Last week, we talked about the need to rebalance our investments in the U.S. markets by diversifying abroad. And the logical follow-on to that discussion is a word on how to get started.
I’ve bought a number of overseas properties—both for personal use and as investments—and I find that evaluation of a potential property always comes back to a few simple basics. It’s a safe and secure process when you follow the rules, and use the same good sense that you’d use in your home country.
For Any Property You’re Considering, First Look At These General Items
1) Location: As anyone in the real estate business will tell you, location is paramount. You can fix almost anything else with enough time and money, but you can’t fix the location. Make sure it’s either good… or that you have a strong reason to believe it’s on its way to becoming good.
In addition to the neighborhood, also consider the distance to the airport and to good medical facilities.
2) Walkability and public transit: Where this applies, it’s crucial when it comes to resale or renting your property for income. The ability to walk to stores, restaurants, and administrative services will make your own life convenient—if you’re using the property—as well as that of your tenants. If your property is not walkable, you may be requiring your buyer/renter to have a car… which is a big factor in a foreign country.
If a city property is not completely walkable, being near convenient public transit is the next best alternative. Of course walkability doesn’t apply in remote properties that are intended to “get away from it all.”
3) See what’s going on next door: In Santa Marta, Colombia, I looked at a beautiful new high-rise apartment, three blocks from the beach, with an impressive view of the Caribbean. When I looked out the window, I happened to notice that the adjacent “never-to-be-developed” property was filled with construction equipment. As it turned out, this neighboring building (undisclosed by the realtor) was going to block most of the view I would have been paying for.
And just south of João Pessoa, Brazil, I looked at a planned community of beautiful town homes a couple of blocks in from the beach. But while driving to the property, I happened to notice a billboard announcing the construction of a massive, low-income housing project on the adjacent property… again, undisclosed.
In Mazatlán, Mexico, a luxury high-rise tower in the Golden Zone was finished and mostly sold-out. Soon after, the apartments for resale—with their magnificent ocean/coastal views—were going for over US$500,000… that is, until the second tower was erected, blocking the views on one side of the building. Immediately, the tower one prices dropped to around $250k.
You can’t see into the future, and you can’t know everything that will happen. But do keep your eyes open to what’s going on in the area around you. I’ve passed up many condos after seeing a prime building lot next door (or an underdeveloped lot) that could potentially host a view-blocking building.
4) Find (or avoid) the Path of Progress: Take a big-picture look at any major infrastructure upgrades in the works. If you’re a Path-of-Progress investor, you’ll benefit from construction of that new highway or airport… and if you’re looking for continued peace and solitude, you’ll want to avoid them. But either way, you should consider them.
In An Existing Building, Also Look For These Attributes
5) Verify a good property condition: Look at paint, general appearance, the pool, grounds, elevators, and facilities. A quality, well-run building is never in a rundown condition. I’ve heard plenty of excuses about how the Homeowners’ Association (HOA) was going to fix things up during the coming year… but a well-run property would never become rundown in the first place.
6) Make sure you have a strong Homeowners’ Association: We all know that HOAs are an annoyance. But there’s no doubt that they preserve the value of your investment. Make sure the rules for appearance and maintenance are being followed, and that the HOA is well-funded by reviewing their financial statement (your realtor can get this). Compare the HOA fees to other facilities in the area, to make sure they’re not exorbitant… but are sufficient.
I looked at several properties in Montevideo, Uruguay, where the realtor proudly told me that the HOA had been disbanded to save money… and that future assessments would be made to take care of any building needs. I called these “dying buildings”… because they were rapidly turning into poorly maintained, shabby properties. Taking up a successful maintenance collection without an HOA is almost impossible.
7) See if they allow—or prohibit—short-term rentals: If you want to rent your property short-term to take advantage of high returns, make sure it’s allowed… many municipalities place restrictions on short-term rentals.
But if the property will be your residence, I’d make sure they prohibit short-term rentals, if possible. At resale time, it’s easy to sell in a short-term building to another short-term landlord… but hard to sell to a local family. I believe that a building of owner-occupants sells to the widest spectrum of buyers.
8) Look at how many units are for sale: If a mature building has a seemingly large number of units for sale, it could be a sign of trouble… things like a big tax increase, HOA fee increase, or something unpleasant going on in the neighborhood, like a shopping center being built next door. Ask around to find out why there are so many sales, including the building’s doormen.
9) Check out the parking lot: This may sound strange… but a building with well-off owners who care about the property will likely have a garage full of nice, well-kept cars. The more expensive they are, the better. If you see old junkers in the parking garage, take it as a warning.
In New Construction And Planned Communities, You’ll Want To Verify These
10) Check the number of unsold units: I was looking into a property here in Mazatlán and found a large, brand-new apartment for sale—with an almost-180-degree ocean view—at a good price. But then I noticed that there was another just like it… and then found two more. After checking the building’s completion date, I found it was completed and occupied almost four years earlier, yet still had quite a few prime, developer-owned units remaining unsold.
Something’s wrong here, and I’m not sure what it is. But I do know this: Whatever is causing sluggish developer sales will likely cause a sluggish sale when you try to sell.
11) Has the project met its milestones/kept its promises so far? It pays to look back to see what the original plan was, and how closely the developer has kept to that plan and its promises.
Is the infrastructure where it was projected to be? The facilities?
I visited a development in Nicaragua three years in a row, and each year, the promised Phase I amenities were “about to start.” And each year, they had a new set of flimsy excuses for why the work hadn’t begun. Finally, the developers just pocketed the money and walked off, fulfilling almost nothing.
And I recently checked up on a luxury project in Belize. I looked back at their launch materials and saw that they were scheduled to break ground in February, 2016… but as of September 2017, 19 months later, work had not started. This does not exactly inspire confidence in the project.
12) Beware of hand-to-mouth infrastructure: Many planned communities depend on property sales to fund the promised infrastructure and community amenities. I’ve seen a few communities that were 100% backed without property sales, but not that many.
And I’ve also seen a number of projects where the infrastructure and amenities never got finished because of insufficient sales, leaving the early buyers holding the bag with unfulfilled sales promises on unimproved land. Some developers went under altogether… others were just crooks and spent the money on other endeavors.
I won’t tell you to always avoid sales-funded developments. But if the developer needs sales to fulfill his promises, then it’s definitely an item that should be in your “risk” column.
The golden rule here is to “buy what you see.” This is an oversimplified way of verifying this: If the project were to stop today—leaving the remaining sales promises unfulfilled—you’d still own something that you believe to be of value.
13) Take a look at the competition in the area: I once looked at a project in Uruguay that was 2.5 miles from the beach, requiring its residents to have a car… let’s call it Project A. The houses were expensive by local standards, partly because it was targeting North Americans. Project B, in the same town, was located right on the water, offering brand-new apartments for US$75,000… with plenty of unsold units.
The town became quite popular with expats—partly due to Project A’s promotional efforts—but almost everyone opted for the cheaper and more convenient properties in Project B or elsewhere in town. Local competition wasn’t the only reason Project A failed… but it was certainly an important factor.
14) Verify the developer can do the job: I won’t cover this here, but I do have an essay that deals with it. Follow the link to read up on 10 Questions To Ask Before Investing With A Developer Overseas.
Buying property abroad can be safe, rewarding, and profitable. It’s a smart way to diversify your portfolio. Just be sure to follow the rules, and apply the same commonsense behavior you would back home.