With the property markets now under-going correction from their highs in 2006-2007 across most of the developed world, and savings rates at an all-time low, cash-rich investors are seeking returns on their capital like never before. Gone are the days of investments baked with the expectation of capital growth, investments now need to “stack up” in terms of cashflow from day 1. That’s not to say capital values are being ignored, far from it. Investors increasingly seek stable investments that provide a measurable and regular return. So markets should be in some sort of equilibrium in terms of supply versus demand, and capital values holding steady. In many ways then, conditions are back to normal in many respects for serious portfolio landlords.

So where are yield investors looking today? Working on the ProVenture team, we get to talk to yield investors every day from across the world and it is interesting to pick up on trends in their strategies. We hear about where investors have placed their hard-earned cash in the past, and where and why they are looking to invest in the coming years. Inevitably, many of the investors we speak to are focused on Germany as a place to invest for the coming years as this is our main area of operation as property consultants. But increasingly, we discuss investments in eastern Europe, other parts of western Europe and the USA as viable investment locations.

Let’s look at some different markets and find out what is drawing investors to them at this stage of the economic cycle.

USA

What an interesting market to look at, as we write this piece in August 2010. The USA is the home of raw capitalism, and this harsh approach applies to the property market in much the same way as the money and equity markets. Despite the assets in question being people’s homes and security, they seem exposed to harsh write-downs more than other countries, and this brings sorrow and hardship for those shielding loses and inevitable opportunities for investors.

Taking a historical perspective on the market, we see that the USA has typically had an average level of owner-occupation between 1960-1990 of around 60%. Home ownership was a realistic aspiration for many, but not an imperative like in other markets such as UK or Spain where owner-occupation rates have been as high as 85-90%. This led to, in most locations, a stable market to invest within and a ready supply of short to longer term tenants. The credit bubble of 1996-2006 changed all this.

During the period of low interest rates, sectors of the population who up until then could not aspire to home ownership at their stage of life, if at all, entered the market on “teaser” loans, affordable for the first few years of the loan but become crippling as the loan rates reverted to usual market rates or higher. This greed on lenders parts, and their shocking lack of due diligence into individual’s ability to pay, had a now famous global effect. Currently, 14% of the population are behind on mortgage payments or are in foreclosure. This is an average, and some markets have double this rate. That’s 9 million homes in trouble, double that are households sitting on negative-equity. So where are we now, and is the USA a place worthy of investment research? It is safe to say, the market is still largely bereft of confidence and sharp declines have been felt pretty much across the board. But are there areas that have suffered steeper declines than are justified?

Well, the USA is a huge market. Let’s focus on one city, Orlando [Florida] as a case study.

The Orlando region derives much of its economic power from tourism, business conventions, medial and hi-tech research and the “grey dollar” or those retiring to the warm climes from more northern states or from abroad. The property market has grown with the huge rise in population, up 30% in the last decade alone. Typical in this region have been gated developments and condominiums growing mainly to the south of the city and spreading at an alarming pace in the empty land. The city or downtown area is well-established with some property dating back 100 years or more, broken up only by the high-rise developments which seemed viable during the credit bubble.

Construction of property can be standard construction, or more rapidly built units from pre-fabrication section. Use of wood in structural elements is often seen.

During the credit binge, Orlando was front and centre, financing and constructing homes to service both the local and tourist market. Depending on location and subdivision, property soared 200-300% from 1995-2005, unheard of growth rates in this market which has no scarcity value and seemingly limitless land in which to develop. Commercial development went just as mad. Business plans for “strip malls”, small malls by the road side took off. Some areas of the city boast 10 Taco Bell franchised outlets in a 1km radius. All sectors of the property market, even in downtown locations, could be said to be very over supplied.

In terms of pricing, let’s look at the price history of a high-end 2-bedroom apartment in the downtown district using the excellent zillo.com tool:

The graph shows that such a unit was being sold off plan in excess of 0k, now priced around 0k [or even cheaper navigating the foreclosure route].

In terms of rental potential, the downtown area enjoys solid demand. Around 00-2000 should be expected per month, bringing a healthly 12% or so yield.

Why would you buy this? Well, the current low capital value is compelling, as is the location of the unit in the downtown area which enjoys some degree of scarcity value. It is an interesting proposition.

Why wouldn’t you buy? Well, considering the lack of confidence in the marketplace, finance will be very difficult for the first few years of the hold. It should be best considered a cash purchase, so the power of leverage is not as easy here. Additionally, it really is not clear where capital values will go, but for a cash investor looking for a sustainable yield, this is a strong option.

The German Market

Over the last 10 years or so, property markets around the world have experienced rates of capital growth typically between 200-300%, fuelled by cheap and plentiful credit. There are few exceptions to this trend, one of them being Germany. Due to re-unification some 20 years ago, the property market in Germany, particularly in the old east, has been operating out of sync with other markets. Speculation by mainly western German buyers fuelled a boom which ended around 1996. As investors were chasing rents that were not achievable, the German market gave way and went into decline from around 1996 – 2001. This was the same time that most markets around the world experienced their greatest growth rates. Prices have stabilised in most areas from 2001 and shown some capital appreciation in certain areas, particularly the good locations in the bigger cities such as Munich, Hamburg, Frankfurt and Berlin.

Market Features:

The residential market differs considerably from other locations, with more robust tenant laws and longer typical residence times. Typically, a residential unit will be offered for letting totally unfurnished, without kitchen units, light fittings or even flooring. The incoming tenant will provide all their own furnishings and stay for a longer period, typically on average about 7 years. Tenants sign contracts of a defined period but are effectively on a lifetime lease thereafter, only needing to move out if they are not regular with their payments or the landlord (or close family) which to occupy the unit. Tenants must give 3 month’s notice to quit and will repair and decorate the unit to a good condition when vacating.

