Investing in foreign real estate: 10 simple but very important advices

30 Jun '16
apertura-ch

Mariano Capellino , co-founder and CEO of INMSA published an article in Apertura.com,  in which he gives his view on how to invest in foreign real estate in 10 simple but very important tips.

The offer of properties located abroad grows daily in our country. In each Real Estate exhibition that is hold in Argentina, it is common to find developers and some real estate offering to invest in properties located in Florida, New York and many other places that every day add to the list.

Now, what factors you should consider at the time of acquiring a foreign real estate, in order to avoid mistakes that then result too expensive? Here are some of our suggestions that will allow you save time and money:

  1. Be aware of commissions which you pay for the operation. In the United States, for example, in the operations of purchase and sale of properties the buyer does not pay commissions, while the seller pays 6%.
  2. Consider the antique of the assets that you will acquire. If the real estate has about 40 years or more, it is necessary to confirm that has passed the relevant inspections -in countries such the US they are an obligation- and consider the extraordinary expenses that may be generated as a result of arrangements which arise from these inspections.
     
  3. Check the expenses. You must know that the cost of expenses is higher when the real estate is located in buildings and towers in height with regard to those in communities such townhomes, low condominiums and houses. Therefore, as their impact on the rent is lower, the latter type of asset has a much higher performance. It especially occurs in the United States.
     
  4. Find out the credit viability of the property if you plan to acquire it with a mortgage loan. Before making a purchase, find out if the real estate is an asset accepted by credit institutions to grant it a mortgage and if you are qualified for a mortgage loan. Not all goods and all buyers are bankable.
     
  5. Be very careful with offers to acquire assets that offer guaranteed profitability. It usually is a method of selling that looks attractive, but generally the properties are overvalued and the real performance per rental is often much lower than the guaranteed performance. When guarantee expires, the performance is significantly reduced and if you want to sell the real estate, in most cases you will have to do it at a lower acquisition value.
     
  6. It is very important to request an appraisal and technical and legal inspection of the real estate previously to the acquisition. In countries like the US, the valuations are accurate, so they ensure that it will pay the appropriate value and that the real estate is free of any charge. At the same time, inspections allow us to know in detail the physical and legal conditions in order to avoid any unforeseen event.
     
  7. When a residential asset is rented in the United States, the homeowner pays all the costs, including expenses, property taxes, real estate commissions, fees for property management, civil homeowner’s insurance, property insurance and domestic appliances insurance, among others. With the purpose of projecting the earnings in a better way, it is suggested to estimate a minimum allocation of 10% of the amount of annual rent and a maintenance reserve of the real estate equal to one month’s rent.
     
  8. When the real estate is rented, you should consider the expenses required for the demanding requirements of maintenance requests which needs the tenant. Furthermore, you should also consider how to manage them, due to the fact that you will be far to coordinate them.
     
  9. Be very careful with bubbles generated in assets destined to foreigners, mainly in pre-construction Miami Premium areas like Brickell – Downtown. At this time, the pre-construction real estate (which the Argentines call “in well”) have a higher price than a similar one which is finished and ready to release. This happens because of the lack of knowledge that affects investors about the particular situations of completed assets and strong financial incentives offered by developers for foreigners’ real estate agents. The paid commissions can become up to 10 times higher than those which could be obtained by providing a finished or used asset. That is why, it is convenient for them offer in well, but surely you should buy a finished one.
     
  10. Consider that you must pay the estate tax in case of death if the homeowner is a natural person or a member of an LLC Company.

 

These tips will allow you to make a better real estate transaction. You must be strict at the time of buying and check all the details or have someone very capable and without any kind of conflict or interest who do it for you. Think if your objective is make your next investment, it is not enough to acquire a real estate. You should know buy and know how to sell. The important thing is to develop a strategy to obtain an adequate profitability consistent in the medium term. That is what the investing is all about.

 

 

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