“I haven’t paid much attention to rental investments throughout my real estate investing career,” explained a reader who contacted Lief recently for advice.
“But I’m interested in understanding current opportunities worldwide right now, because, in the current climate, a reliable 5% net annual yield sounds pretty good.”
Here’s Lief’s counsel:
“There are no ‘golden markets’ anymore…no place where you could buy almost anything and do well. Those days are over.
“Second, understand who your end-buyer would be. This helps you to put the acquisition into perspective. The French leaseback, for example, is a great hassle-free rental investment in the world’s top tourist destination (France). But it’s an investment. You aren’t going to live in a leaseback unit (no more than maybe several weeks a year)…and neither is anyone else. So your buyer, when you’re ready to exit, will have to be another investor.
“On the one hand, this limits your potential universe for selling on. On the other hand, investors are always going to be looking for ways to own French rental units.
“Meantime, an apartment in Paris (or Buenos Aires or Panama City, etc.) could, theoretically, eventually be resold to another investor…or to an end-user…someone interested in residing in the city.
“Third, consider inventory supply and demand. The Costa del Sol, for example, is ridiculously over-supplied.
“The key consideration, though, when looking to buy to let overseas is the rental manager.
“You can act as your own rental manager, but I don’t advise it. If you’re not residing physically in the same place as the rental unit, I say definitely don’t do it. I’ve had 15 years of investor landlord experience in more than a dozen countries. This isn’t something you want to take on yourself, unless you’re prepared to make it your full-time occupation.
“Engage someone who knows the market, who has marketing infrastructure in place, who has developed a client list you can leverage, and who can show you proven management systems (for reservations, for inventory control, for reporting, etc.).
“Our first apartment investment in Paris rented extraordinarily well the first year. However, the rental manager spoke no English and was perpetually late with reporting. So we switched to another manager, an American. Yes, he spoke English (though, by this time, it didn’t matter so much, because we’d learned to speak French), but he, too, was perpetually late with reporting…and, more to the point, he got us less than half the occupancy we’d enjoyed the year before (though the market was stronger and tourism figures were up).
“When you make a rental investment, you’re choosing, first, a market; next, a rental manager; and, finally, a property. Before you make a particular buy decision, seek advice from the rental management agency you’re planning to work with. What’s more rentable? Two bedrooms…or one?
“What matters most to would-be renters? Location, of course…but other, less obvious things can be critical. In Paris, you’ll struggle to make a decent return off a fifth-floor rental in an apartment building with no elevator.
“I don’t recommend long-term unless you’re well familiar with the market and have a rental manager who really knows what he or she is doing. In many markets, it can be difficult to evict a long-standing renter.
“When we made the decision to rent our Paris apartment long-term, we interviewed potential rental managers. The one we chose impressed us because she made a point of telling us, with a voice of long experience, to whom she would not rent.
“‘We won’t rent to such-and-such people, because they throw wild parties.’
“‘ We won’t rent to so-and-so people, because they don’t respect other peoples’ property.’
“In some contexts, her positions might be termed discrimination. We saw them as risk management.”
P.S. Lief adds: “Rentals won’t make you rich, but they can provide solid, reliable returns in the range of 5%+/-. Leverage can take this into double digits. I’m netting (after all associated costs and expenses) more than 20% a year right now, cash on cash, from a leveraged rental I own in Panama City.
“Again, this is not typical…but possible, if you buy at the right price and with leverage.”
“Would you please write a supplement showing the requirements of the U.S. government for Social Security payments while living in the countries you recommend? I believe that the Social Security Administration requires that you report if you are away from the United States for more than 30 days at a time.”
— Sukumar S., United States
No, dear reader, there is no requirement to report your whereabouts or any absences from U.S. soil to the Social Security Administration (assuming you are a U.S. citizen), and you can receive your Social Security payments anywhere in the world.
The rules for having your Social Security paid outside the States are here: www.ssa.gov/pubs/10137.html.
If you’re not a U.S. citizen, some restrictions may apply. These are detailed on the web page I reference above.
The easiest thing is to have your monthly Social Security payment direct deposited into your U.S. bank account. Then you can withdraw cash from that account using your ATM card anywhere in the world.
In fact, you can even have your Social Security payment direct deposited into your overseas bank account in many countries, including most of Europe and Panama.