Finance for Nationals and international buyers is usually set around 60-80% loan to value. The level of finance depending on the client’s income and the rental value of the property. Typical interest rates are fixed for 5 or 10 years and around 1.3% above the Euro 5 or 10 year swap rate. So at present rates are around 3% for a 5 year fix and 3.8% for a 10 year fix.

Typical Prices:

Property, both commercial and residential tends to be priced per sqm and not by room or bedroom number. Therefore, investments can be easily compared by size, price and location. Residential property can be purchased either on a single basis or by purchasing a complete block of apartments. Purchasing a complete block tends to reduce the price per sqm paid. Some typical prices per sqm in the major cities, depending on size and location:

Berlin – 1.000 – 2.000 Eur psm
Frankfurt – 2.500 – 4.000 Eur psm
Munich – 3.500 – 5.000 Eur psm

Locations to the east of Germany (Dresden, Leipzig, Chemnitz for example) have properties in a good refurbished condition from 500 Eur psm. Remarkable value and the most undervalues market in the world according to the OECD. Location in terms of sustainability of rent is crucial in these locations.

As an example apartment block, below is a unit in Leipzig with 19 apartments. The purchase price is 420k euro and a yield of around 12% net is achieved.

Typical Yields:

In the same way that property is marketed for sale, rental property is priced per sqm. The rental is often broken down in to “cold” and “warm” rent, with the cold rent being the income to the investor and the warm rent covering all bills including ground tax and routine property maintenance. Cold rents start at around 4 Eur psm in the very cheapest parts of cities to the east of Germany with cold rents in cities such as Munich reaching 12 Eur psm and above in many cases. Yields range between around 5% for single apartments in Munich, Frankfurt and Hamburg to around 10-12% when bought as a block in cities such as Dresden, Leipzig and Chemnitz. Berlin offers the complete range of yields and is a very diverse market.

Running Costs:

Costs during ownership are transparent and are comparatively low. The majority of deductions to run the property are taken from the “warm rent” or ancillary cost and should not be included in yield calculations. This includes basic building maintenance, communal area cleaning, buildings insurance and property tax. From the net rent, apart from unplanned maintenance, the cost of letting management is the primary deduction. There are a variety of fee structures for letting management including a flat fee per apartment or a percentage of the rent collected. Letting management typically costs between 5-10% of net rents, depending on area and fee structure chosen.

Positive Investment Aspects:

Hands-off investment – long-term tenants, unfurnished propertyletting
Well regulated and robust tenant and property management practices
High rental yields possible, to fit all investor types
Good finance available, at competitive levels of interest
Reliable legal and land registry system
Transparent running costs

Negative Investment Aspects:

Robust tenant laws – a tenant cannot just be removed unless they do not pay rent
High purchase costs (between 10-12%)
High yielding properties can be subject to a forced sell and can be problematic to deliver

View on Market:

Very good yields, underpinned by strong legal system and high levels of finance. Capital values very low in comparison with anywhere in the developed world. Truly unfurnished property allows for significant holdings to be built up in a relatively “hands-off” manner.

Where Next??

In terms of property in Europe, beyond Germany, yield investors have very few options. Markets are either stable but producing yields in the 3-6% range, or falling in capital value and difficult to predict the floor. Markets across the Eurozone and UK have a few years to run you would say before re-entering the market for yield and stability in capital value. Places that have experienced huge capital falls, but stabilise well in the coming years [with increasing wages as a key index] should be kept in mind. The following locations could be worth noting in years to come, with capital falls experienced in last 3 years:

Lithuania [Vilinus, Kaunas] – 55% price fall
Latvia [Riga] – 70% price fall
Ukraine, Kiev – 55% price fall
Further afield, yields on 8%+ can be found in: Sao Paolo, Brazil 8.1%
Santiago, Chile 8.7%
Jakarta, Indonesia 11.1%
Kuala Lumpur, Malaysia 8.7%

The diligence here should include analysis of finance availability, interest rates payable and currency stability. No good getting a 10% yield when the interest rate is 12%, or if the currency weakens significantly during the period of your hold.

Good luck in your hunt for yield.

Do you have some extra cash? Are you looking out to invest that cash, so that you will get some great returns? Then no option can be better than the real estate investment. Meanwhile, in recent times, a recession has hit the market in a very bad way. The recession has created problems to the economy especially to the real estate market. It was the hardest hit in terms of investment properties. The value of homes and other types of properties fell drastically. Real estate has always been considered as the most stable investments one can make. Properties are real value for money if maintained properly. You can mint a lot of money in terms of returns. Real estate is a good investment as it develops discipline among investors and is not easily liquefiable. Moreover, if you do a proper real estate investing then you can be assured to get a stable monthly income. Therefore, real estate investment strategies are effective for many.

Most of the time an investment in local real estate is highly beneficial. As you are aware of a locality, getting a new construction becomes easier. You can also choose the best place to stay if you have local connections. It also becomes easier for someone to be in touch with an agent. Investing locally provides you an opportunity to understand the fine nuances of your community and especially city. Local real estate investments can really work wonders. Meanwhile, little research work can help in making intelligent investments. Enough know-how about the market can help you understand in which property you should invest. Undertake your own research to solve many problems which also helps in answering many hidden questions. Negotiate with your agent to avoid any future consequences. Real estate investing also suggests you to invest safely.

Building a new home can be a good deal if you are going for proper property investments. The foremost thing that you need to take care of is finding out the value of a house in your local real estate market before starting to build up your new home. A financial service provider provides its service on the basis of the way you are building up the home and also the reseal value of your new home. The housing market keeps changing dramatically and a thorough research will do all the needful to answer all your questions.

