This Is How You Make Real Money From Real Estate Overseas
Yesterday, Kathleen Peddicord laid out
the phases of development an overseas property market moves through
as it finds its way onto the world’s radar.
As she explained, each phase attracts different kinds of buyers and different kinds of end-users and presents different levels of opportunity for the would-be real estate investor.
Get in on a new market in Phase 1, and you’re well ahead of the curve. You’re buying in at ground-zero pricing.
You’re also taking a risk. Not all markets become global hot spots.
Puerto Vallarta and Manzanillo in Mexico, for example, both enjoyed strong growth after being featured in blockbuster movies. However, while Puerto Vallarta evolved into an international destination, Manzanillo fizzled out after an initial surge of interest.
In the case of Puerto Vallarta, the flick behind the furor was “The Night of the Iguana” starring Richard Burton and Ava Gardner. Burton brought his wife, Elizabeth Taylor, down to the location with him… and the world’s paparazzi followed to chronicle the drama that ensued.
Overnight, the former fishing village was transformed into a jet-setter’s dream destination.
Today, Puerto Vallarta is a fully fledged resort town and one of the world’s most established expat and tourist destinations.
It was Bo Derek who shone the spotlight on Manzanillo. The whole world drooled over this city’s long stretch of beach when they saw Bo running down it in a barely there swimsuit.
In this case, though, the buzz didn’t stick. Development didn’t take hold as it did in Puerto Vallarta. In the case of Manzanillo, the early-movers turned out to be the only movers.
That’s the risk of getting into a real estate market in Phase 1 or even Phase 2.
Of course, the risk can pay off big if you’re investing for the long-term. Had you bought the US$10,000 beachfront lot on the island of Ambergris Caye, Belize, that Kathleen recommended some 30 years ago (and reminded us about yesterday), you’d own a bit of sand currently worth US$500,000.
Today, the property market on Ambergris Caye qualifies as Phase 5.
The sweet spot for the global property investor is Phase 3/Phase 4.
Invest in a market at this stage of development, and you’re avoiding the level of risk of a Phase 1/Phase 2 investment… but still buying in early enough to position yourself for big potential upside.
Which Phase 3/Phase 4 markets have our attention right now?
Here are four:
#1: Fortaleza, Brazil
This market has enjoyed local attention for years. It’s a favorite destination among the expanding Brazilian middle class.
Historically, international attention has been minimal. However, now new air routes are opening up to improve access to the Fortaleza airport from Europe and North America. Increases in the numbers of foreign tourists to the area will follow.
Meantime, rental yields are good, and prices are excellent thanks to a weak real.
#2: The Dominican Republic
The Dominican Republic is many different markets, some much more mature than others.
In this country, you also find some stalled markets—that is, places that have spent a long time stuck between Phase 2 and Phase 3. Prices have risen, but the location has not enjoyed the benefits that usually come from Phase 3 (improved amenities and infrastructure, for example).
Las Terrenas has been an up-and-coming market for some time. This is still a great option for a place to live or retire in the Caribbean, but I see other places on this island as better choices for the investor shopping for short-term upside.
The economic growth this country continues to enjoy is translating into a healthy market for short-term business rentals in the capital, Santo Domingo. Prices are low, and financing is available.
I see this as an opportunity that will continue for the next few years. Specifically, the play is to buy a high-quality pre-construction apartment with the goal of renting it to visiting businessmen.
My recommended beach play in the DR today is the Punta Cana resort area. I see this as the next Cancún. Right now, the Punta Cana region is part Phase 3 and part Phase 4. Some areas are highly developed for the international expat and high-end tourist while others still attract the backpacker crowd. You can find great opportunities targeting both these end-users. Just understand what you are buying.
#3: Abruzzo, Italy
Historically the focus in Italy has been on Tuscany and Umbria.
Abruzzo offers the same sun, beach, and countryside… without the brand-name cities like Pisa and Florence. That reality creates an opportunity to buy the best of Italy at extremely undervalued rates.
In fact, you could categorize Abruzzo as more Phase 2 moving into Phase 3 rather than a market firmly in Phase 3. And the question is whether Abruzzo will ever attract enough interest among non-Italians to see real growth in property values.
A farmhouse under the Abruzzan sun for less than 100,000 euros, though, can be a tempting idea regardless.
#4: Portugal
In Portugal, localized areas in Lisbon and the Algarve have seen high rates of appreciation over the last few years. Those areas today fall into late Phase 4 and Phase 5.
However, elsewhere in this country is shifting from Phase 3 to Phase 4 and ripe for investment right now. You just have to know where to look.
In the Chiado region of Lisbon, for example, per-square-meter prices can match or surpass those in the best neighborhoods of other major European cities like Rome and Barcelona.
Beyond this area, though, you still can find great opportunities. Take a look at Restelo or Ajuda.
In the Algarve, look beyond Lagos and Carvoeiro, which have been enjoying foreign investor attention in recent years, to Tavira and farther east.
Lief Simon
