If you’re a foreign investor looking to invest in real estate, or even someone looking to buy real estate in an unfamiliar part of your own country, you’re probably wondering how, or if, to start researching a foreign market. You’ve likely heard the three most important factors of real estate value ‘location, location, location’.
Location is absolutely a primary driver of real estate value. But what about the location is driving the value?
Macroeconomic & Political Considerations
Before getting into the specifics of a property location, let’s look at some macro factors. In the location you’re researching, you should be concerned with:
- Is there reliable data available? In countries like the US and UK, there is reliable government data readily accessible online. In China, academic institutions may be a good source, and data from local media may not be as reliable
- Does the country have a stable business environment? Generally, is there enough stability and rule of law that you won’t lose an investment due to corruption or other events?
- How friendly is the business environment? Are there high taxes and onerous laws? The US is extremely litigious, with so many laws to adhere to that professional local advice should be sought prior to purchase
- What is the GDP growth in the country? The Philippines, for example, has quietly had a top-performing GDP growth for years now
- What will drive growth in the future? Canada may take in more wealthy immigrants and benefit from higher energy prices, both driving income, and job growth while providing a stable business environment
- Will you be able to get your money out of the country when the time comes to sell? Capital outflow restrictions are often in place in countries like China
- Does your home country have any tax treaties with the foreign country to avoid double-taxation?
- What is the exchange rate?
There are a lot of considerations for investing in a different part of the world, or even a different part of your own country. Be sure to take appropriate precautions.
Once you’re comfortable with a country to invest in, you’ll want to examine individual regions, city’s, and neighborhoods. Find some reliable data sources. In the US, city-data.com has useful information that’s pulled from a variety of government sources, as well as some individual sources. There are plenty of other sources too, but be sure to validate where data comes from.
Things to look out for:
- Growing population & income levels
- Low, preferably declining, unemployment rate
- Friendly business environment
- Laws friendly to landlord’s and absentee owners
Read the local news and research to get a sense of what’s happening in the city. For example:
- Are companies investing and opening up offices or warehouses?
- Has crime been declining?
- Has the city been having trouble collecting taxes? Is the city on the verge of bankruptcy? (investing post-bankruptcy can sometimes be a great long-term play)
Evaluate The Neighborhood
After completing preliminary research, look for some projects or properties that interest you. Run the numbers and check if it fits your goals. For commercial multi-family, here’s an article to walk you through evaluating numbers.
Once you’ve selected a regional location and a sample property, examine the neighborhood around the sample property. Look at Google Maps and see what’s around there. Use Google Street View or another source to go up and down the street. Does it look like people take care of their properties? Are there abandoned properties? Is there construction happening? Check Trulia for the local crime rate.
For a specific property, specifics of the location that will factor into the price include:
- Access to transit (close proximity to subway stations will drive up value in North America for convenience reasons, but drive values down in the Philippines due to noise pollution, for example)
- Proximity to amenities such as shops, restaurants, and other entertainment
- Local school districts (housing contained within top-performing school districts in China or the USA will positively impact property values)
Talking with someone local who has real estate experience will be key to determining what drives value in the area.
At some point in the process, you’ll also need to talk with local people to validate what you’ve seen. A trip to the property to look around is the best way to talk with locals, and validate what you read. Find real estate agents, property managers, and landlords to talk with. Then, have a few conversations with gas station attendants, waitresses, and anyone else that spends a lot of time in the area. Most people are happy to share their knowledge.
Investing in real estate in a foreign market can be very lucrative if done correctly. It’s also a great way to diversify your investment portfolio. However, it’s also risky. If you aren’t comfortable, walk away. However, be brave and believe in your research if you’ve found that next great deal.
Feel free to contact me with any questions.