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Home Real Estate

Real Estate In The Philippines & France

Kathleen Peddicord by Kathleen Peddicord
Sep 24, 2010
in Real Estate
0
Residency Options In Southeast Asia are plenty, specially in places like philippines, and thailand, depicted here.
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Which Is Better? A Net Yield Of 19%…Or A Surer One Of 5%?

Yields. That remains the name of the game for most experienced real estate investors right now.

Some I know are still chasing capital appreciation…looking for undervalued markets they think will spike in the next 12 to 18 months. Chasing growth in the real estate world right now, especially big growth short-term, is risky and unrealistic. Taking a very long-term view, you could put some of your real estate portfolio into investments for big capital appreciation, but yield-generating property is a better play right now.

But what is a good yield? My general range of acceptance is a net yield of 5% to 8%. Note that I’m talking about net yields. Many real estate agents and property marketers talk about gross yields. Gross yields, however, don’t tell you the whole story and therefore don’t allow you to compare yields across markets.

Compare a gross yield in Country A of 10% to a gross yield in Country Z of 15%, and you might think that Country Z is the place to put your money. But what if Country Z charges high property taxes and higher management expenses? Bottom line, you could end up with a net yield of 8% in both cases. With the net yields being equal, you have to look more closely to decide which place makes more sense for your investment.

A friend invested in a project in the Philippines early this year that was projecting 19% net yields based on the price at which he bought in (they increased prices throughout development, and the yield projections eventually dropped to 15% for the final sales).

I was skeptical as to how any legitimate outfit could project that level of return. After reviewing the due diligence my friend had put together, which was very thorough, however, I was convinced that the projections probably weren’t far off, thanks to a couple of extraordinary circumstances.

At the other end of the scale, you can pretty easily find reliable rental investments in France paying out net yields of 4% to 5%. I’m thinking of condo-hotel properties that are part of this country’s French Leaseback program.

With a Leaseback, the management company signs a long-term lease with each unit owner for a set net annual amount (payments are made quarterly). You’ve locked in your cash flow for the term of the lease (the initial lease is typically for nine years).

Which of these two things is a better investment? Most investors would jump on the Philippine investment over the French one, thinking that a double-digit yield is surely more appealing than one of 4% to 5%. Who doesn’t want to earn four times as much on his capital if given the option?

But what about the other risk factors?

In both these cases, you have currency risk; however, your currency risk against the Philippine peso is probably greater than it is against the euro.

I’d say the Philippines comes with more what I term “market risk.” Market risk in France would be very low. This is the world’s most proven tourist market, probably the safest place on earth to invest in a tourist rental.

The resale risk for the Philippines investment is unknown, as this was a new project in an emerging resort area. In France, again, I’d say the resale risk is low. The Leaseback program has been around for nearly decades, and an active resale market has developed among investors looking to buy operating Leasebacks already throwing off cash flow.

Finally, the Leaseback properties come with an inflation clause in the rental agreement, meaning your yield, modest as it is, is adjusted upward for inflation throughout the term of your lease.

Which of these two yield plays is the better investment?

That depends on your personal circumstances, on your level of risk tolerance, and on the make-up of your portfolio overall.

Are you shopping for safe returns (the French Leaseback is about as safe as international real estate investing can get)? Or are you looking to speculate a little with the hopes of bigger gains?

Best case, of course, would be to balance your portfolio with both plays.

Lief Simon

Tags: 'buying property in france''invest in france''investment risks''phillippines'
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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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