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I'm all for making money off our international real estate purchases, of course, but annual yield and long-term ROI aren't typically the tipping points for me when it comes to choosing one piece of real estate over another.

When we arrived in Waterford, Ireland, some 16 years ago as newlyweds, we were eager to launch our new life on the Auld Sod, and I had a clear picture of what that life was to look like. I wanted a big, old, Georgian-style stone house with land around it for chickens, maybe a couple of horses, and a garden. I never articulated this vision to Lief, for I assumed he shared it. How little I understood my new husband.

Lief's vision for our first joint property purchase overseas had more to do with diversifying outside the U.S. dollar and into the punt (this was Ireland pre-euro) and buying into one of the fastest-appreciating real estate markets on the planet at the time than it did with a love of classic Irish Georgian architecture. The house we eventually purchased, LaHardan House, met all my criteria and delighted Lief, because, thanks to the property's sorry state of repair, the price was under-market. I got a renovation project; Lief got a great deal.

Seven years later, as we planned our move from Waterford to Paris, we wondered what to do with our Irish country home. Sell it? Or continue to hold and rent while we were away? Lief made the call. Time to get out of this frothy market, he determined. It's nearing its top.

We sold LaHardan House for three-and-a-half times what we had invested in it. I'd made the purchase and carried out the improvements. Lief timed the sale. He sold just before the Irish property market began to settle. (It has since collapsed.)

Likewise, in Paris, I selected the 300-year-old apartment in the historic center of the city that I wanted to buy. Lief was happy to go along with the purchase, because, as with LaHardan House, the state of the property meant the price was nicely below market. Again, I carried out the renovations, the finishing, and the furnishing, and then, fast forward a few years, as we prepared for our move to Panama City, again, we faced the question of what to do with the place.

Hold, Lief determined in this case. An historic city-center apartment in this market will retain its value, and we'll be able to rent it out for a reasonable yield while we're elsewhere. The yield has materialized according to Lief's projections, and the hard asset remains ours.

This has become the secret to the most successful global real estate buys we've made over the past 16 years. No, we haven't employed this strategy for every purchase--sometimes Lief has bought purely for investment in places where I have no interest in spending time and at least once I've bought a family holiday home that never would have held up under Lief's spreadsheet scrutiny. These purchases weren't necessarily mistakes, but they've proven the least successful from an investment point of view.

Lief may have another take on why this is so, but here's mine: Global real estate investing is both a science and an art. To enjoy the greatest level of success at it, you must analyze the market and run the numbers, yes, but you also must take a step back from the spreadsheets and view the purchase from a more personal perspective.

Is this a place where you'd enjoy spending time and is this a piece of property you'd be happy to own even if it were never worth a dollar (or a euro or a peso) more than you paid for it and even if it never yielded you a single percentage point of return?

More sobering, is this a place you'd be OK being stuck with? You should recognize with every foreign property purchase you make that there's a chance not only that the value might never increase, but also that it might fall. What if the market turns and your house (or beachfront lot, etc.) becomes worth significantly less than you have invested in it? We've all been made painfully aware over the past several years that this isn't a theoretical question. Real estate values sometimes fall. Sometimes they fall far and hard.

If you own a piece of property you don't like in a market where you don't want to spend time, what happens if it's no longer valuable as an investment?

Then it's no longer valuable, period.

If, on the other hand, you choose your markets and your properties not only because they're places that hold out investment potential, but also because they're places where you want to spend time, then, if the investment return doesn't materialize as you were expecting it to, you're still disappointed, yes, but all is not lost. You don't mind holding on until the market cycle moves more in your favor.

I think of it as balancing the numbers with the romance. Lief and I stumbled into this global real estate investment strategy and, over the years, we have put it to the test again and again. We've made together now more than three-dozen real estate purchases around the world. Coincidentally or not, the ones we most appreciate—because we've spent time in them with our family or because (as in the case of the 150-year-old stone farmhouse on the side of a mountain in Istria, Croatia, that remains, despite all my best intentions to renovate it, a near-ruin) we dream of the day we and our children will be able to enjoy them—are also the ones that have proven the most profitable investments.

Kathleen Peddicord

P.S. This Spreadsheets and Romance strategy for buying real estate overseas will be an important topic of conversation during the first-ever Global Property Summit we’re planning for April 2014.

We’re finalizing the details of what is shaping up to be the biggest overseas real estate event of the year. All attendees will receive a free copy of my newest book, “How To Buy Real Estate Overseas.”

