Investing in real estate is similar to shopping for a home in that it is all about location. Investing in real estate in the United States is a good method to diversify your portfolio. Foreign real estate can be a highly profitable long-term investment that generates passive income.
When it comes to adding foreign properties to their portfolio, buyers frequently make the mistake of bypassing due diligence. You must be able to recognize factors that may have an impact on real estate prices and values, such as tourism, transportation, subculture, and so on. This can have a significant impact on your ability to recoup your investment.
Here are eight rules for investing in foreign real estate.
1. Educate Yourself
The new currency is knowledge. You will be doomed to follow other people’s advice without knowing if it’s good or terrible.
Knowledge will also help you progress from being a “good” investor to a “great” investor, and that knowledge will enable you or your family generate a passive stream of income.
2. Set Investment Goals
A goal is not the same as a wish; you may wish to be wealthy, but it doesn’t mean you have ever taken measures to make that dream a reality.
Setting clear and detailed investment goals will serve as a road map and action plan for achieving financial independence. Writing out explicit and comprehensive goals is statistically far more likely to lead to financial freedom than doing nothing at all.
The amount of properties you need to buy each year, the annual cash flow they generate, the type of property, and the location are all possible targets. You could also want to set parameters for the required rates of return.
3. Never Speculate
Always have a long-term view in mind when investing. Even in a hot market with double-digit gains, never bet on swift short-term gains in appreciation. You never know when a market will peak, and you usually don’t find out until 6 to 9 months afterwards. Don’t waste your time chasing after appreciation. Only put your money into cautious value plays where the numbers make sense from the beginning.
4. Invest for Cash-Flow
Always buy investment property that generates a positive cash flow, with a few exceptions. The higher the number, the better. The before-tax cash-flow from your property determines your cash-on-cash return.
The “glue” that holds your investment together is cash flow. Your equity will grow over time (due to appreciation and loan amortization), while your cash flow will cover your property’s running costs and debt servicing.
5. Take a Top-Down Approach
Always begin by identifying the best real estate markets that match your investment objectives. Most investors begin by examining properties without regard for their location. If you don’t analyze the investment in the context of the market and area, you could make a significant error.
The ideal strategy is to select your city or town first based on the state of its housing market and local economy (unemployment, job growth, population growth, etc.). After that, you can filter down your options to the best neighborhoods (amenities, schools, crime, renter demand, etc.). Finally, you can also examine those neighborhoods for the best deals.
6. Diversify Across Markets
Concentrate on one market at a time, building up three to five revenue properties per market. After you have added that 3 to 5 properties to your portfolio, you will diversify into another safe market that’s geographically distinct from the first. Typically, this entails concentrating on a different state.
The ability to disperse your assets across multiple economic centers is one of the basic reasons for diversification within the same asset class (real estate). Every real estate market is “local,” and each home market moves at its own pace. Diversifying across different states lowers your “risk” in the event that one market falls for any reason (increased unemployment, increased taxes, etc.).
Even if you don’t live in North Carolina, you can invest in the Charlotte Real Estate Market, which is rapidly becoming a hotbed of buyer activity that could be extremely beneficial to real estate investors; just ask the slew of US investors who are eyeing Charlotte as their next investment destination.
7. Use Professional Property Management
Unless you own a property management company, never manage your own properties. Property management is a thankless job that demands a thorough awareness of tenant-landlord regulations, as well as excellent marketing and people skills to deal with tenant complaints and excuses. Your time is valuable, and it should be focused on your family, profession, and more property.
8. Leverage Your Investment Capital
Real estate is the only investment in which you may borrow money from banks to buy and manage income-generating property. This permits you to invest more of your money into a home than if you buy it “full cash.” Leverage increases your overall rate of return and speeds up the accumulation of wealth.
It would be silly not to borrow as much as possible to buy more income property as long as you have positive cash flow and your renters are paying down your mortgage for you.