Why We Recommend These 13 Real Estate Investment Markets Right Now
Next week I host our Global Property Summit. With the help of about two-dozen colleagues, friends, and real estate professionals from around the world who are convening here in Panama City starting this weekend, I’ll be discussing how to find, buy, manage, hold, and profit from offshore real estate.
We’ll be focused on 13 markets in particular, and a reporter from Bloomberg got in touch this week to ask why those countries.
I look for three things when scouting real estate markets—path of progress, crisis opportunity, and an expanding middle class. Some markets may offer more than one kind of opportunity at a time, but any single category of opportunity can get my attention.
Path of progress is straightforward. In which direction is growth moving? Where are people migrating? Where are investors or the government putting in infrastructure?
Path of progress investments aren’t a guarantee of appreciating property values (take a look at some infrastructure projects in China, for example, that were big investments but that did not lead to growth in property values). You have to layer on some judgment. However, generally speaking, a new airport, a new road, a new shopping mall, etc., indicates new or expanding opportunity.
Easier access to a destination can make it more desirable. The Liberia international airport in Costa Rica opened up that country’s Guanacaste region to a new round of development. The paved road to Majahual in Mexico opened that coastal region to growth.
Path of progress opportunities can enjoy an extended curve. Crisis opportunity, however, usually offers a more limited window to take action—sometimes up to a year, other times only a few months. The Argentina financial crisis that began with the devaluation of the Argentine peso in December 2001 is a good example of crisis opportunity. As a result of the currency collapse, property prices in Argentina fell over a seven-month period and finally bottomed out in July 2002. By the time most outsiders realized the available bargains, prices had already begun to move up again. The window for getting a great deal closed within a year of the bottom in that case.
It appears we’re at that point in the cycle right now in Ireland, to take a current example. I have reports from colleagues on the ground in that country of month-on-month appreciation in some regions. Parts of Spain may soon see that kind of rapid growth in values, as well.
Crisis investing isn’t for the risk-adverse. You have to be willing to take a chance that you’re buying at the true bottom or close enough to make the upside worth the gamble and, too, that the market will recover at a rate and over a period of time that, again, will make the investment pay off. The more familiar you are with a market pre-crisis, the better. When I invested in Argentina in 2002, I already had experience living in the country. I knew it well and so was able to act quickly when I identified the window.
The opportunity created by a growing middle class is easy to understand, but it is not always easy to identify such markets before the trend has already taken out much of the upside. If you can catch the cycle early, though, this can be a strategy for big profits.
Medellin, Colombia, is one market offering this kind of opportunity today. Medellin is also benefitting right now from growth in foreign investment. That said, this is a case where prices started out low enough (relative to other countries and even to other parts of Colombia, including Bogota and Cartagena) that the opportunity to take a position with a reasonable minimum investment amount continues.
One additional fundamental I pay attention to when considering a potential market of interest is the potential for generating a yield. Generating cash flow from a real estate investment is a basic long-term building block to wealth. Certainly, capital appreciation homeruns are nice. A guy wrote last week to tell me that he bought a US$40,000 lot in the United States years ago and sold it a decade later for US$4 million. Can’t argue with that. But I’d say that those kinds of hits are rare.
Cash flow is king, and a solid rental investment (whether a short-term vacation rental or a long-term residential rental) is one of the best possible ways to create cash flow.
Agricultural land can generate cash flow, too. You could invest in farmland that you rent out to a farmer, that you hire a manager to work for you, or that you work yourself (though becoming a farmer isn’t on every investor’s list).
All of these opportunities will be discussed in detail during next week’s Global Property Summit. If you’re not going to be joining us in person, don’t worry. We’ll do our best to keep you informed from the scene. I’ll be emceeing…and Kathleen will be on hand to take notes and report back to you each day live.
Lief Simon
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