Will the downturn create the perfect investment?
Ultimately whether or not markets are go up or down, investment is fundamentally about risk vs reward and timing. The property market for years catered for so called investors that simply rode on the back of an upwards curve claiming to have the insight and inside knowledge of the market and subsequently making huge returns on investment. (Think 10% deposit on off-plan property being sold for a 10% premium before completion – that is 100% ROI!). Nowadays the market is awash with the same investors desperately looking to off-load their poor quality and overpriced unit (that in some cases aren’t even built) to some other poorly advised investor purchasers.
So with the current market so full of rubbish, how can we spot a good deal from a bad one and how do we know where to look and ultimately how do we know whether it is the right time to invest our money?
In our experience of the current climate, investor trends have moved away from emerging market, off-plan speculation to established market , built complete stock. The view is that although many will talk up emerging market growth and most would agree, the fact remains that too much speculation equals too much risk. Investors want to be able to touch and feel what they are buying and get back to property basics of solid supply demand, easy to analyse property values and in some cases a bank repossession with some heavy discount. What investors need to be acutely aware of is that whatever they choose to buy they should satisfy themselves that the underlying asset is of very good quality.
Spain has been an interesting market for us this year but we have been wary of cheap, plastic property with zero quality and no real exit strategy potential. However we look at any opportunity on a case by case basis. Take this opportunity in Spain as an example.
Property prices are from €275,000. The total investor gift is over 40%. This includes a gifted 20% deposit, a 9% gift for all your closing costs, and even the first two years mortgage paid up front. You can then enter into a rental pool and pick up a further 7% rental dividend over the first two years. This will give clients a return of over 400% cash on cash inside 24 months. On the surface those famous words come into mind but if you consider that clients are expected to take on the 100% finance then you appreciate where the trade off is.
The underlying asset is a luxury 2 bedroom apartment on one of Spain’s most recognised golf courses, so ultimately clients are safe in the knowledge that the property is located somewhere which gives them a good chance of a clear exit strategy once the market decides to pick up. The total investment for this opportunity is only €4,500. So there are some outstanding opportunities in the market place today but you just have to be patient, sniff them out and understand the mechanics as best you can. For information on this or any of our global opportunities please visit us at www.thearmariumgroup.com