In order to do home sales or purchases, an agent can help you find the best as per your suitability and budget. Look out for various sites and find experts who’ll be ready to help you with buying or selling a real estate. Before building up new homes, get in touch with a real estate expert as he has the required information and knowledge along with experience in the related field. Be it a first-time home buyer or savvy real estate investor, all types of home buyers and sellers have unique requirements and should take the help of experts.

The real estate sell is lone anywhere a profitable investment is continuously to be found; somewhere amidst the foreclosure lists or dishonest inactive on a real estate agent’s desk. This leader aims to present you the background obligatory to allow you to bargain profitable investment real estate.

The original important to profiting from real estate is to bargain a highly motivated and urgent seller. The sense is so as to negotiate a cut cost on a portion of real estate requires the seller to like to get rid of their residence quickly or desperately. If you are conversation to an unmotivated seller on the give a buzz next it will soon be very release so as to you are not up for grabs to prevail on a discounted cost on this real estate. If the seller is unmotivated next you will be unable to negotiate a lucrative deal.

One counterintuitive aspect of real estate investment is to facilitate you normally nominate a profit what time you pay money for real estate and not what time you sell like hot cakes it. This way to facilitate, while at hand is often little you can look after to spread the survey of real estate; sellers are person and are often willing to negotiate their set a price. Saving money while selling real estate is the recipe to advertising homes representing a profit in the real estate advertise.

With the aim of in mind, your earliest step is to develop a tilt of real estate properties with the aim of you are allowing for investing in. You are vacant to need to observe around ten pieces of real estate or else you assiduous elect which single will be your chosen investment.

One beneficial practice meant for sourcing profitable real estate properties is to interview real estate agents; the intimates with the aim of profit from real estate on a day by day basis. Interviewing a real estate agent and ruling dazed if they own a few investment real estate they would be very beneficial. Remember, they will be more than willing to be interviewed for the reason that you are offering them your regular custom.

Real estate agents understand the bazaar “inside out” and can be a brilliant source of investment properties with low prices as others comprise not seen or understood the impending of them. After you create a well-behaved bond with about indigenous real estate agents you will typically receive a phone call all moment in time they notice a well-behaved property get a message to their desk. Remember, they receive a bunch in return in place of this bond as the more real estate with the purpose of they retail the more commission with the purpose of they earn.

Another very valuable method intended for sourcing horrible real estate deals is the purpose of foreclosure lists. All you give birth to make sure of is to search Google intended for “foreclosure lists” in your inhabitant area. Typically, you will give birth to salary a subscription fee to access this but it is beyond doubt worth the cost

At home order to profit from foreclosure lists with no trouble and quickly, chart these steps:

* Firstly, acquire the day by day foreclosure slant on behalf of your area and flip through the pages.

* Select the solitary the real estate to has been on the slant on behalf of a smaller amount than thirty days.

* Highlight the real estate to be contained by your make financial arrangements.

* Look particularly on behalf of real estate to is located in pleasant surroundings or attractive neighborhoods and solitary opt for properties to be contained by fifty miles from everyplace you live.

* Using the internet, access the narrow accuse records and get hold of the accuse attach importance to of this finicky slice of real estate.

* Also, search on behalf of the real estate in question on meritrealty.Org. This website is besides designed to allocate clues as to the attach importance to of real estate.

Once you retain pulled out a little prospective properties so therefore ask your real estate agent to take you pro a viewing. If you are ecstatic with this real estate so therefore hire a real estate property evaluator to reach inevitable so as to the lodge is structurally sound. This step is obligatory to ensure the price of your investment.

After this cape you will be in a spot to reach an offer on this real estate and to attempt to “buy low” in order to “sell high”.

Admittedly, ruling a profitable cut of real estate is mostly the product of a small amount of fiercely go to work. However, this article has situated you by the side of an enormous plus in the real estate sell. Also, the rewards of ruling valuable real estate articulate pro themselves. Buying an under priced cut of real estate can mean profits of tens of thousands of dollars.

