3 common mistakes a foreign real estate buyer makes to generate rental income

Why do you need an apartment abroad? For own use or to generate income.

This is obvious, but many overseas property buyers seek to combine the two goals and fall into what mathematicians call 'intersection of sets.' Simply put, they want to live in their apartment and receive income from its rent.

What happens next

First mistake. The combination of two goals - part of the time to live and part to rent - leads to the fact that the purchased housing does not bring a constant stable income. It is rented from time to time to acquaintances or through a local agency, and for much less money and much less often than you expected at the beginning. As a rule, realtors who zealously persuade the buyer that it costs him to buy an apartment and the rental income will flow like a river, are not ready to take on any guarantees. For example, to sign a contract for a certain number of years and a fixed amount of income (I do not consider options like '2 years at 5 percent' as income. This is, as a rule, a veiled discount).


Often, realtors themselves do not know whether they will rent out your apartment or not. Moreover, the realtor always focuses on selling apartments, not renting them. The first brings income, the second brings a headache. We doubt the existence of a realtor who, having abandoned all his sales, will start independently and actively engage in renting out your apartment. Sales - first of all, rent and other are carried out on a residual basis.

Conclusion: don't get fooled by pretty words. A guaranteed, albeit somewhat lower, income is better than the most rosy, but unsupported forecast.

The second common mistake is to consider the property being purchased for the purpose of generating income based on whether you like the apartment. The tasks should not be confused: investment property should bring a guaranteed income and this is the only reason why it is interesting. There is no need to live in it. As a rule, stable rental income is brought by long-term tenants, that is, those who live in this country permanently and most likely work. They look at rental properties and their location in a very different way than a tourist. Look for projects that are in demand from locals or expats living in the city. They (long-term) will treat your apartment more carefully than tourists and will provide you with a constant and year-round income. And with this income you can rent yourself the house that is exactly to your taste. In any city and in any country, that is, without being tied to the place where you have real estate.

Conclusion: you shouldn't like investment property at all. The main thing is that it brings a guaranteed income.

The third mistake of a would-be investor is to hope for an increase in the value of real estate purchased at the stage of construction. Let's consider a typical example. You are buying an apartment in a building under construction. The realtor tells you that by the end of construction the price of your apartment will be 20% higher. In doing so, he speaks the truth. But not all. The developer will really raise prices after putting the house into operation. This is a common practice, the goal of which is to attract a buyer with a cheap price at the earliest possible stage of construction.

What happens next? If you bought a typical apartment in an apartment building, then either by the time the construction is finished, the developer will have unsold apartments similar to yours, or (which is very likely) other apartments in the same complex will be put up for sale at the same time, the buyers of which also fell for ' Rise in prices by 20% '. You will not be able to compete with the developer. A buyer with an equal price will prefer to buy from the developer. In addition, the realtor's commission is already included in the developer's price, but you will have to share 5 or even 10% of the cost.

You also have to compete with other sellers. As a result, you will have to reduce the price and return, at best, to the purchase price, and as a rule, even sell at a loss.

Conclusion: do not expect to make money on the rise in prices. That's great rarity.

In conclusion, I would like to add that all of the above does not mean that buying real estate in resort countries is not worth it. It just makes sense to clearly understand for what purpose you are purchasing such housing. If for investment - choose real estate with guaranteed income. Or buy for yourself and don't think about profitability. Did you manage to make money? Perfectly! Let this be a nice bonus. After all, investing in yourself, in your comfort and health is the best investment!

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