In addition, because we respect the wisdom of considering any foreign real estate purchase as a team (husband and wife, father and son, two brothers, two sisters, two business partners, etc.), we will be inviting every attendee to bring a significant other for a significant discount.

You can register your early interest in the event here.

When shopping for a piece of real estate overseas, it’s important to balance the investment projections for return against your personal interest in spending time in the place where the property is located.

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The monitor on the wall was our only glimpse of the activity going on around us. It showed the auction room itself, where we'd watched, starting about an hour earlier, as Mr. Rohan had opened bidding for our Lahardan House before a crowd of about three-dozen. John had prepared us by explaining that most in the room would be bystanders, there just to see what the house might sell for. In the end, we had five serious bidders. Three pulled out quickly, leaving the gentleman from Cork and the gentleman from Dublin, who'd been going back and forth, first in the main auction room and then, eventually, from two separate, private rooms where John Rohan had escorted each in turn, for more than 30 minutes.

The year was 2004, and the Celtic Tiger was roaring. All Ireland was watching all the time to see by how much more property values had appreciated since the last time they'd checked. We'd purchased our Lahardan House, the property on the block that day, about six years earlier. John Rohan's projected selling price had us tripling our investment. Why were we hesitating to accept it?

Because overseas property investing isn't only about the money. After more than 15 years of marriage and nearly three-dozen joint-property purchases in 21 countries, Lief and I have finally figured this out. Buying real estate overseas makes so much more sense when you do it as part of a bigger-picture plan.

I didn't set out to become an overseas property investor. It happened by accident and organically. When my husband of but three months, my 8-year-old daughter, and I arrived in Waterford, Ireland, 15 years ago, we needed a place to live. I like old houses the way some women like new shoes and was drawn to the idea of owning an Irish Georgian-style house in the country, a place surrounded by rolling green fields dotted with roaming sheep and spotted cows and bordered by low stone walls and tidy hedgerows. My new husband didn't object, and, after a search that extended nearly a year, we purchased Lahardan House, a 200-year-old stone house on 6 acres that became our first home as a new family.

Lahardan House was where my daughter Kaitlin, born and raised to this point in Baltimore, Maryland, struggled with the transition to our new life overseas and where we welcomed our son, Jackson, born in Waterford just two months after we'd moved in. It was where Kaitlin learned to ride a pony, in the front pasture, and where Jackson learned to walk, in the forever muddy back garden. Lahardan House was our first overseas renovation adventure. The old stone house was dripping with damp, its timbers riddled with rot, when we bought it. In time, we transformed it into a comfortable and cozy home kept warm and dry by the big Stanley stove in the kitchen.

Lahardan House was also our first overseas property success story, and not only because, in the end, we accepted the offer that John Rohan coaxed from the gentleman bidder from Dublin, putting aside our emotional attachment to the place and tripling our money. More important, our experience with Lahardan House taught us the fundamentals related to buying and selling real estate overseas that we've learned to respect most, key among which is this: The best purchases are made with your calculator, yes, but also with your heart.

When Lief and I went looking for a house to buy in Ireland years ago, I was shopping for rolling green hills, centuries-old stone walls, tumble-down outbuildings, and classic Georgian symmetry. He was shopping for cost per square meter, rate of appreciation, and projected ROI. Today, dozens of often conflicted purchases later, we finally understand that the secret to success buying and selling real estate overseas is recognizing that each of these seemingly competing perspectives is important and that each deserves equal weight in any buy decision.

After we sold Lahardan House, we took those proceeds, added about 20% to them, and reinvested in an apartment in Paris. For our money, we got less than one-quarter the space we'd enjoyed in Ireland. Not a sensible exchange of values, you might say, at least not if you're evaluating the transaction using your calculator alone.

We were moving to Paris so that our daughter could attend her final three years of high school in France and so that our little family could, meantime, sample life in the City of Light, a dream of mine since I was a young girl. Certainly, under those circumstances, we could have rented a place to live. We didn't need to buy an apartment for our time in Paris, and, as I said, on the face of it, going by the numbers alone, buying an apartment in Paris didn't add up. Yet that's what we did.

Now, in retrospect, I can say that the apartment we purchased on rue de Verneuil in Paris' 7th arrondissement has proven, like Lahardan House in Ireland, to be one of the most successful investment decisions of our careers, again, we understand now, because it wasn't made for investment reasons alone. We own this Paris apartment still, return to visit it as often as we're able, and rent it out when we're not using it ourselves. It has evolved into one of our most valued assets, in part because it's worth about twice what we paid for it, but also, more important to us, because it has become the cornerstone of our retirement. We didn't purchase this apartment as an eventual retirement residence. However, the more time we spent living in Paris, the more we liked living in Paris. Finally, Lief and I agreed that we'd always like living in Paris, that this is a place we'll always want a chance and an excuse to return to. The apartment we bought to live in while our daughter finished her high school education and that we've held on to for occasional use and cash flow from rental income ever since, thereby, was transformed, organically, into a piece of our long-term retirement plan.

