Finding Good Market Information
One of the toughest things about international real estate is getting good market information. The USA is great for “transparency”. The tax offices and the MLS in most areas have information on past transactions. Please departments have neighborhood-by- neighborhood data on crime. The census office provides excellent demographics. Talking to owners will normally get the property performance data needed to project yield.
In Scandinavia the situation is even better. Western Europe is still good for the most part. Central and Eastern Europe, much of Asia and South and Central America gets tough. The Middle East and Africa is almost impossible. Jones Lang LaSalle publishes an annual “Real Estate Transparency Index”. This is an excellent guide to how much market information is available.
Without good market data it is almost impossible to make good investment decisions. One of the problems is the way transfer taxes are calculated in some countries. The increase in the price of a property for each seller is taxed. Each seller tries to keep this low; so part of the transaction is “official”. Another part of the transaction take place privately. Since the seller only reports part of the sale price, the buyers have a lower original basis in the property. When the buyer becomes the seller, the basis is low and the sales price is reported lower again.
Getting information in many areas is only possible through a trusted real estate professional. Even the information available to them is mostly hearsay.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Tuesday, July 31, 2007
Monday, July 30, 2007
Owning Rental Properties Abroad
Rental Properties Abroad
Just how good an idea is it to own rental properties abroad? There are several advantages and disadvantages to doing so. An astute investor can take advantage of currency trends and situations where the perceived risk is higher than the actual risk. The most important caveat is that the investor must have a deep understanding of the legal and social niceties of the market.
The rule that capital flows to the highest yield with the lowest risk, implies that one will receive a higher yield in risky markets. Unfortunately, this is not always the case. The countries in Central Europe that are new or coming members of the EU have seen such an increase in the price of properties that the yield is no higher than Western Europe. The safety is not commensurate with the yield.
Commercial properties probably offer the greatest security. In many countries residential tenants receive so much protection and preference over the landlord that one loses control of the property by renting it. In fast growing cities there is considerable upside potential in the rental rates. Some countries have some rather unique ways of renting properties.
In the USA and Western Europe, most commercial leases are on a net basis. This means the tenant pays for everything. In South America commercial leases are a fairly new phenomenon in many places. The occupant would buy a floor or half of the floor in an office building. This is changing. Most of the leases are not on a net basis now; but change is coming.
In South Korea, the deposit is often as high as the value of the property. The rent is extremely low or non-existent. The landlord can invest the security deposit and keep the return on that deposit. This could be a possible risk for the tenant.
Market knowledge and understanding of the local culture is essential in any investment.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Just how good an idea is it to own rental properties abroad? There are several advantages and disadvantages to doing so. An astute investor can take advantage of currency trends and situations where the perceived risk is higher than the actual risk. The most important caveat is that the investor must have a deep understanding of the legal and social niceties of the market.
The rule that capital flows to the highest yield with the lowest risk, implies that one will receive a higher yield in risky markets. Unfortunately, this is not always the case. The countries in Central Europe that are new or coming members of the EU have seen such an increase in the price of properties that the yield is no higher than Western Europe. The safety is not commensurate with the yield.
Commercial properties probably offer the greatest security. In many countries residential tenants receive so much protection and preference over the landlord that one loses control of the property by renting it. In fast growing cities there is considerable upside potential in the rental rates. Some countries have some rather unique ways of renting properties.
In the USA and Western Europe, most commercial leases are on a net basis. This means the tenant pays for everything. In South America commercial leases are a fairly new phenomenon in many places. The occupant would buy a floor or half of the floor in an office building. This is changing. Most of the leases are not on a net basis now; but change is coming.
In South Korea, the deposit is often as high as the value of the property. The rent is extremely low or non-existent. The landlord can invest the security deposit and keep the return on that deposit. This could be a possible risk for the tenant.
Market knowledge and understanding of the local culture is essential in any investment.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Residential Rentals Abroad
Just how good an idea is it to own rental properties abroad? There are several advantages and disadvantages to doing so. An astute investor can take advantage of currency trends and situations where the perceived risk is higher than the actual risk. The most important caveat is that the investor must have a deep understanding of the legal and social niceties of the market.
The rule that capital flows to the highest yield with the lowest risk, implies that one will receive a higher yield in risky markets. Unfortunately, this is not always the case. The countries in Central Europe that are new or coming members of the EU have seen such an increase in the price of properties that the yield is no higher than Western Europe. The safety is not commensurate with the yield.
Commercial properties probably offer the greatest security. In many countries residential tenants receive so much protection and preference over the landlord that one loses control of the property by renting it. In fast growing cities there is considerable upside potential in the rental rates. Some countries have some rather unique ways of renting properties.
