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AUGUST 2 0 0 7 Issue 7 LETTER FROM THE EDITOR H O T O F F T H E P R E S S Events, announcements and news from around the region. Que Pasa? C O U N T R Y F O C U S : HONDURAS An Interview : With His Excellency Lifestyles:An Education in Friendship Expats : The Anatomy of a Transpat Consumers : The Retail Therapy Call Opportunities : Investments & Jobs S P E C I A L F E A T U R E S Conference : Wholesale Investments Grenada : First Carbon Zero Tourist Nicaragua : Surviving a Papagallo Guatemala : Teco Tours & Thermal Panama : Cockfights v.Sesame Foam Under Tobago : Protecting the Reefs P I C K O F T H E M O N T H Utila, Honduras Waterfront Homes Costa Rica Gated Community Villas Honduras Sale Affordable Business

S P E C I A L F E A T U R E S

The Biggest Real Estate Investments Are Made At the Wholesale Level
By Leif Simon

An investment in real estate, like any other kind of investment, can be made at two levels: the “retail” level and the “wholesale” level.

Investing at the retail level is as simple as buying a piece of property posted in a real estate agent’s window or on an agency’s website.

Retail investing can be easy, quick, and even profitable. But it’s not likely to make you rich. The most prosperous investors find their way to the wholesale side of the equation.

THERE ARE FOUR WAYS TO MAKE MONEY WHOLESALE IN INTERNATIONAL REAL ESTATE

In short, there are four ways to make money wholesale in international real estate.

First, and probably easiest both to find and to get in on, is pre-construction (called “off-plan” in much of the world outside the U.S.).

“Pre-construction” means you are purchasing from the developer at his best price by making the buy before construction of a home or apartment is completed…or, indeed, before construction is begun.

The earlier you buy, the better the price you should be able to get, for the developer will increase his prices in stages as sales and construction progress. Remember, though, as I remind my readers again and again, you’re buying what you see. In other words, if you buy before construction has begun…you’re taking the risk that nothing will be built.

Indeed, in Panama City, recently, at least three big pre-construction projects have been aborted. Early-in investors may or may not get their money back.

Typically when investing pre-construction, you make an initial deposit between 5% and 20%. Over the construction period, you then make additional staged payments depending on the developer’s schedule. Normally, you will have paid for 50% to 70% of the property price by the time construction is completed. The balance is paid when you take delivery of the property.

However, typically, as an investor, you don’t want to take delivery of the property. You’ve enjoyed a leveraged investment during the construction period (typically 12 to 24 months). If you’ve bought into a growth area where property prices are increasing even, say, 5% a year, you could, as a result, double your investment by buying into a deal where only 10% is required as a deposit during a two-year build.

The risk is increased with a leveraged investment, of course, though. To maximize your potential profit and minimize your capital investment, you have to sell your unit before you’re required to close on the property. But what if you can’t find a buyer when you need one?

To protect yourself, you should arrange for a mortgage (if possible, pre-qualify yourself with some lending institution) in case you don’t find a buyer and must complete the purchase.

This type of pre-construction opportunity can be found in most active markets.

The keys to a good buy are location and quality of development, both of which are critical to being able to resell your sales contract before having to close on the purchase.

MAKE SURE YOUR CONTRACT ALLOWS YOU TO RESELL BEFORE COMPLETION

Also, very important: Make sure your contract allows you to resell before completion. Some developers contract against this in an effort to minimize speculation.

Hard lending

The second way to invest wholesale in international real estate is to lend money to a developer. This kind of loan is called a “hard money loan” and is common, as developers often prefer to borrow from individuals rather than banks to obtain funds quicker and to avoid being required to give personal guarantees to a bank. Plus, of course, in some markets, bank financing simply may not be an option for a property developer.

For this kind of investment, you, as the lender, are protected by a lien on the property.