Here we have four strategies which are fantastic, especially if you currently own negatively geared property. These strategies are so easy to do yourself and here is an example of just how easy it is. There was a gentleman called Jeff. Now Jeff had bought three negatively geared properties from a seminar. These properties had been purchased off the plan and were located in a place called the Docklands in Melbourne. Jeff had become concerned because these properties were not worth what he had paid for them and as a result, he was loosing $3,000 a month. We sat down, and went through some of the strategies which I am about to share with you, and he was able to turn these properties around from a $30,000 loss a year to a $70,000 a year profit. Wow. The most common mistake What 99% of people do when they go to sell a property quickly is that they discount the price. This is something which is not recommended. When you discount the price of your property, you’ll then find that your neighbour, who is also selling his house, discounts his price, then all the other people in your neighbourhood start discounting the prices on their properties and we end up with everyone fighting themselves down into a loosing market. The solution Rather than dropping the price of your property, one way you can increase interest in your property is to make it easier for what buyers there are in the market place to buy your property. You can also look at what things you can do to make it more enticing to buy your property as against your neighbour’s property. One way you can do this, is through creating ‘honeymoon periods’ on interest rates. If a person is ordinarily looking to purchase your property they will most likely be spending anywhere from 7 to 7.5% on interest rates. What if a buyer could purchase your property and only have to pay 5 or 6% interest? Perhaps even 4% for the first six months? This is the same as what the banks do. They create ‘honeymoon periods’ or ‘honeymoon rates’ which means that the person who comes to buy your property will find it easier to move into your property today than someone else’s because they are moving in at a discounted interest rate. It works this way: The seller can list the property with a real estate agent if that’s what they want to do, and when the agent sells it, the seller makes a concession to the buyer’s lender at settlement for whatever the amount was that you gave away in interest. So if you marketed the property at a 4% or 5% interest rate, then when the buyer goes to the bank to get his loan, the bank then needs to be compensated for that loss of interest. Despite this, you will find that when you transfer that discount over at settlement, the amount you are required to pay to compensate this lower interest rate will be considerably less than the amount you would need to discount the property by in order to sell it. The Perks This is becoming a more popular method to move properties quickly, as a lot of people realize that if they can buy your property now for 4% interest, then maybe they can also continue the payments on their car. They may even decide that by going into your property now, although it is only a low interest rate for only a short period, it gives them time to pay some other debts off, or they can spend the money they would have saved on some new furniture. Whatever they decide, it makes it easier for people to move into your property and the price does not become the issue. You will also find that if you charge the maximum retail price for your property and give people a subsidized interest rate to get into it, buyers would rather purchase your property than buy the property next door, where the guy has dropped the price by 30, 40 or 50 thousand dollars because, although your neighbour has dropped the price, it does not affect the buyers monthly payments by a whole lot. A little less now, can mean a whole lot later Delayed gratification will always give you a lot more money than it will to the people who want all the cash now. I was discussing this process with one of my students, John. John had a couple of houses and just completed a development. He needed to sell one of his properties as he was concerned that he was in a falling or a static market. If John was prepared to take delayed gratification, then he could get the price he wanted for his property. This meant that if John was prepared to not have all of the money now, rather get some in a week, some in six months and some in a couple of years, then in this way he was giving the market place a lot more flexibility on the payment and in return they would be willing to pay him a lot more for his property. John would also find that he would have a lot more buyers come through the door. This is your second strategy to create positive cashflow in a negative market. Here’s the example: You go to sell your property and you give your buyers the option of paying you 80% now and 20% later on. The reason why this strategy works so well is because of the way that finance works at the moment. Today, people have to come up with 20% or, as is the case in inner Sydney, 30% of the loan as a deposit. This is where you can step in and say to your buyer “How about you give me the 70% or 80% now and make payments to me of the other 30%. By doing this you are putting the market place in a position where they have to bring very, very little money to the table to buy your property, because the lender will lend them the 70% to purchase your property and the 30%, which is the difficult bit, usually the deposit, is the money which you are prepared to take later. You will charge them an interest on this 30%, but you do not need to receive it right now, and you protect yourself with a second mortgage situation. Essentially you transfer title and the buyer will pay you the 70 or 80% now and you would then collect the other 20% as an income stream over a short period of time, or a long period of time and balloon the balance in a year or two years if there is anything else outstanding. Another thing you can do is you can assign or sell those mortgages to cash yourself out. By using these processes you can sell that property for top price because you are making it easier for buyers to get into your property and you are prepared to take the money over a period of months rather than having it all today. These first two strategies require the transfer of the title of the property and this can be good when you want to sell it through a real estate agent because these are very common ways of completing real estate transactions as they include a standard sales contract with a standard seller and a standard buyer and the real estate agent can relate to these methods very easily. Another strategy where you don’t transfer the title of your property and keep control of the property but can move it very quickly is one which you might of herd of, where you are using vendor finance through an installment contract. It’s all about terms Installment contract is the new terminology for what was always known as the “terms” contract. A terms contract is where you have an agreement where you transfer possession of the property to the buyer and they take an equitable interest in the property. There is still and exchange of contract but you, the seller, are retaining legal title, and in the normal sense, you would transfer over legal title once the full debt has been paid to you. So you would have a contract that says, once you have made these payments, then the legal title will transfer. The buyer can finalise the transaction by either paying you a payment of what they owe you for the property, minus any previous payments they have made to you, or they can go on to sell the property to someone else and pay you out. In another instance they can re-finance and pay you out. A lot of the stuff that we do at my company, ‘We buy houses’ is sell a lot of properties where we says “You know what? You can make payments to me for 25 years if you want but after 12 months, two years or so, I need you to re-finance somewhere else. In this way, at least you can show me that you can make payments for the first couple of years, so we can then take this to the banks and this will make it much easier for you to re-finance into the banking system”. Everybody wins You will find that out of all of the people that want to buy properties, only 80% of people will be able to purchase a property the traditional way, so by offering your property on terms you are opening up to 100% of the market. You are also not just helping out home owners but you are able to sell to investors who have multiple houses and cannot get further finance the traditional way. Rick finds that a lot of his buyers are now investors as once they have bought three, four or five houses, the lenders will not lend them any more money to invest. These investors can come to you and buy properties because you don’t have any restrictions on how many properties people own. Your benefit is that you can charge the full price for you property, as long as you make it easy for these people to get in. Perfect Timing The fourth strategy is a strategy that is becoming increasingly common this year. This strategy is the Lease Option which then turns into the back to back Lease Option or Sandwich Option. The reason why Rick hasn’t really introduced this strategy until this year is because of the timing in the market. The best market for this type of option is where you have too many sellers and not enough buyers. When you have too many sellers and no buyers, price no longer becomes the issue, it more falls to the flexibility of the seller and the terms as to which he is prepared to sell his property. A Lease Option, or a Rent to Own, works in this way. The seller can turn around to a potential buyer and say “OK, you want to rent this property, but wouldn’t it be better for you if you could also buy the property?” You will find that the reason why most people rent is because they haven’t had the opportunity given to them to purchase a property, so if you give them the option, they can rent, and at the same time they can be buying the property. Now for you as the seller, people who are renting with the option to buy will pay considerably more every month than they will if they are just renting. Also if they are renting with the option to buy, you will get a better quality tenant that moves in, and you will also have a tenant that is more respectful of your property because at the end of the day, he hopes it will be his property. Giving your tenant the option to purchase the property will also massively reduce any vacancy you have and because it’s so easy to do, you don’t have to worry about having real estate people do this for you. Now there is another side to this. This is where you have a tenant who is in your property doing a Rent to Own and they then turn around and do a Rent to Own transaction themselves on the same property. This is where the Sandwich Lease Option comes in. Right now in this market place where prices are continuing to fall, it’s a really good strategy that when you buy a property, you don’t go and put all of your money into it. What you do, is you get a lease from the seller, with the right to buy it down the road. You might be finding right now that there are a lot of desperate sellers who are very open to the idea that if you can look after the payments they are making on the property then they are happy for you to rent the property and look after the payments and know that down the road, you will eventually buy the property for them. You agree upfront what price you will buy the property for. Then you can turn around, where there is someone who is happy to rent the property from you and buy it from you, and they are also prepared to pay more than you are already paying to the seller and purchase it at the end of a given period. Imagine you had a property which you were buying from a seller for $310,000 and you agree that you will pay $400.00 a week which will cover the seller’s debt service. The seller bought this as an investment property and then he lost his job so he