In the USA and Western Europe, most commercial leases are on a net basis. This means the tenant pays for everything. In South America commercial leases are a fairly new phenomenon in many places. The occupant would buy a floor or half of the floor in an office building. This is changing. Most of the leases are not on a net basis now; but change is coming.
In South Korea, the deposit is often as high as the value of the property. The rent is extremely low or non-existent. The landlord can invest the security deposit and keep the return on that deposit. This could be a possible risk for the tenant.
Market knowledge and understanding of the local culture is essential in any investment.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Just how good an idea is it to own rental properties abroad? There are several advantages and disadvantages to doing so. An astute investor can take advantage of currency trends and situations where the perceived risk is higher than the actual risk. The most important caveat is that the investor must have a deep understanding of the legal and social niceties of the market.
The rule that capital flows to the highest yield with the lowest risk, implies that one will receive a higher yield in risky markets. Unfortunately, this is not always the case. The countries in Central Europe that are new or coming members of the EU have seen such an increase in the price of properties that the yield is no higher than Western Europe. The safety is not commensurate with the yield.
Commercial properties probably offer the greatest security. In many countries residential tenants receive so much protection and preference over the landlord that one loses control of the property by renting it. In fast growing cities there is considerable upside potential in the rental rates. Some countries have some rather unique ways of renting properties.
In the USA and Western Europe, most commercial leases are on a net basis. This means the tenant pays for everything. In South America commercial leases are a fairly new phenomenon in many places. The occupant would buy a floor or half of the floor in an office building. This is changing. Most of the leases are not on a net basis now; but change is coming.
In South Korea, the deposit is often as high as the value of the property. The rent is extremely low or non-existent. The landlord can invest the security deposit and keep the return on that deposit. This could be a possible risk for the tenant.
Market knowledge and understanding of the local culture is essential in any investment.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Friday, July 27, 2007
Rental Properties in Cartagena, Colombia
Rental Properties in Cartagena, Colombia
Yesterday, I was able to spend the day with my friend Carlos Bustamante with Inmobiliaria Bustamante & Cia. in Cartagena Colombia. He has a general brokerage operation, with emphasis on property management. We discussed rental properties in Cartagena.
The rent on commercial properties there is normally 1% of the value of the property per month. The rent on residential properties is from .3% to .5% of the value of the property. Rent increases are usually annual and are based on the Colombian equivalent of the Consumer Price Index. Because it is generally believed that the government manipulates these figures, the increase is usually the index plus a premium.
As in many countries, once a residential tenant is established in a home, removal of the tenant is quite difficult. For this reason there is a “tenant insurance” system. The landlord pays 2% of the rent to the insurance company. The insurance company screens the tenant and either approves or denies them. If the tenant fails to pay the rent by the “late payment” date, the landlord calls the insurance company and the insurance company pays the rent. The landlord may not accept payments from the tenant after this. The tenant must pay directly to the insurance company. The insurance company will collect the rent or evict the tenant. They pay the rent to the landlord for up to 36 months while the eviction process is going on.
If the eviction process takes over 36 months the insurance company no longer pays the rent. They will finish the eviction process. Does it seem frightful that the eviction process could take over 36 months?
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Yesterday, I was able to spend the day with my friend Carlos Bustamante with Inmobiliaria Bustamante & Cia. in Cartagena Colombia. He has a general brokerage operation, with emphasis on property management. We discussed rental properties in Cartagena.
The rent on commercial properties there is normally 1% of the value of the property per month. The rent on residential properties is from .3% to .5% of the value of the property. Rent increases are usually annual and are based on the Colombian equivalent of the Consumer Price Index. Because it is generally believed that the government manipulates these figures, the increase is usually the index plus a premium.
As in many countries, once a residential tenant is established in a home, removal of the tenant is quite difficult. For this reason there is a “tenant insurance” system. The landlord pays 2% of the rent to the insurance company. The insurance company screens the tenant and either approves or denies them. If the tenant fails to pay the rent by the “late payment” date, the landlord calls the insurance company and the insurance company pays the rent. The landlord may not accept payments from the tenant after this. The tenant must pay directly to the insurance company. The insurance company will collect the rent or evict the tenant. They pay the rent to the landlord for up to 36 months while the eviction process is going on.
If the eviction process takes over 36 months the insurance company no longer pays the rent. They will finish the eviction process. Does it seem frightful that the eviction process could take over 36 months?
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Tuesday, July 24, 2007
Other Risk in International Real Estate
Non-economic Risk in International Real Estate
The two major concerns other than economic issues in International Real Estate are personal security and property security. Reading the news or the government advisories can give the impression of almost impossible conditions. The only way to know is to go.
I have traveled in countries whose security conditions were supposed to be horrible and found things to be at least as safe as conditions in my home town.
I take the attitude that I would not invest my money anywhere that I am afraid to take my body. In many cases the danger of kidnapping, terror events, robbery or civil unrest make visiting or investing unwise at best.