Kathleen Peddicord

Editor's Note: Today's essay from Kathleen is excerpted from Chapter 1 of her new book, "How To Buy Real Estate Overseas," to be published by Wiley & Sons in March 2013. Kathleen has spent the past two months focused on this manuscript, and we're delighted to report today that she is nearly finished. After she turns copy in to her editor at Wiley later this week, she'll return her attention full time to these dispatches. Thank you to all our far-flung correspondents who have helped to keep the reading interesting, informative, and entertaining in the meantime.Continue Reading:

 

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I'm writing from Medellin, Colombia, where Kathie and I have been all this week for the Live and Invest in Colombia Conference. We continue to receive e-mails from readers asking why in the world we've got our boots on the ground in this part of the world. Don't we know it's dangerous?

In fact, we know it's not dangerous. Because we've spent enough time here to find out for ourselves that it's nothing like what most of the world thinks it is. We found out by coming for a visit. And we came for a visit because we were intrigued by reports from friends and contacts whose opinions we trusted.

That's the point. You shouldn't invest in real estate in another country blindly (without having seen it for yourself). So you shouldn't invest in a place where you don't want to go. This is especially true when it comes to rental or agricultural property that requires ongoing management. Kurdistan is not and has not ever been on my Places I Want To Spend Time list.

You shouldn't invest in a place where you don't want to be, and you shouldn't invest in a property you haven't seen. I've broken this rule over the years. Sometimes it works out, sometimes it doesn't. One time it didn't work out in a big way. This was a pre-construction investment in Newcastle in the United Kingdom.

The recommendation came from a co-worker, and the numbers looked good on paper and according to his recounting. Though I never had, the guy who put me on to the idea had been to Newcastle before, and so I was acting based on his judgment. In hindsight, the timing of the purchase couldn't have been worse. Not long after I'd bought and before the building where I'd invested had been completed, the U.K. real estate market and eventually the global real estate market turned sharply. The investment went completely south. This wasn't 100% to do with the project. World property markets took epic shifts around this time.

However, if I had taken the time to make a trip to Newcastle and view the site, I would have passed on the deal. The location was just okay, not great. The style of the building, the quality of the finishes, and the layout of the units would have further inspired me to take a pass. Bottom line, I would have found the project mediocre at best and the city of Newcastle completely unappealing. I finally visited only after having made the buy and realized within an hour of being on the ground that this was not a place I ever wanted to return to.

That's the story of the worst property investment I've ever made. Lesson learned.

Lief Simon

P.S. Back in Medellin this week, I can report that good opportunities still abound in this market. Our first investment has turned out so nicely now that the renovation is finally complete that we've decided not to rent it. Maybe, eventually, we'll rent the apartment to get some cash flow out of it, but for now we'd like a chance to enjoy it. This is a place where we want to be able to spend as much time as possible.

Meantime, I'm looking for another apartment to buy as a straight rental investment. At current pricing, rental yields are still good. More important, Medellin is a place that makes sense long term.Continue Reading:

 

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Working with a real estate agent who speaks English will make your life easier (assuming you don't speak the local language), but it won't get you all the information you need or even, usually, accurate information. For that, you have to expand your search to include local agents.

If you don't have the language skills to communicate with them directly, engage help from a friend who does. If you have no local language support, you at least can use local agents as a source of listings to compare with what you're getting from the gringo agents.

Meantime, you also want to speak with an in-country real estate attorney, a local accountant, a banker, and other expats if you can find them. If possible, speak with more than one real estate attorney and try to speak with locals not in the real estate business about the current real estate market.

In Medellin, for example, on one of our first scouting trips, Kathie and I had one of our most helpful getting-our-bearings conversations with an antiques dealer whose shop we stopped in one Saturday afternoon. Smart, successful local businesspeople can give you valuable insights into a market that a real estate agent might neglect (or choose not) to mention.

Ask everyone you speak with the same questions. You'll be surprised by the variety of answers you'll receive. Some will be completely contradictory. In some cases, you might ask six people the same question and get six different responses.

In Medellin, we asked one real estate agent we met with if it were possible for a foreigner to open a bank account in Colombia. "Yes, of course, no problem. You just need your passport," he told us.

