Four Questions To Ask Before Investing In Any New Market
Kathie and I are off to Chile in a few weeks. This is a new country for both of us.
Having never been to a place before, how do you find good local contacts?
First, you ask around. Start with friends. Anyone you know who has traveled to the place. If you can score a single recommendation, you’re on your way. With even one contact, even unrelated to your specific agenda, you can build a chain of contacts to get you to the kinds of resources you’re looking for.
This worked well for me years ago for my first trip to Vietnam. I showed up with only a single contact and four days to see and find what I could see and find. My one contact put me on to three real estate contacts. Those three put me on to another few resources each. By the end of the trip, brief as it was, I had met with a good number of people, seen a fair amount of real estate, and had all my questions answered.
Unfortunately, so far none of my friends has any current contacts in Chile.
The next option is to contact one of the big international accounting firms and arrange to meet with someone. These guys are connected. Every businessman needs an accountant. And accountants like to network. Getting a meeting with one can garner a few other contacts to, again, start a network chain. You can generally trust recommendations from someone at an international accounting firm. A high-profile accountant can’t afford to make a bad one.
What contacts are you trying to put in place? A real estate attorney, a real estate agent, and a banker. Start there.
When you meet with the real estate attorney, ask for a real estate agent and a banker. Likewise when meeting with the agent and the banker. Each may refer you back to the others if it’s a small market or a tight network, but that’s ok. The point is to ask every contact for more contacts, to be continually working to expand your network.
Next step could be an Internet search in the local language. I wouldn’t look for an attorney this way, but this is a strategy for identifying local real estate agents that will yield you a random, completely unqualified, and 100% unreliable list. Of agents who likely won’t speak English. Still, it’s the local agents who will find you the local deals. The real deals. The non-gringo deals.
As a last resort, you can do an Internet search in English.
An Internet search (in English or the local language) will often lead you to a lot of outdated information and listings. My search for hotel information online for Santiago, where Kathie and I will be based during our quick visit this month, came up with recommendations from 2007 to 2009 but nothing more recent that was useful.
Information on the Internet in English related to the expat community or the real estate market in a place where the people don’t speak English is often either outdated…or complaint-riddled. So much of this kind of information is posted by people who have moved to a place and aren’t happy. These folks have all the time in the world and nothing to fill it up with. So they post personal rants on Internet sites and blogs. Sometimes the complaints must be founded, but that’s not the point, because you’ll never know. The point is that this kind of endlessly circulated content isn’t much help to anyone.
English-speaking real estate agents you find in non-English-speaking countries are hit or miss, as well. They can be fine. Or they can be gringos who have hung out shingles without any experience or any understanding of the local real estate market. Their only qualification is that they speak English, meaning they can communicate easily with expat buyers.
How can you weed out the waste-of-time contacts from the reliable ones?
Here are a few standard due diligence questions to help you make that determination:
Due Diligence Question #1:
What has the real estate market done over the last year? An experienced resource should be able to give you a percentage increase (or decrease) and/or the amount prices have changed per square meter…
Due Diligence Question #2:
What is the average cost per square meter for an apartment? A house? A hectare of land? A beachfront lot? Per-square-meter prices can vary significantly depending on neighborhoods and type of property. Every such number is a data point you want to collect as you carry out your research…
Due Diligence Question #3:
How long are properties staying on the market?…
Due Diligence Question #4:
What is the best neighborhood for expats? For investing in a short-term rental? For investing in a long-term rental?…
These questions will get you started. Ask them of everyone you meet.
Also, see as many different properties in as many different areas or neighborhoods as possible. Take a reading on the connection (or lack of connection) between how a property for sale is represented on paper versus what it’s like in reality. That will help you to filter out properties based on their listing sheets on your next trip.
Which leads to the most important point to be made related to moving into a new market: Don’t expect to figure it out on a single trip.
This is why I strongly recommend against buying anything on a first visit anywhere. You need more than one chance to vet your contacts and to get to know both the lay of the land and the direction the market is moving.