Property security is another matter. There are very few places outside of the USA and Western Europe where you can leave property unattended. Not only is the property subject to break-ins and things of that nature; but it may be occupied by someone that is difficult or impossible to remove.
There are several national and international organizations that specialize in takeovers of private or public properties. The Mayennes in Brazil and Campesinos sin Tierra in Spanish speaking South America are just two. Their basic modus operandi is to wait for a long holiday, when the courts are closed, and mass people and materials close to the target property. They can build and entire village in a long weekend. The governments usually do not have the political will to displace them. The property owner just loses.
In rental properties it is essential to examine closely the procedures for eviction in the locale of the investment. Some places have simple legal procedures others have regimes that are virtually impossible. Sometimes the rules for commercial and residential are different. Even temporary rental of a vacation home can turn into a nightmare in some areas.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
The two major concerns other than economic issues in International Real Estate are personal security and property security. Reading the news or the government advisories can give the impression of almost impossible conditions. The only way to know is to go.
I have traveled in countries whose security conditions were supposed to be horrible and found things to be at least as safe as conditions in my home town.
I take the attitude that I would not invest my money anywhere that I am afraid to take my body. In many cases the danger of kidnapping, terror events, robbery or civil unrest make visiting or investing unwise at best.
Property security is another matter. There are very few places outside of the USA and Western Europe where you can leave property unattended. Not only is the property subject to break-ins and things of that nature; but it may be occupied by someone that is difficult or impossible to remove.
There are several national and international organizations that specialize in takeovers of private or public properties. The Mayennes in Brazil and Campesinos sin Tierra in Spanish speaking South America are just two. Their basic modus operandi is to wait for a long holiday, when the courts are closed, and mass people and materials close to the target property. They can build and entire village in a long weekend. The governments usually do not have the political will to displace them. The property owner just loses.
In rental properties it is essential to examine closely the procedures for eviction in the locale of the investment. Some places have simple legal procedures others have regimes that are virtually impossible. Sometimes the rules for commercial and residential are different. Even temporary rental of a vacation home can turn into a nightmare in some areas.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Friday, July 20, 2007
What I learned from my students.
What I learned from my class today
Teaching international real estate is great because I always learn so much from the students. Today’s student mix included Asians, Latins, a German, a Scot and many others with extensive international backgrounds.
I learned about “strat-titles”. I hope I spelled that right. It is a form of ownership using an artificial entity. It is popular in Central America. I can’t believe that as many times as I have been there, I had never heard of it.
A strat title is a very common system for holding property title. In many places it is very expensive to transfer property; but relatively cheap to transfer ownership of a company or other artificial entity. By taking title in the “strat title” the transfer of ownership becomes much cheaper.
s
I learned about a type of Indian Feng-shue called vaastu. Vaastu is the science of direction that combines all the five elements of nature and balances them with the man and the material. Vaastu Shastra is creating a congenial setting or a place to live or work, in the most scientific way taking advantages of the benefits bestowed by the five elements called “Paancha Maha Bhootas” of nature thereby paving the way for enhanced health, wealth, prosperity and happiness in an enlightened environment The five elements are earth, air, fire, water and space.
I learned a lot about Las Vegas. I never realized that this was a huge 2nd home market. There is also a very large Philipino community here.
Teaching international real estate is great because I always learn so much from the students. Today’s student mix included Asians, Latins, a German, a Scot and many others with extensive international backgrounds.
I learned about “strat-titles”. I hope I spelled that right. It is a form of ownership using an artificial entity. It is popular in Central America. I can’t believe that as many times as I have been there, I had never heard of it.
A strat title is a very common system for holding property title. In many places it is very expensive to transfer property; but relatively cheap to transfer ownership of a company or other artificial entity. By taking title in the “strat title” the transfer of ownership becomes much cheaper.
s
I learned about a type of Indian Feng-shue called vaastu. Vaastu is the science of direction that combines all the five elements of nature and balances them with the man and the material. Vaastu Shastra is creating a congenial setting or a place to live or work, in the most scientific way taking advantages of the benefits bestowed by the five elements called “Paancha Maha Bhootas” of nature thereby paving the way for enhanced health, wealth, prosperity and happiness in an enlightened environment The five elements are earth, air, fire, water and space.
I learned a lot about Las Vegas. I never realized that this was a huge 2nd home market. There is also a very large Philipino community here.
Tuesday, July 17, 2007
Economic risk in International Real Estate
Other Economic Issues
While currency fluctuations are probably the major economic consideration in a cross-border transaction, there are quite a few other considerations.
Repatriation of Funds: Most countries allow foreign investors to “repatriate” or take their money back home. Some do not. Some only allow a certain amount to be carried out of the country. Other countries allow for repatriations but “hard currency” may not be available. Planning for any investment should include an “exit strategy”. This is extremely important in international transactions.