Typical hard money rates range from 15% to 30% and can go as high as 50% depending on the project and the market. Repayment periods are short, as developers want to pay the loan back quickly to minimize their interest expenses. Look for repayment within 12 to 24 months.

HARD MONEY LOANS ARE USUALLY SOUGHT BY DEVELOPERS WITH SMALLER GET-IN, GET OUT PROJECTS

Hard money loans are usually sought by developers with smaller, get-in, get-out projects—for example, renovations, condo conversions, and small land developments…projects where less than, say, $1 million in total is required.

For this type of investment, you want to do due diligence on the developer to make sure he can complete the development as he represents.

You also want to assess the risk of the project…for, even though you hold a lien on the property, you don’t want to be put in the position of having to foreclose, of course, or of being forced to take possession of the property. Better to make sure the developer has the wherewithal and the resources to follow through.

Fund a developer

The third way to buy wholesale into the global property market is to put money with a developer, taking an equity stake in a planned development project.

Big developments usually need more money than can be raised easily from individuals. These developers can go to large funds (pension plans, for example, or venture capital groups), groups interested in deals requiring more than $10 million, say.

This leaves a window of opportunity for individual investors to get into deals requiring between $1 and $10 million, for the groups that could easily fund this level of capital typically won’t consider them. Developers, therefore, need to go to the individual level to raise capital for projects in this range. These smaller developers may or may not have extensive development experience, which means your due diligence must be greater than if you were buying a pre-construction condo, for example.

While these developers need individual investors, they don’t usually want to minimize the total number they have to manage. Minimum investments typically range from $50,000 on the low side (sometimes you can find deals with a lower minimum but not often) up to $250,000 or more depending on the size of the project. Most common minimum is $100,000.

FINDING DEVELOPER DEALS, BOTH HARD-MONEY, LENDING AND EQUITY OPPORTUNITIES, IS'NT EASY

Finding developer deals – both hard-money lending and equity opportunities – isn’t easy. Developers don’t usually advertise in local papers (in many countries they can’t advertise for equity investors), and the deals with the best risk/reward relationship get funded quickly.

The best place to inquire about these opportunities is real estate attorneys in the countries where you are interested in investing. These attorneys will be dealing with developers as clients and hence know when they are looking for funds.

Accountants and real estate agents are the next best places to inquire for direct developer opportunities. Again, developers would be using their services, so they would be likely to know of guys looking for funds.

Other consultants that developers would use may also know of opportunities.

Basically, the key is to establish a network of contacts in the countries where you want to invest. Once you get a network working for you, the opportunities will appear.

Buy raw land for the biggest upside

Finally, if you’re in the market for a wholesale-level investment, you could buy raw land in the path of progress in a developing market. This is probably the most challenging and risky choice…but it also can come with the biggest upside.

To buy land anywhere is a challenge. The locals have the upper hand in knowing what farmland trades for among farmers. They also know all the rumors and facts for future infrastructure projects. Buying land at local prices takes research and persistence. If you don’t speak the local language, you have to find a local finder to help with the leg work. Even if you do speak the language, a local finder can be a great advantage. In Latin America, when the locals see a Gringo, the price they ask is immediately higher—maybe twice as much.

A local real estate agent can be used as a finder, but if he isn’t well-connected, you will still probably pay more than you have to. Still, a local agent can be the best bet for most people, as finding a local you can trust and who is bi-lingual to work as a finder for you isn’t easy.

IF YOU CAN BUY LAND IN THE PATH OF PROGRESS AT LOCAL PRICES, YOUR OVERALL RISK IS GREATLY REDUCED

If you can buy land in the path of progress at local prices, your overall risk is greatly reduced. Often, you can lease the property to a farmer while you wait for progress to arrive and prices to appreciate.

Should progress not arrive as expected (or at all), your downside is that you have to resell. If you paid the local price for the land, you ought to be able to sell on again at the local valuations and make whatever minimal appreciation occurred while you held the property.

