Interested in investing in international real estate? Here we break down the steps you need to understand and navigate local markets, then pinpoint high growth deals and transform them into profitable properties...
Today, guys, we're going to walk you through our investment process — how we choose high potential neighborhoods, check market prices, identify property prospects, attributes of specific deals, and all the way through to tax optimization.
1. Choose the neighborhood
While we wouldn't normally I wouldn't invest in real estate in Thailand, we thought we'd look at an example neighborhood to give you a sense for the process.
We were recently passing through the Charoen Krung neighborhood in Bangkok, which is an up and coming area where a lot of the old shop houses are becoming cool little cafes. There's tons of new bars, restaurants, and art galleries. Not to mention, it's in a prime location being right smack along the waterfront.
It's quickly apparent that the neighborhood has a lot of really nice amenities going for it, and those are the types of things we're looking for. We're asking ourselves — do people want to spend time here? Is this going to be a neighborhood that's set to get even better in the coming years? Can we envision an upward trajectory?
And we're not trying to shoot five years out. We want to see this progress happening within the next one, or two years.
2. Check market prices
Once we've identified a promising neighborhood, such as Charoen Krung, we want to begin looking at property prices to get a sense for current levels and recent trends. This is ultimately the basis of our ROI, so we need to be certain we're getting in at the right time to hit our target returns.
Additionally, we want to make sure that we have our capital in hand. If we end up finding a deal, we want to be sure that we can move quickly on the deal. If you're serious and you see something that meets your criteria, perform your base level diligence and push to close ASAP before it gets snatched up by another savvy buyer.
3. Identify property prospects
We also want to be identifying cheaper, under-priced properties. Sounds obvious, but how do we actually do that? If you have an agent that you work with and trust, then great — but that's
More often than not, we'll walk around the neighborhood first-hand, to get a feel for the area and see what kind of unoccupied units we can pinpoint.
For example, in another city we had our eye on a property that was like unoccupied for well a year, and we brought that lead to the city registrar to find out who actually owned the property.
In many cities you can find out who owns the property at the local government office. In this case, we called up the person, and pitched them an offer. It made sense, and we arrived at a sale price around 30-40% under market prices for the immediate area.
One other (possibly controversial) practice is to look for folks that may have recently passed. If you can pinpoint these instances, what will often happen is their children are taking over the property, and they're interested in quickly liquidating it.
One thing to avoid — any and all slick looking English language website for foreigners. We've seen these typically list prices at around a 40-50% premium. Here in Thailand, one of the main sites for foreigners is Hip Flat, which is entirely in English and looks slick with tons of polished photos. Forget those!
You want to find websites in the local language and that have horrible pictures and descriptions. Again, in Thailand those would be sites like DD Property and Prakard. On these, you'll see that sometimes people could be selling $1 million piece of property, and there's one half photo which you can barely see. This is is precisely what you want as it discourages other prospective buyers and generally reduce prices.
4. Cashflow from property
Next, we need to figure out how much cashflow are we can get from this unit or building. There are a lot of ways to look at this, so best to start with just narrowing in on one area...
You can be in longterm rentals, you could be into Airbnb rentals, or maybe you're just into build, repair, flip. Pick one, and go with it!
For example, a friend is a Superhost on Airbnb, which he's had some great success with. He runs his units close to max capacity, and these can be running at 30%, or 40% profit margins.
Whereas here in Thailand, something like long-term rentals are only at about 4%-5%.
But if you are considering something like short-term rentals, then you've got to look at how many units. For instance, one of our buildings has 12 units in it. So you can scale a lot of things like maintenance, management, and cleaning costs across all 12 units.
The economics obviously look much different if you're managing all of that overhead for just a single unit.
Next, in figure out what ranges of actual cash flow we might be able to get, we'll start with researching directly on Airbnb to get a sense for historical prices on comparable units in the area. It seems painfully obvious, but a lot of people don't actually put in this basic research.
Once we've kind of established the cashflow, we can work backwards into what properties we can buy. For example, if we need to make a 30% margin or a 20% margin on an Airbnb property, then we know we need to have so many properties to pull it off. That'll also help us gain a picture for upfront expenses to operate at that scale.
5. Tax optimization
Tax optimization is another massive part of the entire equation as that will ultimately effect your marge, both on regular cashflow as well as eventual sales proceeds.
If you pay 40% capital gains, all of a sudden all your profit is lost!
Once again, we have some posts and videos about how to minimize taxes you pay on real estate — How to Pay ZERO Taxes on Real Estate.
From finding the right neighborhood to closing the deal
We've looked at how we evaluate neighborhoods — what are the amenities, is on the waterfront, are tourists coming, are there new up and coming cafes, bars, art galleries, etc...? From there, we dive into price levels for the area, research and identify individual prospects, assess cashflow potential, and formulating our tax strategy around the deal.
Remote Ventures is an international real estate investment company building software to help you scout foreign markets, find up-and-coming neighborhoods, identify and analyze properties, close deals, and turn them into cash-flowing investments.
Sign up for our free 12-week real estate course here — realestate.remoteventures.com
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