International property investment advice from our expert Alan Forsyth
Latest Property Investment Advice
Brought to you weekly by our international property expert, Alan Forsyth.
Posted on 17 January 2007
Understanding Opportunity Cost
Hi,
Hope you are well – and keeping to the New Year resolutions!
In this week’s newsletter, we have an article on “Understanding Opportunity Cost”, a free currency report for you for all those looking to invest overseas, and some positive news on Bansko, in Bulgaria.
Understanding Opportunity Cost
Understanding the Opportunity Cost of any decision you make is critical – to ensure you make the best choices to maximise your profits, and ultimately your long term earnings.
While most investors have got involved in property investing because they understand the opportunities to make money - through leverage and capital growth or high yields - I still see and hear of many who do not fully understand opportunity cost and therefore do not maximise their profits.
Remember anyone that gets into property is usually in it to generate money or income – how many deals/properties you own is insignificant – but I meet some investors who feel it is all about buying as many properties as they can and never selling, irrespective of performance or other opportunities.
So what does opportunity cost mean?
Well according to the encyclopedia,
“Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity foregone (and the benefits that could be received from that opportunity), or the most valuable foregone alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.”
So in property investing terms, if an investor decides to invest £50k in a property in for example Wales, the opportunity cost would be what he could have made by investing in Spain, Ireland or Dubai. Or similarly if an investor decides to keep equity of 50k in a property, the opportunity cost is what he/she could alternatively have invested this money in and the resultant value.
Now again this will depend on your specific strategy – and many people are not too concerned about opportunity cost, they are just keen to buy 1-2 properties that they can hold onto for 15-25 years to use as a pension. That is fine if that is your strategy – but for me that is too broad a strategy, carries risks and is not maximising the opportunities available.
I have always had a philosophy, rightly or wrongly, that I should always be working my money hard. What does this mean? Well as soon as I feel my money has made a significant return and the returns are likely to drop off, compared to other possibilities, then I will look at realising my profits and investing elsewhere ie when I feel the opportunity elsewhere is greater than the current opportunity, after costs are taken into account.
The great thing with property is this does not necessarily mean selling, as you can refinance, and invest money elsewhere.
This is no different to any other type of investing, such as buying stocks and shares – you make/lose your money depending on what price you paid, and what price you sold at – although clearly with property there is a good opportunity to earn a regular income as well. If you hold onto a property for 15-25 years you will make money, but most likely there will be a few scares along the way, as the market passes through several cycles!
To be a successful investor, you must know when to enter the market, and leave the market. And the people that do best buy low, and sell high!
For the rest of this article, go to
http://www.property-investment-tips.com/Opportunity-Cost.html
So, in conclusion, what does this mean for a property investor?
Well, I would say always be looking at your equity/investments and looking at how well they are performing. If you have money tied in a property that you think will go up in value over 15 years – but may not go up for the next 5 years, is this the best place for your money?
It is no different to the stock market, you must keep an eye on market movements and other opportunities.
By working your money hard, and maximizing potential leverage, you can maximize the opportunities out there.
Bansko
Bansko, the ski resort in Bulgaria has had some positive news recently.
While some ski resorts in the new EU countries have not been updated, Bansko has seen Ulen, a wealthy Sofia-based investment group, update the facilities and build a €130m lift system along with a new village at the foot of the mountain with luxury hotels and apartments.
The improvements have lured the German Kempinski hotel group into lending its name to a new five-star hotel in prime position on the edge of the piste, the Hotel Grand Arena.
While the roads to the resort from Sofia still need investment, when you get there everything is modern and efficient. There is a gleaming new Doppelmayr gondola takes 25 minutes to transport you up to the start of the 65km ski area and a further network of half a dozen modern chairlifts rising to 2,500m. Even in high season, the area attracts considerably fewer skiers than bigger name resorts in other countries.
Any ski resort clearly has to have snow and Bansko has the best snow record and the longest ski season (mid-December to mid-May) of all the Bulgarian resorts. The skiing is surprisingly good, with the lower runs through the trees and open bowl skiing at the top of the area, which during my visit offered fresh tracks in deep powder.
So worth a look, as still some excellent value, in particular if you are looking for an excellent value place for yourself.
Free Currency Report
Just a quick reminder about our Free Currency Exchange Report - important for anyone looking to invest overseas.
We have a free 12-page educational report for all our subscribers outlining:
The facts about currency exchange so that you don’t get ripped-off,
How the Banks make HUGE profits from their long-standing unsuspecting customers,
Ways to safeguard yourself against adverse fluctuations in exchange rates (or in other words, helping you to keep your money in your pocket),
The entire process of moving money from the UK to any overseas location, so that you're armed with all the knowledge you need to make intelligent decisions about your money,
How you can ultimately save £100’s and £1000’s so that you have ample money to buy furniture and white goods,
Case studies of people that lost money due to foreign currency strengthening against the pound, so that you learn from other people’s mistakes rather than your own!
To get this free report, simply fill in the box below, and we will email out.
All the best with all your investments,
Regards
Alan
Return to Alan's home page
About Alan:
Alan Forsyth is a full time property investor from the UK. He runs the website www.property-investment-tips.com
which gives free, independent investing tips to investors. This site, www.property-investment-deals.com is designed to run alongside
his original website, and will give in more detail his recommended property deals, and full details/pictures of any new deal on offer.