We asked another real estate agent we met with the same question. "To open a bank account in Colombia, a foreigner needs a cedula," he told us. "Do you know what that is?" he asked.

Yes, we know what that is. A residency card. Issued only to those with legal foreign residence status.

In this case, the second agent was more on target. Opening a bank account in Colombia as a non-resident foreigner is not a "yes, sure, no problem" kind of a thing. It's possible, I can tell you today, two years later, but you need more than a passport. Specifically, you need the right introductions and a banker willing to entertain your application. The alternative, if you're unable to open a local bank account in your name, is to open an account with a local fiduciary agency, as they're called. This is more straightforward and was our first step to getting established in this country.

In addition to questions related to opening a bank account, when entering a new market as a potential investor, you should also ask everyone you encounter about:

  • Which are considered the "nicest" neighborhoods?...
  • Which are considered the up-and-coming neighborhoods?...
  • How much does an apartment cost? Boil this down to a per-square-meter price so you can compare among areas within the country and among other countries...
  • Where are most foreigners buying?...Why?...
  • What types of properties are most foreigners buying (one-bedroom apartments, houses, undeveloped land, etc.)?...Why?
  • Are most foreigners buying for personal use or for investment?...
  • Is there an active rentals market? Short-term, long-term, or both?...
  • How much would a particular property rent for per month long-term or per week short-term?...
  • Where would you (speaking to a real estate agent, an attorney, a business owner, an expat, or a taxi driver) invest yourself right now?...Why?...
  • In which direction is the market moving?...

In addition, ask general questions about the local economy and local industry. Ask about the current president or whoever is in charge of running the place. Not to be political but to get a read on the political situation from the man on the street.

Ask about taxes. Are they high? Do people pay them? How are they collected? Is there a property tax? On what value is it based?

Again, you'll be amazed at the variety of answers you'll receive. All this input, conflicting as it will seem, will help give you the lay of the land. The more conflicting the responses, the wilder the market. In Medellin, I'd classify many of the responses we received during our initial scouting trips as wildly conflicting.

The next step is to begin to get a handle on procedures. As I said, you want to meet with more than one attorney if possible. For each one you meet with, ask:

  • What are the transaction costs for buying and selling real estate? You'll want to know the "round-trip" costs, as I refer to them, for a single piece of property. In some markets, it is more expensive to buy than to sell, and vice versa. You don't want to find out too late that, while it cost only 2% to get into an investment, it's going to cost you 15% to get out...
  • What is the buying process? What documents are required? What is a typical down payment? Are there any local nuances you should know? In Colombia, we were told, it's common practice for the purchase price for a piece of real estate to be under-stated (perhaps significantly) on the sales documents. This can have advantages (when it comes to paying property taxes, for example), but it also can create big problems down the road (as I've witnessed several times) if you're the last owner in the chain before the country decides to crack down on and eliminate this practice...
  • Also, very important, ask every attorney you meet with if you will have any trouble taking your money back out of the country when you decide you're ready to do so. That is, are there exchange controls or other currency restrictions in place?...

While you're playing private detective and asking everyone you meet the same series of questions, you also want to be observing. As you make your way around the area, do you notice signs of an active economy? Are people out at the malls and restaurants shopping, spending? In Medellin, the answer, we noticed right away, is a strong yes.

What's the infrastructure like? Are the roads well-maintained? Are the parks and public areas taken care of? Again, in Medellin, we have been impressed by the superior level of the infrastructure everywhere we've been, from the pot hole-free roads to the like-new aboveground metro system.

Do you see garbage in the streets or on the sidewalks? Medellin is one of the cleanest cities I've ever visited.

When a strong local economy exists, that can be one possible exit strategy for your real estate purchase. This is the case in Medellin.

If no local economy exists or if the local economy is small and limited, then you're likely going to be limited to selling on to another foreigner when the time comes for you to cash out. This is the case in many resort markets in Mexico and Spain, for example.

Your first visit to any new market, see as many properties in as many different neighborhoods and areas as you have time for. You want to get a feel for the type of construction, the options for building materials, common amenities, etc. See how apartments are typically laid out. Is space well used? Collect and catalogue every listing sheet for every property you view.

Then go home. Don't buy anything your first trip no matter how tempted you are.

Take all this boots-on-the-ground information with you back wherever you came from. Sift through it. Compare responses. Fact-check what you can with as many sources as possible.

You're ready for your second trip.

Lief SimonContinue Reading:

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Kathleen Peddicord

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.

Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.

Read more here.

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