| "I
know that Lief Simon is still advertising that he has never lost money
in a deal, but I'll tell you that I have lost a lot of money following
his advice. This is a very risky business if you are not where the investment
is and an expert in that local real estate. And it's especially dangerous
if it's one of the pre-construction deals that this operation loves to
hype. One never knows what the situation will be a year or two in the future.
I would avoid these enticements like the plague!"
I couldn't
have said it better myself. In fact, I did say it myself. Back in April,
2005, I wrote:
"Off-plan (that
is, pre-construction) buying offers the potential for very good returns,
but you can't forget the risks involved with investing in foreign real
estate. And, as in any kind of investing, the greater the potential for
profit…the greater the risk. My approach is to look at the likely worst-case
scenario for any potential property investment. In this case [that is,
in the case of a pre-construction buy], the worst case is that the property
doesn't sell before completion and closing and that the buyer (you) is
forced to complete the sale…which requires coming up with the cash or obtaining
a mortgage. Taking out a mortgage likely means putting down more money."
If the total
value of your global investment portfolio is less than $100,000, you shouldn't
be investing in foreign real estate. I make this point as often as possible,
in my reporting and in person when speaking with readers at conferences
and other events: This international real estate game is tricky. Cumbersome.
Risky. Most of my total investment portfolio is in international real estate,
but, typically, I'd advise that you probably shouldn't put more than 10%
to 25% of your overall investment portfolio into foreign property…and don't
buy real estate overseas at all if:
a.) you have
a weak stomach… and b.) you don't have time to focus on it.
This isn't
calling a stock broker or placing a stock buy order on-line. In this case,
the buy is complicated, and, once it's made, you don't walk away from it
until the time comes to sell. This kind of investing carries with it a
lot of ongoing administrative baggage. Plus (to state the obvious), real
estate, especially foreign real estate, is not a liquid asset. Maybe, when
you decide you want to sell…or, worse, when you realize you need to sell…you're
not able to find a buyer…
That's the
first step: Realize this is risky business. Proceed only with money you
can afford to lose. Prepare yourself not only for the buy (by understanding
the process, the local restrictions on foreign ownership, the costs, etc.)…but
also for the hold (taxes and other expenses you'll incur while you own
the property…plus, for example, the necessity for an on-site caretaker,
a property manager, a rental manager, etc.). Become comfortable with the
idea of buying property overseas in general. |
This article is
excerpted from International Living Newsletter - You can subscribe to International
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