Do you dream of owning property in a tropical paradise? Do you know the essential steps you must follow to truly prosper by investing in the right international resort real estate project?
Knowledge combined with a solid plan can make the difference between a strategic and smooth decision-making process leading to a successful profitable transaction and an ongoing headache (and heartache) project that never pays off.
Most people don’t realize how affordable and accessible beachfront and resort property can be; however, it’s critical to do your homework before you commit to anything.
The first steps are all about getting educated. This part of the process will likely be the most time-consuming and the most valuable.
Resort real estate can be very profitable and may offer significant tax and lifestyle benefits. It is important to be clear about your financial strategy and risk tolerance on the front end, since every project and opportunity will present unique risks and benefits.
How would you hope that owning international real estate would impact your lifestyle? Is it appealing to you to benefit from the tax advantages and lifestyle of visiting your investment property periodically as part of your investment management plan? Or, do you simply want to enjoy a second home in a beautiful beachfront resort and know you have an appreciating asset? Would you be greatly disappointed if a project took five years to be completed, when you were hoping for two? Be clear about what you want.
Buying raw land and building a home or a project of any scope often offers the highest return potential hand-in-hand with the most risk (Think 500 – 1000% ROI, over a three to eight year period, assuming everything goes exactly as planned–which rarely happens). Investors who buy into a development project in its earliest stages will benefit from lower prices and will assume more risk than those who purchase just prior to construction or after construction has started. The safest bet (and the highest cost) is usually found with completed construction. Not to say there are not risks with purchasing finished homes; however, the risk of the developer running out of money and not completing the project, the risk of permits being denied, or the risk of an extraordinarily slow building process are mitigated when the building is already completed and ready to move in.
There are several trends, which have led to the popularity of resort investment, but perhaps the most significant trend is that baby boomers are hitting financial peaks in their careers and are also inheriting substantial sums of money from their parents. More and more Americans are flocking to resort-like cities. Kenneth Johnson, a senior demographer at the University of New Hampshire’s Carsey Institute said, “You get the wave of the baby boom, which is bigger than the wave before it, and on top of that, the baby boomers are more likely to purchase these second homes, or amenity homes, or move to these areas. And so you get, essentially, a demographic perfect storm.”1
A “demographic perfect storm” seems like a compelling argument to invest in a resort location, but you must decide if this asset class is a good fit for you. Also, you will need to decide if you will pursue raw land, pre-construction, completed construction, or rehab projects. This is largely a decision based on risk tolerance and desired timeline.
If you have determined that international resort real estate does in fact fit your investment strategy, risk tolerance, and life goals, it’s time to begin investigating potential geographic markets. Factors you might want to consider first include the political and economic stability of the country, the year round climate conditions, the policies and attitudes towards foreign investors, and ease of travel to the country. If you are starting your search for prospective investment markets from scratch, the Internet is a good place to begin. There are an abundance of global real estate portals, packed with information, including http://www.escapeartist.com, http://www.globalpropertyguide.com, http://www.overseaspropertymall.com, and http://www.viviun.com.
This market investigation process will inevitably lead to the discovery of multiple projects in your desired geographic market that warrant further research.
Conducting adequate due diligence on each project under consideration will help mitigate your risk exposure. At minimum, you will want to understand how property management will be handled, investigate the builder/developer’s background and track record, and verify that property title and permits are in place. It is also important to know the exact location of a project and its immediate surroundings. For example, a project may be located in a beach town, but its proximity or access to the beach may be less than ideal.
Visiting the real estate market you are considering, getting a feel for the community (if one exists), meeting face to face with the developer and seeing the exact location of your prospective projects is one of the best ways to conduct due diligence. Plus, you’ll likely have a lot of fun exploring the area.
At this point, much of the research and education process is completed; however, there are still important steps to take. You’ll need an international real estate team including an international tax attorney or CPA, and a possibly an attorney in the market you have chosen. Financing options, tax implications, impact on cash flow and net worth all need to be considered. Always look at the worst-case scenario, and make sure you can “wait it out” should that become necessary. Know your exit strategy options.
Once you have narrowed you search down to one or more properties or projects, Review all purchase contracts and payment terms with your attorney. Be ready to walk away if you don’t like the terms and conditions offered in the contract. Make sure that everything in the contract is clearly stated.
Now you are ready to commit to and finalize your deal by signing the contract and submitting payment. If you have found a good project, you will have a new asset to add to your portfolio and you will have a beautiful property to enjoy.
1 ‘Amenity Migrants’ Alter Life In Resort Towns, by Daniel Kraker, Aug. 19, 2008, NPR