had taken all of the financing out of his own home in order to buy this investment property and now he has no one living in it. As you could imagine, the seller was having all kinds of problems meeting the debt service. You could come to an agreement that you would look after the debt service and you would also look after all of the rates, insurance, tax and bits and pieces that run at another $52 a week. So you are taking care of this property at about $452 a week. You may be surprised how easy it is to find a family who is very happy to move in there on a rent to own for $505 a week, with the option to buy the house at the end for $322,000. You might be thinking now that there is not a lot of difference between the $310,00 which you are buying it for and the $322,000 you are selling it for, but there are a couple of things that you have in your favour. Firstly you pay no stamp duty to get into the property, there are very little legal expenses and you’ve written one cheque to the seller for $800.00 to put the deal in place. This one cheque of $800.00 has been your only investment to get into the house. So if you have only invested $800.00 and you have no bank loan, then you can be pretty happy with that. You also have $12,000 that you will receive at the end, along with $47.00 you are receiving in positive cashflow every week and you also have the right to do that for the next 4 years. The fundamentals There are a couple of rules you need to understand if you want to get out of negatively geared property. Firstly you have got to make it easy for someone else to get into it, and this is where most people get it wrong. They continue to drop the price of their property. Dropping the price of your property does not make it easier for me to get into your property if I cannot get a bank loan or I have no deposit. So this is where you need to get creative and make it easy to get people into your property. The other strategy which we spoke about is carrying back the deposit for people in the way of an Installment Contract, because if someone wants to buy your $400,000 property and require a 30% deposit, that means they need to have $130,000 cash, plus stamp duty and all those bits and pieces, and most people don’t have that much money lying in their bank. So if they can get their loan for 70% and you are able to carry back, a second mortgage for that 30% then they can make payments to you for that amount, and you can negotiate with them how much interest they will pay you for the 30%. You’ll also find that you have a house that you can market as 100% bank rates. 100% bank rates Another process you can use is to advertise your house for 100% bank rates. This means that what the buyer does not borrow from the bank, they are borrowing from you at the exact same bank rate that they are paying at the bank. So if the bank is lending 70% of the loan to them at 7.12% then the 30% they haven’t got, they can borrow from you at 7.12%. The great part for them is that there are no other houses in the whole suburb that they can walk into and have no money. And yes, if you were wondering, they do need to have good credit but you do not have to assess that, because the lender that lends them the first bit, the 70 or 80%, are going to assess their credit. If the bank is prepared to lend them the 70%, and the banks are a little more thorough with their credit checks than you can be happy to lend them the 30%. You will find this a very good way to move your properties on, and you can turn your negatively geared properties into positively geared payments. If you want to leave the real estate people out of it, you have the two other strategies we spoke about, with one being the Rent to Own, where tenants are given the option to purchase the property they are renting. You will find with your Rent to Own properties, that the extra bit that the tenants are willing to pay you is usually the difference between you being negatively geared or positively geared. That’s an important point to remember. You might be wondering now why people would pay up to an extra 50% of the normal market rent. Well you can offer the tenant that an amount out of the rent which they pay, you will contribute X percent or X dollars towards the purchase price when they buy the property. You will find that just so long as people know that it is not lost money and, if they decide to buy, then a percentage of the money that they pay every week will go towards the purchase price of the property, they are happy to pay a higher rent. You can usually have a rough idea of what they are paying you every week or every month on this Rent to Buy, above the standard rentals, and that is the bit which you can offer back to them if they decide that, later on down the road, they want to purchase the property. The next process is for Installment Contracts or Wrap around Mortgages. This is where you create a payment stream where people pay you money to get in. It can be $10,000, $5,000, or even $1,000. Whatever money they can offer you as a deposit, and you might be surprised by the amount of cash that some people have lying around. The balance of what they don’t have, you get the solicitors put the paperwork system together so that they can make payments to you every month. You can even get all these payments collected by the real estate agents, so you don’t even do this part yourself. They make the payments on the underlying mortgage, they pay the water rates, the council rates, insurance. They pay absolutely everything and just send the positive cash flow to you when it is all done. Qs and As There are a lot of questions that come up about some of these strategies, how to put them together, and what they should consider. I would like to share a couple with you. How much discount do I want? You may often ask yourself, “How much discount do I want?” The answer is that you want what you can get. The other day, a house went at an auction for $250,000 where only one person bid; so that’s what the house went for. That house was pretty close to being worth $300,000. If it had of been an ordinary sale and someone had said “I’ll give it to you for $250,000″, wouldn’t you be happy to pay $250,000 and not get any discount. If it had been a $300,000 offer, you might try to get a $40,000 discount. So how much discount you go to get on your houses or home unit is dependent upon what is being offered to you and how close it is to the right price. If you sell a property and you want to get out tomorrow, you would significantly reduce the price of the house, just to get out, so there really is no negotiating room in the price. You just need to research your neighbourhood or a particular suburb you are looking to buy in, and there is no fine line. There is no “Take of 20 or 30%”, because if the seller has already taken off a whole bunch and you are trying to get another 10% it is not necessary if you already have the deal. A lesson you will learn as you complete more of these deals is not to push too hard when you already had the deal. Once you have your formula and you have your deal, stop pushing. If your formula has allowed you to get the profit you need, stop. Sometimes you can keep pushing for another $5 or $10 and the whole thing falls apart and you are lying in bed at One O’clock in the morning thinking “Gee there was $50,000 profit in there but I had to keep pushing for that last $5″. How much money should I add to the price? People often wonder how much money they should add to the selling price of one of their rent to own properties. “Should it be a percentage or how much extra should I charge?” The thing is that the market place will let you know. The market will determine what they are willing to pay you and how much you will get for the property. Here’s what we do know. If you make it easy for people to buy properties just like the government made it real easy when they introduced the $7,000 first home owners grant, it brings a whole heap of people into the market and opens it up to almost everyone. You want to do the same sort of thing. If you make it easy for people to get into your property, they will pay you more for it, than the traditional way. Whenever you sell properties this way you can be sure that you can get more for them. How much more? That’s hard to determine. If you wondered what the rule was, I would tell you that whatever the retail price of the property is, you can always go another 5%, well somewhere between 5% and 10% above the market value. It’s really just about putting your sign out the front and seeing how you go. The market place will let you know how much you can sell your property for. You don’t get to decide how much you want to sell your property for. The market place decides. What do I negotiate? People also ask what to negotiate when you purchase a property. If you go to buy a property and you can’t speak directly to the seller, you ask the agent, “Would the seller like to sell his house today? Or would he rather sell it in another six months?” “No he wants to sell it today” they say. “Well I’m here with my cheque book ready to buy a house today. Which one of your sellers would like to sell their house today?” In the old days agents didn’t like to bring the vendors in to see buyers and that was fine, but the market has changed now, and we are finding that vendors are so keen to get out of these properties because they more often than not have had they’re property for months, just sitting there unsold. You might also find that so much of the negotiations are not about the price, but the terms on which you buy it. Now with any vendor you could argue all day long to get a discount from $300,000 to $290,000 or $280,000, but if the vendors are going to go and live over seas for five years, then you can propose that they create you a 30 year mortgage and you can make the payments to them for five years and pay the balance at the end of that five year period. Now, if you are paying no interest and 100% of your payments are directly going towards the principal amount, then the amount you will save in interest is much, much more than if you were to get a $10,000 or even $30,000 discount. These are the type of things you couldn’t do in a hot market. Rent to Owns are also very easy to negotiate these days. You can just go to the seller and say “Hey I don’t really have my finances in shape, how about you rent me the property for the next three years and I’ll give you the price you need at the end” Then you just need to work out the rent. Sometimes it’ll be equal to what the sellers payments are, sometimes it will be the standard market rent plus 20%, it doesn’t really matter what the amount is, because you are going to then put up a sign which says “Rent to Own”, where you will set up this transaction with someone else and collect a rent which is more than the rent you are paying to the seller. This transaction is all about controlling properties without owning them. What ever happened to Jeff? How did Jeff turn those properties around? Jeff ran some ads in the paper while he was in Sydney for his properties in Melbourne. So, Jeff ran some ads, people went to see his houses in Melbourne and he got a phone call the next day from someone who had a deposit but couldn’t qualify for a bank loan because they had had some issues with credit in the past. He was happy to pay the asking price for Jeff’s property as against having no property at all. And the best part? Jeff was able to do this all himself without having to fly back and forth to Melbourne to complete the deal. So if you have a negatively geared property, you don’t need to drop the price and cut your losses. You can use these strategies to turn your negatively geared properties into positively geared payments. You can get creative and at the same time open your property up to 100% of the market. Hopefully you can take this information and start to make some serious cash and if you have any other questions or you want some more information on some of these strategies, you can log onto my website at www.rickotton.com where you can sign up for one a seminar or send me an email.

