Branching out and investing in commercial real estate overseas is a rather ambitious goal, and the stakes are very high. Best case scenario, you can add profitable properties to your portfolio, get a high ROI, and grow your wealth and passive income. But if you’re not careful, and you invest in the wrong type of properties, in the wrong area, or you fail to manage the property accordingly, then you risk suffering heavy losses. Investing in commercial real estate abroad requires a lot of experience, but also attention to detail and plenty of research.
Commercial real estate has become a billion-dollar industry, but the good news is that barriers to entry have been lowered due to globalization, and it’s not such an exclusive world anymore. Countries such as the Netherlands have emerged as major opportunities for investors, especially in the commercial sector. New venues, such as casinos, stand out due to the friendly legislation, and they’re definitely an option to consider. Still, the foreign real estate market can be tricky to understand so, before making this huge step, you need to consider several factors.
Analyze the property types on a macro level
When branching out to a foreign market, it’s easy to be biased and look at properties in the same way as you do here. Take casino properties, for instance. Here, the market for land-based casinos is a bit down, and people prefer playing free online slots with the best bonuses available, while the focus seems to fall on residential properties. However, in many other countries in Europe, casino real estate properties are on the rise because there have been some changes in gambling legislation.
Before choosing a property type, be sure to analyze the local market and see what performs the best. In general, industrial real estate seems to be the most profitable, while retail seems to be losing the most ground across the board, but there may be local variations. One thing to keep in mind about commercial real estate is that it tends to have higher vacancy rates, but one way to work around it is to invest in properties that allow more tenants, such as family homes.
Supply and demand may be different from what you would expect.
Supply and demand for a certain property overseas may not be the same as the one in the market you are used to. In the same way that people would rather look for the best online slot machines with fruit symbols instead of going to a physical casino, they might prefer shopping online than going to a store. Maybe in the area where you want to invest, a lot of hotels are being built, or the business sector is booming, and there could be many opportunities there. Success is all about knowing the local economy and forecasting supply and demand.
At the same time, there is such a thing as oversaturation. If the supply for a certain property type is too high, then it might not offer you a high enough ROI. Ideally, you should choose a property type in a field that is expanding, but is currently undersupplied. For example, if you want to invest in casinos, you must do more than look at the current numbers. You must also analyze the outlook for the industry and get an idea of how it might perform in the following 5+ years.
Don’t underestimate the market cycle.
Although you don’t need to be an expert in the economy to make profitable commercial real estate investments abroad, you will need to have at least a basic understanding of market cycles. What does that mean exactly? A market cycle is a market’s natural growth and decline, separated into four stages: accumulation phase, mark-up phase, distribution phase, and mark-down phase. By analyzing economic indicators such as the unemployment rate and GDP growth, you’ll be able to pinpoint the stage of the market cycle you are in and thus avoid buying property when the market is high and selling it when it’s low.
Be thorough when creating due diligence.
Once you’ve found your market and the right industry to invest in, it’s understandable that you can’t wait to buy it, but before you do that, you shouldn’t forget about due diligence. This might drag on the purchase for quite a bit, and there will be bureaucratic hurdles, especially since the property is abroad, but ultimately due diligence may save you from many unpleasant surprises down the line. During this stage, you’re basically doing extensive research on the property to see if there’s anything wrong with it or if there could be regulatory obstacles that might prevent you from making a profit in the future.
Here are some things you should include in your checklist:
- If you plan on expanding or modifying that building in the future, check that the local council
- Talk to people who have invested in similar properties to find out about their experiences
- Do a background check on the seller
Plan for the unexpected
When making an investment of any kind, not just in real estate, it’s a bad idea to assume that everything will go down smoothly and that there will be no unexpected costs. In 99% of cases, there will be. After you buy the building, you might discover that you need to take care of surprise repairs, hire another property manager, or build a new wing. All of these costs will add up, so ideally, you should set aside around 20% of the property price as a contingency budget.
Have a flexible timeline
Last but not least, there is a possibility that you won’t be able to use the building as soon as you expected. Delays are inevitable, especially when working abroad, so keep a flexible timeline. There could be issues with the paperwork, unexpected market events, or renovations that might take longer than expected.