Should the progress come as you expect, then your upside can be 2, 3, 5, or 10 times your purchase price or even more in as little as a few years. Decide to develop the property yourself, and your return on investment can be even higher.

Predicting the path of progress isn’t a science…and getting in before too many other investors have figured it out isn’t easy. Still, the upside is great enough that, depending on your level of confidence in your prediction, you could make an excellent return even if you have to pay a small premium to the local prices.

I’ve spent the past decade investing internationally at the wholesale level…seeking out the best early-in and equity-level real estate investments around the world. Over those 10 years, I have created a database of developers and real estate investors who are on the ground finding the local deals and doing the developments.

I HAVE INVESTED IN 16 COUNTRIES ON 5 CONTINENTS

I have invested in real estate in 16 countries on 5 continents. Until last year, I was editor of the newsletter Global Real Estate Investor, in which I told my readers of the best places in the world to put their real estate investment dollars—at a wholesale level.

For example, my readers invested early after the crisis in Argentina and saw appreciation of 100% in less fewer than three years.

I also told readers to invest in a project in Mexico where they are earning 10% interest a year while having upside potential of more than doubling their investment in 30 months. I still write about global real estate opportunities for some newsletters, but most of my time now is spent managing my own investments and projects.

However, the number of available opportunities has become more than me and my close friends can take advantage of, so I’ve decided to pool my contacts and have them present their best current opportunities to a select group of individuals at a conference in Monte Carlo.

I’m not talking about a few guys offering apartments in Bulgaria or Turkey. These professionals operate in a dozen different countries from Panama to the Philippines and from Brazil to Croatia.

And they all have wholesale real estate opportunities for sophisticated investors. Potential returns from the deals the speakers will present start at 25% per year and could be as high as 400% profit in a few years.

If you are ready to invest in real estate at the wholesale level, you could be one of a limited number able to take advantage of this gathering of some of the world’s savviest and most experienced real estate investment experts.

The conference proper runs from Monday, October 8 through Tuesday, October 9 (the closing cocktail on October 9 runs until 7:30pm). It includes Seminar Sessions, a welcome cocktail reception, a closing cocktail reception, and morning and afternoon coffee breaks.

Book early and guarantee a spot on the Cote D’Azur tour! If you are one of the first 40 attendees to reserve your seat at the conference you’ll be able to join us on a field trip tour of the Cote D’Azur at no additional cost. So sign up today!

For More Information or to Book - Click Here

Author: Leif Simon has a masters degree in International Management, worked for a CPA firm, been an executive of an international oil company, and served as the chief financial officer for a hospitality design and consulting firm that renovated hotels in prime locations worldwide.

Until recently, he was the editor of Global Real Estate Investor, a specialized publication that helps individuals find little-known, highly lucrative international properties. These days he has an exclusive offshore investment consultant practice with a highly select group of private clients.

Focus : Honduras Caribbean's First Zero Carbon

The Biggest Real Estate Investments Are Made At the Wholesale Level
"An investment in real estate, like any other kind of investment, can be made at two levels: the “retail” level and the “wholesale” level.

Retail investing can be easy, quick, and even profitable. But it’s not likely to make you rich. The most prosperous investors find their way to the wholesale side of the equation."
Leif Simon

Want to know more?

Click here for information about
Leif Simon's Two Day Conference in Monte Carlo .

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Contrary to what some people may have told you, there is no Multiple Listing Service! Trying to establish the 'value' of real estate is difficult.

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What this means is that when you search for Costa Rica real estate, which may be one of the biggest investments of your life, more than likely, you will listen to expert advice coming from someone with zero qualifications or training in real estate, who is trying very hard to earn a sales commission selling you a property that could be overpriced.

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Dominican Republic information about real estate, retirement, residency, relocation, banking, investments

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There are many places you can go to in the Caribbean, but there is only one spot that has been called "The Best Kept Secret".

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