Investing in Dubai has always been seen as a gamble by investors but now a old school type of Real Estate Investor has re-emerged, the old school overseas property investors are set to return but as an executive points out that it will be to a different type of international real estate investment and they are buying into Dubai not just buying Dubai’s properties.

The UAE officials were stating that the talks between its conglomerate Dubai World and its creditors regarding the reduction of $24.8 billion of debt will be going well, and there will be no more major corporate restructurings to happen again.

The importance of this debt repayment is very high as the old school international investor is more focused on Dubai’s financial status and long-term development plans rather than its dream or quick returns.

Based on the Colliers International Q1 2010 House Price Index, it recorded a 4 per cent increase in the property prices since 2009. For this reason, the confidence in Dubai’s residential property market is shown once again.

Small but certain proven data and signals is what is need to show that Dubai is coming back online, Investors need to know and believe in the plans of Dubai for the next ten years to see how the country and economy is planning to develop.

Rumors about a rethink at the old laws and having a more international legal system across Dubai are good signs and show progress. Dubai already has an International level of legal practice in Dubai International Financial Centre (DIFC) which is also a freezone that allows 100% foreign ownership.  However other freezones or the rest of the UAE do not have this legal system and relay on the local civil system to settle their disputes.

Additionally there are talks about changing and reducing the local sponsorship rules where a Dubai local citizen holds 51% of a company and the foreigner often the actual owner and investors holds only 49%.

