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Investing in Real Estate

Okay, in this short series of blogs we have already spread our interests quite widely, but I need to remember that what started this excursion was a question about investing in real estate in Spain or Portugal.

When we are looking at investments, one of the best in the recent past has been real estate. However, that is not always the case. Let's look at just a few mistaken beliefs.

In the 1890s real estate was the worst investment possible. Before that investing in property was not even possible for the vast majority of the population. In fact, things only became as they now are in the late sixties when 80% plus mortgages became available to a rising middle class.

It is a hackneyed saying that house prices always go up, which is simply not true. There was a serious crash in house prices in 2008, mainly in the USA, but there were repercussions all round the world as markets are truly cosmopolitan these days. Twenty years before that there was another crash. Back then I was buying properties for as little as 3,000. I bought two over the counter using a debit card.

I bought a property on the sea-front in St Leonards fully furnished for 21,000. Three years previously it had been bought for 54,000.

Buying real estate is no different from buying anything else, you should strive to buy low and sell high. Most people do the opposite because they aren't very bright or they simply can't do the maths. I make a lot of money from people who aren't very bright.

I have written a book about how to do this properly. If you want to take these points further you really should read it, I cover all the important points about investing in real estate. If you pay attention to what I say in those pages you will never go wrong. And purchasers can contact me any time with questions they have about anything I've written in that book. I will give a link below to purchasing the book. This blog is merely scratching the surface.

Here are some of the points you need to take note of before committing yourself to buying a house anywhere.

Remember that if you live in Birmingham and know Birmingham prices, you won't necessarily know Southampton prices. There will be areas of Birmingham that will be cheap, and areas that will be expensive. You need to know which is which, and realise that there will be similar differences in Southampton. Do you know those differences?

Now take that idea to a foreign country. The average idiot buying property in Albufeira looks at the prices and thinks they are cheap because they are a lot cheaper than buying somewhere near Egham. Of course they are. There is a reason for that. There are two issues at work here.

First: Egham is just a bus ride into one of the largest and most sophisticated cities on the planet. Albufeira by comparison is a dump.

Second: Just like Birmingham and Southampton, there are two distinct types of property you can buy in Southern Europe. There are the houses the locals buy, and the houses brain-dead tourists buy. The latter can be anything from two to ten times more expensive. One of the most outrageous differences I came across was when I was advising a client on buying in a neighbouring town (Lagoa). A Portuguese friend had just bought a new house, and invited us round for drinks. A few days later my client took me to see a new apartment. Oddly, it was only about 150 yards from my friend's new house. I thought it marginally poorer quality, but it was being sold to a tourist for four times the price my Portuguese friend paid.

At the same time I was helping purchasers buy properties in Northern Portugal. My clients were buying properties for approximately 130,000. Just down the road properties exactly similar were being sold only to foreigners through foreign estate agencies for three times the price. The world is full of idiots. There is no reason why you should join their ranks.

When buying a house abroad ask yourself several questions:

1  What are the prices of houses for sale in the private ads in the local newspapers. Set them against the prices in estate agents' windows.

2  Ask yourself what the average wage is in your chosen locality, and work out what price the locals can afford to pay for an average house. Fix that price in your brain. That's your base price. Anything better than base should cost more, but how much more?

3  Remember that one day you will have to sell. Who are you going to sell to? If you bought at tourist prices you will have to sell to a tourist or lose rather a lot of money, that cuts your market size quite considerably. Why would you want to do that? Always try to buy somewhere where there is a large local market with a good mix of paid jobs. Most tourist markets don't have that. I live in the Algarve, the average wage is about 1,000 a month. You won't be selling to locals.

4  If you've come from a home close to a prosperous town in Northern Europe you will be expecting a certain standard of living, people around you with skills, a lively social milieu, and a rich cultural life. The Algarve will have wonderful weather, but life will not be as rich and varied as back home.

5  Sadly, there are problems with the weather, but I will deal with them in a later blog.

6  One thing most people forget is that in buying real estate abroad, they are investing in that country. Time and time again I have advised people to never, never, never buy in Turkey. No-one listens. They rave about the weather, the coastal strips, and the cheapness of the property. Well, what can I say? Now you know why it's cheap. Only, of course, it wasn't cheap, it was ridiculously expensive because the place is a mess. Have you looked at the value of the currency recently? What was it when you bought? I could lend you a handkerchief to cry into, but do remember, I told you so.

In this respect I remind you that when I first came to Portugal in the sixties. There were 65 escudos to the pound sterling. When the country moved to the euro twenty years ago the exchange rate was 315 escudos to the . That's one hell of a hit on the value of your tourist apartment.

7  When making a decision about buying abroad have a clear idea why you're buying it, and how you will deal with selling it when you change your mind. The usual reason is because your partner dies and life suddenly becomes rather different.

Next week I will try and be a bit more specific about the countries. I know Portugal and Spain rather well. I have lived most of my life in Spain, and have lived for the past twenty years in Portugal. I know both countries very well indeed.

Here's the link to my book on real estate.

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