"This
guy must be out of his mind," Bill declared, walking into my office with
one of those glossy international property magazines open on a "Case Study"
page.
"Look at this,
Kathie," Bill continued, handing me the magazine. "This upholsterer from
South Wales has bought a house on the island of St. Vincent…and two others
in the Dominican Republic. He says these investments 'give him great peace
of mind.'
"But he's never
been to the Caribbean…never stepped foot on these islands. And he's buying
retail in developed markets! Certain, that, nevertheless, the values of
the properties he's investing in will go up…because, I guess, well, real
estate values always go up, don't they?
"He has
no idea what he's doing. It's nuts."
Sure enough,
when I looked at the article Bill pointed to, Paul from Caerphilly has
just invested $700,000 in a two-bedroom house on St. Vincent and The Grenadines.
As he explains,
"I am not even looking to visit the development but rather to sit back
and watch my investment work for me."
Ah, dear reader,
if only it were that easy. But you and I know better.
Bill walked
out of my office shaking his head. "This is just what we've been warning
readers of International Living not to do all these years."
Indeed. And
I'll take this opportunity to remind you again of a few fundamentals:
First, never
buy in a market where you've never been. Lief and I broke this rule once
three years ago, and we're regretting it. Without question, if you're buying
with any thought to personal use, you want to spend time in a place before
committing to a real estate purchase. But even if you're buying only for
investment, you should pound the local pavements (or beaches) with
your own two feet. No amount of research can substitute.
Second, buy
only what you see.
The
developer or real estate agent may promise a marina, a clubhouse, paved
roads, and a helicopter landing pad…but if those things don't exist the
day you sign your contract…they don't exist. And you're not buying them.
Maybe, someday, they'll be built. But don't figure them into your purchase
price.
Third, if you're
buying for personal use, rent first, for at least six months. You may have
visited the country several times…you may feel you know it well…but you
know it as an outsider. You need to give yourself a chance to get to know
it as a local. If possible, arrange your trying-the-place-on-for-size visit
during the least appealing season.
Fourth, if
you're buying for investment, don't buy at the top. Talk about stating
the obvious, I know…but you'd be surprised what people can be persuaded
to do. Reasonable investments are found ahead of the infrastructure, as
Lief Simon, our resident global real estate investing guru, reminds his
readers regularly. You want to buy before the roads go in…and you want
to pay pre-road prices.
Finally, recognize
that real estate values do not always go up. Look at Buenos Aires in 2001
(following devaluation of the peso)…Ecuador in 2000 (following dollarization)…London
in 1989.
Property markets
go up (sometimes exuberantly and beyond reason)…and they go down (sometimes
crashingly). As an investor, you're as interested in the downturns as in
the years of appreciation, for the falls often afford you buying opportunities.
Lief has been
reporting lately, for example, on the current and ongoing decline of the
Spanish property market.
Leigh Fergus,
Euro-editor in Paris, commented this morning on the most recent interest
rate hike in the UK. Further rate rises in the UK and Ireland could (and
we believe will) contribute to the decline (finally) of these frothy markets.
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All
opportunities to watch.
But don't pursue
any of them, dear reader, from your armchair. And don't buy because you're
certain an overseas property investment will make you rich.
Kathleen Peddicord
Paris, France
Publisher,
International Living
P.S. As Bill
commented this morning about our friend the upholsterer from South Wales,
"This
guy can't have any idea what he's gotten himself into."
"Probably not,"
I responded. "But, Bill, on the other hand, no one who makes a property
purchase in another country really knows what he's in for. If we knew in
full up front what would be required to make every investment of this kind
pay off…none of us would ever buy anything."
But that's
a conversation for another day…
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