If these are being looked at then Dubai will attract international businesses and with their staff and financial muscle.

Zuber Mohsan CEO of Sandcastles Property Portal said that “It is not only Dubai that has been facing the challenges recently Abu Dhabi property has also had issues. In Dubai, the vacancy rates are high, while prices are dropping. In fact, the prices have dropped almost 50 per cent however during the last half of 2009, they showed signed of stabilizing and have since gradually increased in some areas.”

Mohsan went on to say “There are key hot spots within Dubai like in any City, The Palm Jumeriah The Burj Kalifa and Dubai Marina are all areas where property prices are stable. It is in these unique areas that international and local investors are looking to acquire property, not for a quick return but over a five to ten year plan.  Dubai has had it’s peak, now is time for the government to look ahead and tell the world what their plan is to keep Dubai growing and attracting foreign businesses.

 

Since the credit crunch mortgage lenders have drastically changed their lending criteria, making it virtually impossible to make money from property.Previously it was quite easy to buy a property, add some value to it (by refurbishing or decorating it) and then re-selling or letting it out for a tidy profit or a nice monthly residual income.Things are really different now; lenders (the few that are left) require a 50-75% deposit on a purchase, a squeaky clean impeccable credit history and for the buyer not to be over exposed. So if you have, say, a few properties, you may be considered as a high risk because of the fear of over exposure (particularly as property prices are steadily going down in value) resulting in negative equity.So let’s take a look at a scenario. Let’s say you want to purchase a property on a Buy To Let. The property costs £250,000, a deposit of between £62,500 and £125,000 will be needed. You may if you are lucky get a positive rental cash flow of £100 – £150 per month. Ahem, excuse me if you had a spare £62,000 or £125,000 lying around I’m sure you would put it to a much better use than to invest it for a measly return of £100 per month.So the question is, what should one do?Is there another way to make money in UK property in this current economic down turn?What about buying a property, (since the prices are low at the moment), doing it up, renting it out for a few years and then selling it when the prices go back up?Well, in theory that could work but property prices will most likely go down further before they go up. Economists are saying that even when the prices go back up they would perhaps only return to the prices of 2007, not only that it could take another 7 years before that happens anyway.What can we do in the meantime?Surely there must be another way?Is there another way?The answer is yes!One must find buyers, buyers who are prepared to buy UK property regardless of the economic climate. Buyers that are in the property game for the long haul, buyers who are prepared to sit it out for better times.Simply find these buyers, ask them what they are looking for and find it for them.

With the property markets now under-going correction from their highs in 2006-2007 across most of the developed world, and savings rates at an all-time low, cash-rich investors are seeking returns on their capital like never before. Gone are the days of investments baked with the expectation of capital growth, investments now need to “stack up” in terms of cashflow from day 1. That’s not to say capital values are being ignored, far from it. Investors increasingly seek stable investments that provide a measurable and regular return. So markets should be in some sort of equilibrium in terms of supply versus demand, and capital values holding steady. In many ways then, conditions are back to normal in many respects for serious portfolio landlords.

So where are yield investors looking today? Working on the ProVenture team, we get to talk to yield investors every day from across the world and it is interesting to pick up on trends in their strategies. We hear about where investors have placed their hard-earned cash in the past, and where and why they are looking to invest in the coming years. Inevitably, many of the investors we speak to are focused on Germany as a place to invest for the coming years as this is our main area of operation as property consultants. But increasingly, we discuss investments in eastern Europe, other parts of western Europe and the USA as viable investment locations.

Let’s look at some different markets and find out what is drawing investors to them at this stage of the economic cycle.

USA

What an interesting market to look at, as we write this piece in August 2010. The USA is the home of raw capitalism, and this harsh approach applies to the property market in much the same way as the money and equity markets. Despite the assets in question being people’s homes and security, they seem exposed to harsh write-downs more than other countries, and this brings sorrow and hardship for those shielding loses and inevitable opportunities for investors.

Taking a historical perspective on the market, we see that the USA has typically had an average level of owner-occupation between 1960-1990 of around 60%. Home ownership was a realistic aspiration for many, but not an imperative like in other markets such as UK or Spain where owner-occupation rates have been as high as 85-90%. This led to, in most locations, a stable market to invest within and a ready supply of short to longer term tenants. The credit bubble of 1996-2006 changed all this.

During the period of low interest rates, sectors of the population who up until then could not aspire to home ownership at their stage of life, if at all, entered the market on “teaser” loans, affordable for the first few years of the loan but become crippling as the loan rates reverted to usual market rates or higher. This greed on lenders parts, and their shocking lack of due diligence into individual’s ability to pay, had a now famous global effect. Currently, 14% of the population are behind on mortgage payments or are in foreclosure. This is an average, and some markets have double this rate. That’s 9 million homes in trouble, double that are households sitting on negative-equity. So where are we now, and is the USA a place worthy of investment research? It is safe to say, the market is still largely bereft of confidence and sharp declines have been felt pretty much across the board. But are there areas that have suffered steeper declines than are justified?

Well, the USA is a huge market. Let’s focus on one city, Orlando [Florida] as a case study.

The Orlando region derives much of its economic power from tourism, business conventions, medial and hi-tech research and the “grey dollar” or those retiring to the warm climes from more northern states or from abroad. The property market has grown with the huge rise in population, up 30% in the last decade alone. Typical in this region have been gated developments and condominiums growing mainly to the south of the city and spreading at an alarming pace in the empty land. The city or downtown area is well-established with some property dating back 100 years or more, broken up only by the high-rise developments which seemed viable during the credit bubble.

Construction of property can be standard construction, or more rapidly built units from pre-fabrication section. Use of wood in structural elements is often seen.