Allowable Foreign Ownership: In most of the industrialized countries there are no or very few restrictions on foreign ownership. These are usually matters of reporting and paying taxes. Some countries, such as Mexico, have restrictions on properties within a certain distance of the borders or the coast. Other countries either do not allow foreign ownership or require participation by a national of that country. Frequently the restrictions can be avoided by using a domestic artificial entity such as a corporation, anonymous society, LLC, trust or partnership. The artificial entity may need a portion of foreign ownership as well.
In certain cases, like China, no one can actually own the land. They can only lease it from the government. This is true in specific situations in other countries. In Russia the land outside the cities can be owned by a domestic entity. Land inside the cities is owned by and leased from the city. In Israel, a lot of the land is owned by the Israel Land Agency and leased from them. In these cases the individual only owns the improvements.
Taxation: This can be an extremely complicated issue. Buyers should always talk to a local tax attorney specializing in working with nationals of their own county. Frequently there are special permits required for foreign buyers or sellers. A foreign buyer potentially becomes a foreign seller. The time to examine taxes is before purchase. Tax treaties are also extremely important in the treatment of foreign buyers, sellers and owners. Occasionally governments offer special incentives to foreign companies and individuals to stimulate investment. This possibility should be examined as a standard part of the planning process.
Transfer expenses: Taxes are a major transfer expense in many places; but they are not the only transfer expense. In some countries the cost of buying or selling a property are very low. In other places they are quite expensive. Often it is good to have an artificial entity that owns each property. It may be cheaper to sell the entity than the property.
Possibility of Nationalization: This threat is not limited to the developing world. Eminent domain is the law in most countries. In some countries taking is subject to due process in other cases it is not. Australia has a reputation for not paying fair value. Venezuela takes land that the president considers to be “under-utilized”. In Zimbabwe all the land owned by whites was just taken. These are only a few examples. In the USA in Connecticut, land was taken for homeowners to sell to a commercial developer.
Tomorrow, I will travel. If a post is made it will concern other risks of owning foreign real estate and how to deal with them. If not the next post will deal with the future of international real estate. Your comments and thoughts on this subject would be appreciated.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
While currency fluctuations are probably the major economic consideration in a cross-border transaction, there are quite a few other considerations.
Repatriation of Funds: Most countries allow foreign investors to “repatriate” or take their money back home. Some do not. Some only allow a certain amount to be carried out of the country. Other countries allow for repatriations but “hard currency” may not be available. Planning for any investment should include an “exit strategy”. This is extremely important in international transactions.
Allowable Foreign Ownership: In most of the industrialized countries there are no or very few restrictions on foreign ownership. These are usually matters of reporting and paying taxes. Some countries, such as Mexico, have restrictions on properties within a certain distance of the borders or the coast. Other countries either do not allow foreign ownership or require participation by a national of that country. Frequently the restrictions can be avoided by using a domestic artificial entity such as a corporation, anonymous society, LLC, trust or partnership. The artificial entity may need a portion of foreign ownership as well.
In certain cases, like China, no one can actually own the land. They can only lease it from the government. This is true in specific situations in other countries. In Russia the land outside the cities can be owned by a domestic entity. Land inside the cities is owned by and leased from the city. In Israel, a lot of the land is owned by the Israel Land Agency and leased from them. In these cases the individual only owns the improvements.
Taxation: This can be an extremely complicated issue. Buyers should always talk to a local tax attorney specializing in working with nationals of their own county. Frequently there are special permits required for foreign buyers or sellers. A foreign buyer potentially becomes a foreign seller. The time to examine taxes is before purchase. Tax treaties are also extremely important in the treatment of foreign buyers, sellers and owners. Occasionally governments offer special incentives to foreign companies and individuals to stimulate investment. This possibility should be examined as a standard part of the planning process.
Transfer expenses: Taxes are a major transfer expense in many places; but they are not the only transfer expense. In some countries the cost of buying or selling a property are very low. In other places they are quite expensive. Often it is good to have an artificial entity that owns each property. It may be cheaper to sell the entity than the property.
Possibility of Nationalization: This threat is not limited to the developing world. Eminent domain is the law in most countries. In some countries taking is subject to due process in other cases it is not. Australia has a reputation for not paying fair value. Venezuela takes land that the president considers to be “under-utilized”. In Zimbabwe all the land owned by whites was just taken. These are only a few examples. In the USA in Connecticut, land was taken for homeowners to sell to a commercial developer.
Tomorrow, I will travel. If a post is made it will concern other risks of owning foreign real estate and how to deal with them. If not the next post will deal with the future of international real estate. Your comments and thoughts on this subject would be appreciated.
David Segrest is a REALTOR in Charlotte, NC
David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World
Subscribe to:
Posts (Atom)
