International Real Estate Investment | Eye on Worldwide

First Day back at School

Posted on 31. Jan, 2009 by The Property Dude in Buying Abroad, Investing Abroad, Owning a Property Abroad, Selling Your Property Abroad

Entering the classroom as a mature student was a little daunting but not having needed to set the alarm for 5.30 and get to my desk by 7.30 I was surprisingly awake, especially compared to my fellow alumni!

Our valuation lecturer arrived, wrote on the blackboard 2% then turned to us and said that for long term property investment you will be searching for properties that give a guaranteed 2% capital appreciation. He then went on to explain his concept of ‘guaranteed’ which was based on the ’safe as houses’ maxim. Rentals are another matter he said and I will only tell you how to value rental income not advise you on rental theory.

Anyone still reading this can imagine the trouble I get into when quoting this to ‘flippers’ looking for quick profits. There are currently an alarming number of investors scouring the property market looking for 40% discounts off of bank valuations, unfortunately our mark-up is so much lower than this we still have villas for sale (anyone prepared to offer a 40% discount send me your details and I will pass them on or make an offer myself), my question though runs like this ‘how does someone offer a property at 40% below bank valuation?’ what is their secret? is the bank really valuing these properties accurately or are they taking suggestions from agents!

Of course there are cases where this is possible;-
1. The owner is selling at a loss. Very sad but sometimes necessary to cover a position or collect funds for a more lucrative project.
2. Fluctuations in currency exchange rates, complicated to persuade banks that a spot exchange rate should be utilised for lending in one currency on a property in a second currency, please dont ask me for details as it is not my area of expertise.
3. Property that has been held in a landbank for long enough to outperform the market.
4. Hidden defects or substandard materials, lets hope none of us end up with one of these on our hands.

This list is not meant to be exhaustive but show that against all my common sense it is possible.

So where was I going with this? Caveat emptor, why would someone sell for 40% below a bank valuation, in our experience visiting sites that are ‘too good to be true’ usually are.

Back to the point, yield is proportional to risk, ah yes that’s where I was going, at 40% you would expect one in three to go a bit ‘pear-shaped’, now thats okay if you are doing hundreds but if you are only planing on doing a handful do you really want that kind of risk, especially if you are doing this with borrowed money and may well end up with negative equity on a number of units that you then have to offer at massive discount and pay the bank off out of your hard earned capital.

So at the end of my first day blogging (my friends would probably say ranting and my wife would call it boring) I shall contradict everything above and say – search for huge profits, you wont find them unless you look, and finally, this market is a property investors dream.

thepropertydude@hotmail.com

Tags: bank valuations, banks, capital appreciation, common sense, currency, currency exchange, exchange rates, flippers, fluctuations, investors, lecturer, mature student, maxim, profits, property investment, property investor, property investors, quick profit, safe as houses, spot exchange rate