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Tips For Buying An Overseas Vacation Home
A majority of us have dreamt of owning an overseas home at home point in time. Owning a home overseas represents a different way of life, in a sun drenched tropical location that is teaming with activities and plenty of things to see. For many of us, owning real estate overseas is a dream that we all look forward to at some point in our lives.
If you have been considering buying a home in a foreign land, there are some things you should be aware of. Anytime you decide to buy a home in a far away land, there are traps and pitfalls that you need to be aware of. If you are aware of these pitfalls, you'll go a long way in securing your home safely and securely.
If you want to buy overseas real estate for the value, you should always keep in mind that real estate fluctuates some months the value may go up, while other times it may go down. Not all countries have the same real estate economy, which makes it in your best interest to look into the economy before you buy a home. This way, if you are buying for the value, you'll know whether or not your purchase will be profitable.
Legal systems are also something you should be aware of as well. Different countries do things differently, which is why you will need to look into the different legal systems before you decide on a property. The last thing you want is to purchase a home and find yourself totally unaware of how the proceedings go in the area you have chosen.
If you are buying your home to make some extra money, such as using it for a vacation or holiday home, you should always pay attention to the accessibility factor. If you plan to visit the home yourself for vacations, you'll want to make sure that your property is easy to reach. If your property is hard to reach by automobile or plan, it will decrease in value and popularity over time. On the other hand, if your property is easy to access, it will be great for you and anyone else you decide to rent the property out to.
If you want the process to go as smooth as possible, you can always enlist the services of a real estate agent. Even though you may be buying an overseas home, a real estate agent will know the area and he can answer any questions you may have. Chances are that you aren't familiar with most overseas areas, which makes a qualified real estate agent a very worthy investment. Your agent can also make recommendations based on what you are looking for and show you the homes that you wouldn't be able to locate without his services.
Real Estate Appraisal For Rental Properties
Real estate appraisal for rental properties isn't the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Therefore, a market analysis using comparable sales isn't normally used.
It is also not ideal to use replacement costs either. How do you figure replacement cost if there is no land for sale nearby with proper zoning? This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying.
Real Estate Appraisal Using Capitalization
Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization rate, and this is what you use to accurately appraise an income property.
Start with the gross income. Subtract all expenses, but not including loan payments. If a building's gross income is $82,000 per year, and the expenses $30,000, you have a net before debt-service of $52,000. Now apply the capitalization rate to this figure.
If the common capitalization rate is .10, for example (ask a real estate agent), divide the income of $52,000 by .10, and you get $520,000. This is the value of the building. If the usual rate is .08, meaning investors in the area expect an 8% return, the value would be $650,000.
Easy Real Estate Appraisal?
Net income before debt-service, divided by the "cap rate:" It really is a simple formula. The tough part getting accurate income figures. Is the seller showing you ALL the normal expenses, and not exaggerating income? If he stopped repairs for a year, and is showing "projected" rents, the income figure could be $15,000 too high. This would mean the building is worth $187,000 less (.08 cap rate) than your appraisal shows.
Another thing smart investors do when buying, is to separate out income from vending machines and laundry machines. If these provide $6,000 of the income, that would add $75,000 to the appraised value (.08 cap rate). Do the appraisal without this income included, then add back the replacement cost of the machines (probably much less than $75,000).
Be careful when using any real estate appraisal method. No formula is perfect, and all are only as good as the figures you plug into them. Used wisely, though, real estate appraisal using capitalization rates is one of the most accurate methods.
The Truth About Rent To Own
Most of us are very familiar with the term 'rent to own'. Places such as Prime Time and Rent A Center have built an empire with rent to own merchandise, although the buyer normally ends up paying double what the merchandise is actually worth. While this may be great for those who have bad credit, most of us prefer to avoid going this route. Homes are no exception, especially if you are buying a home on a rent to own basis.
Even though rent to own may be good for a short period of time, it proves to be an expensive way for someone to buy something they intend to keep. Rent to own merchandise for example, may sound quite compelling at a few dollars a week. The agreement is normally for around 15 - 20 months, which is where the company makes their money. Although you may be paying just a few dollars a week, the total amount quickly adds up to nearly twice the cost of the item.
Along with paying rent, you'll also have to pay applicable sales tax as well. Like merchandise, rent to own real estate has it's disadvantages. Even though it can be great for those with not so great credit, you'll normally end up paying back a lot more than you would with a mortgage. You'll still have to pay back your lender with a mortgage, although that amount won't be nearly as high as it would if you decided to get a house on a rent to own basis.
In most cases, rent to own houses are put up on the market by the owner. This way, you'll deal directly with the owner. It will start out as a traditional lease, then proceed to a rent to own basis if you decide you want to keep the home. You and the owner will then work out an arrangement, which will normally be quite a few years. Some owners are very flexible and will work with you just to get the price they want for their home, while others will charge you quite a bit more, in order to make a hefty profit.
If you have bad credit and can't get approved for a mortgage, then rent to own would be your next best option. Although some don't like to do it due to the price, for many it's a better alternative than an apartment. With rent to own houses you are paying money towards the home, instead of just paying rent. In some cases this is fine, although you should make sure to double check with the owner before you agree or commit to anything. This way, you'll know how much you'll be paying for the home - and for how long.
Investing In Real Estate
When you are first starting out with investing in houses, you should always look for ugly or bad houses that need a lot of work. These homes are much cheaper to purchase, although they will take some work to improve. You should start out by looking for houses that need some work, such as clean up, painting, and in some cases new carpet. You don't want to buy something too run down, as it could cost a fortune to repair.
If you think of yourself as a handyman and feel that you can do the repairs yourself, you can save a lot of money. On the other hand, if you need to hire someone, you should always make sure that the individual or company that you hire is qualified to do the repairs. If you aren't comfortable with doing any of the repairs, you should inquire about a subcontractor or company that will do it for a reasonable price, or perhaps a share of the money once you have resold the house.
If the house you are thinking to purchase and resell has any type of structural problems, you should always get an estimate from a reliable contractor before you make the purchase. If you decide to stay in the business, you'll learn a lot more over the years, although you should always hire a contractor when you first start out. Once you get all of the estimates together, you can make that final decision on how much of an offer you want to put down on the property.
After you have a team together and successfully renovated and resold several homes, you'll begin to feel quite a bit more confident with buying homes that need repairs. All it takes is time and practice - and you'll be buying homes that the average investor wouldn't think twice about. This can be a huge advantage when you are looking for homes to buy and resell, as there will be less competition to worry about. You'll also be able to get a lower price when buying the home, simply because you can use the cost of the repairs to your advantage.
Once you are able to do repairs on homes, including structural problems, you'll have a huge advantage in the market. You'll be able to buy virtually any home, including those that other investors choose to ignore. Doing so can be very profitable for you, especially if the house is in a well known and well desired neighborhood. After you have done the repairs, you can resell the home for a much higher price than you paid to acquire the home.
When you start looking for houses that you can repair and resale, you should always take your time and buy the right homes. You won't have the money, time, experience, or support to buy the bigger houses at first, which means you won't have any room for mistakes. Once you have purchased and resold a few smaller homes, you'll eventually be able to work your way up to the bigger homes - which is where the big profits will come into play.
Always keep in mind that when you first start out, you'll need to take things slow. You can expect profits to come overnight, as it will take you some time to learn. Once you have been at it a few years and have several houses to your credit, you'll be ready to tackle anything. At that point - you'll make a lot of money in a career that is truly exciting.