During the credit binge, Orlando was front and centre, financing and constructing homes to service both the local and tourist market. Depending on location and subdivision, property soared 200-300% from 1995-2005, unheard of growth rates in this market which has no scarcity value and seemingly limitless land in which to develop. Commercial development went just as mad. Business plans for “strip malls”, small malls by the road side took off. Some areas of the city boast 10 Taco Bell franchised outlets in a 1km radius. All sectors of the property market, even in downtown locations, could be said to be very over supplied.

In terms of pricing, let’s look at the price history of a high-end 2-bedroom apartment in the downtown district using the excellent zillo.com tool:

The graph shows that such a unit was being sold off plan in excess of $400k, now priced around $200k [or even cheaper navigating the foreclosure route].

In terms of rental potential, the downtown area enjoys solid demand. Around $1800-2000 should be expected per month, bringing a healthly 12% or so yield.

Why would you buy this? Well, the current low capital value is compelling, as is the location of the unit in the downtown area which enjoys some degree of scarcity value. It is an interesting proposition.

Why wouldn’t you buy? Well, considering the lack of confidence in the marketplace, finance will be very difficult for the first few years of the hold. It should be best considered a cash purchase, so the power of leverage is not as easy here. Additionally, it really is not clear where capital values will go, but for a cash investor looking for a sustainable yield, this is a strong option.

The German Market

Over the last 10 years or so, property markets around the world have experienced rates of capital growth typically between 200-300%, fuelled by cheap and plentiful credit. There are few exceptions to this trend, one of them being Germany. Due to re-unification some 20 years ago, the property market in Germany, particularly in the old east, has been operating out of sync with other markets. Speculation by mainly western German buyers fuelled a boom which ended around 1996. As investors were chasing rents that were not achievable, the German market gave way and went into decline from around 1996 – 2001. This was the same time that most markets around the world experienced their greatest growth rates. Prices have stabilised in most areas from 2001 and shown some capital appreciation in certain areas, particularly the good locations in the bigger cities such as Munich, Hamburg, Frankfurt and Berlin.

Market Features:

The residential market differs considerably from other locations, with more robust tenant laws and longer typical residence times. Typically, a residential unit will be offered for letting totally unfurnished, without kitchen units, light fittings or even flooring. The incoming tenant will provide all their own furnishings and stay for a longer period, typically on average about 7 years. Tenants sign contracts of a defined period but are effectively on a lifetime lease thereafter, only needing to move out if they are not regular with their payments or the landlord (or close family) which to occupy the unit. Tenants must give 3 month’s notice to quit and will repair and decorate the unit to a good condition when vacating.

Finance for Nationals and international buyers is usually set around 60-80% loan to value. The level of finance depending on the client’s income and the rental value of the property. Typical interest rates are fixed for 5 or 10 years and around 1.3% above the Euro 5 or 10 year swap rate. So at present rates are around 3% for a 5 year fix and 3.8% for a 10 year fix.

Typical Prices:

Property, both commercial and residential tends to be priced per sqm and not by room or bedroom number. Therefore, investments can be easily compared by size, price and location. Residential property can be purchased either on a single basis or by purchasing a complete block of apartments. Purchasing a complete block tends to reduce the price per sqm paid. Some typical prices per sqm in the major cities, depending on size and location:

Locations to the east of Germany (Dresden, Leipzig, Chemnitz for example) have properties in a good refurbished condition from 500 Eur psm. Remarkable value and the most undervalues market in the world according to the OECD. Location in terms of sustainability of rent is crucial in these locations.

As an example apartment block, below is a unit in Leipzig with 19 apartments. The purchase price is 420k euro and a yield of around 12% net is achieved.

Typical Yields:

In the same way that property is marketed for sale, rental property is priced per sqm. The rental is often broken down in to “cold” and “warm” rent, with the cold rent being the income to the investor and the warm rent covering all bills including ground tax and routine property maintenance. Cold rents start at around 4 Eur psm in the very cheapest parts of cities to the east of Germany with cold rents in cities such as Munich reaching 12 Eur psm and above in many cases. Yields range between around 5% for single apartments in Munich, Frankfurt and Hamburg to around 10-12% when bought as a block in cities such as Dresden, Leipzig and Chemnitz. Berlin offers the complete range of yields and is a very diverse market.

Running Costs:

Costs during ownership are transparent and are comparatively low. The majority of deductions to run the property are taken from the “warm rent” or ancillary cost and should not be included in yield calculations. This includes basic building maintenance, communal area cleaning, buildings insurance and property tax. From the net rent, apart from unplanned maintenance, the cost of letting management is the primary deduction. There are a variety of fee structures for letting management including a flat fee per apartment or a percentage of the rent collected. Letting management typically costs between 5-10% of net rents, depending on area and fee structure chosen.

Positive Investment Aspects:

Negative Investment Aspects:

View on Market:

Very good yields, underpinned by strong legal system and high levels of finance. Capital values very low in comparison with anywhere in the developed world. Truly unfurnished property allows for significant holdings to be built up in a relatively “hands-off” manner.

Where Next??

In terms of property in Europe, beyond Germany, yield investors have very few options. Markets are either stable but producing yields in the 3-6% range, or falling in capital value and difficult to predict the floor. Markets across the Eurozone and UK have a few years to run you would say before re-entering the market for yield and stability in capital value. Places that have experienced huge capital falls, but stabilise well in the coming years [with increasing wages as a key index] should be kept in mind. The following locations could be worth noting in years to come, with capital falls experienced in last 3 years:

The diligence here should include analysis of finance availability, interest rates payable and currency stability. No good getting a 10% yield when the interest rate is 12%, or if the currency weakens significantly during the period of your hold.

Good luck in your hunt for yield.