence of infrastructure facilities.
You may also consider hiring a competent lawyer and an independent building expert who can assess the property's condition and determine the necessity for repairs. The cost of these professionals is much lower than the potential expenses that could arise.
Regarding Europe, special attention should be given to properties in the United Kingdom and Catalonia. In the case of the UK, Brexit may lead to entirely unexpected consequences. The situation in Catalonia is similarly ambiguous, with unrest and the risk of separation from Spain leading to decreased property values and falling demand among tenants.
Investing in new construction projects also requires caution. Unfortunately, developers in Europe sometimes face challenges too, resulting in stalled construction and investors losing their money without ever obtaining ownership of the property.
