The strategy of all property investors is an economic analysis of the development prospects of a particular region. Countries that create attractive conditions for foreign investment are of immediate interest to many companies. As a result, new jobs are created, the standard of living and welfare of the population increases and prices, including housing, rise. And those who have managed to anticipate all this and invested in property before the sharp rise in prices are in the black. Many, but not all. The point is that a potential investor also needs to know which properties are suitable for investment and why.
Where to Start
Every investor has different goals when buying property abroad and this influences the type of property they buy. Many investors buy housing to sell it and make a profit. If an investor buys property at an early stage, they can often sell it for a higher price later.
For instance, in Bulgaria, a flat under construction in a residential complex on the coast costs around $100,000. Local developers offer innovative payment schemes to potential buyers. Initially the buyer pays only 30% of the total amount. After one year, when the frame of the building is being built, another 30% is paid. The last payment is made during the final stage of construction, two years after the initial payment. Property prices usually increase during the first year of development, and the range of available properties can be scarce or even entirely sold out. The investor can sell their property even during the second stage of construction and make a 20% to 30% profit on their investment.
Sozopol, Bulgaria. Photo: Neven Myst (Unsplash)
If you invest more money, you will make more profit, particularly in rapidly growing markets. For example, in 2023, a plot of land with an area of 2000 square metres was sold in Dubai, on Jumeirah Bay Island, for $34,000,000. The seller had purchased the property only two years previously and made a profit of almost $24,000,000 during the sale.
It should be noted that only experienced investors can make this kind of profit. Before putting your money into real estate in any country, you should learn about its economic situation and potential for growth.
According to the Foreign Direct Investment (FDI) Global Cities of the Future rating, Singapore ranks as the best city for investment and economic development. Research alone has attracted $210,000,000 of foreign investment to this country. There are about 150 venture funds and thousands of incubators and accelerators operating in Singapore. London, Dubai, Amsterdam, Dublin, Hong Kong, New York, Shanghai, Paris and Tokyo also make the list of the top 10 best cities for investment.
InterNations Expat City Ranking 2022 suggests that the top 10 best cities for expats are Valencia, Dubai, Mexico, Lisbon, Madrid, Bangkok, Basel, Melbourne, Abu Dhabi, and Singapore. These rankings are important for investors looking to rent out their properties.
Singapore. Photo: Meriç Dağlı (Unsplash)
How to Choose the Location
Real estate markets follow the unbreakable rule of the three Ls: location, location, and location. This rule applies to real estate markets in every corner of the world. The location determines the type of tenants and buyers for your property.
For example, if you buy a flat in a residential complex situated near a university, the overwhelming majority of potential tenants will be students. On the one hand, this is good, as property in this area (especially small flats) will always be in demand. On the other hand, in summer, when many students leave the city, there will be a lot of property for rent in the area. This usually means that average rents will drop during this period.
Married couples with children usually prefer long-term lease agreements. It is more difficult for them to move, so they choose their future residence carefully and usually plan to live there for a long time. If you prefer such tenants, look closely at areas that boast prestigious schools and kindergartens, as educational facilities will be a priority for your potential tenants. A park, playgrounds or a child centre in the proximity of your flat will be an advantage.
It is useful to analyse the state of the rental market in your chosen area and compare your location with others. For instance, if there are many properties for rent in your area, this is not a great location for investment. Ask yourself why supply exceeds demand. Potential tenants might want to avoid the noisy nightlife in the area or the location may have a dangerous reputation. A lack of amenities and other factors can also influence the number of people willing to rent a flat in the area. We recommend that you drive or (even better) walk around the district so that you can assess the level of safety, check if the streets are clean, and note the location of pharmacies, supermarkets, public transport, fitness centres, and swimming pools, if there are any. Every detail matters for your future tenants or buyers. Go to the area at different times and on different days of the week to check if there are traffic jams, and if the streets are quiet or noisy.
You should also compare the rent and sale prices for properties in your area. It is best to deal with real estate agents only after you have already checked prices in the area.
When choosing the location, it is important to decide whether you will manage your property yourself or if you will engage a real estate management company. If you plan to do everything yourself, it is a good idea to choose a property in your own area.
Location is also important if you are looking to invest in commercial properties. If you are interested in office space, opt for business areas that are within walking distance of public transport. Retail spaces are often popular in heavily populated commuter areas with scarce amenities.
What Types of Real Estate are Best for Investors?
Urban Real Estate
Investors are traditionally most interested in urban real estate, both residential and commercial (offices, retail spaces, restaurants, cafes, bars, beauty salons, etc.). Depending on the price, location, and characteristics of the property, the average profitability of rented commercial real estate is 8% to 12% per annum. For residential real estate, it is usually around 5% to 8%.
One- and two-bedroom flats are usually the best choice because they are easy to rent and sell and are always in demand.
Resort Real Estate
Resort real estate located on a coastline is also popular with investors. A flat in a closed community with a spa, a pool, high-quality amenities, and services for residents is a good investment. One-bedroom flats are in high demand in resort areas.
Resort real estate has one important feature. Regardless of its location (on the coastline or in the mountains), it is usually suitable for daily rent during the tourist season. Your flat may remain empty for the rest of the year so it is a good idea to buy property in large resort areas that are busy even during the low season.
A duplex is a house divided into two parts with separate entrances. A duplex may cost more, but you can rent it out to two different tenants and make almost twice as much money as with a detached house.
How to Rent Out Your Property
Many experts advise signing agreements with management companies because they are experienced in dealing with tenants. These firms often work with aggregators that help to rent out properties: Airbnb, Booking.com, and others. This is particularly true for traditionally unpopular properties, such as five-bedroom houses. If you own a property like this, it will take a lot of time and effort to find tenants by yourself.
In a Nutshell
Investors should take certain steps to ensure that their property is profitable. Investors should get to know the location before buying a property. It is also important to remember that investors need to keep their property in good condition and will need to invest in maintenance and repairs on a regular basis.
Cover photo: Madrid, Alex Azabache (Unsplash)