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Why You Can Use Less Money To Start Investing In Emerging Markets
In Singapore, we are so accustomed to high property prices that when we hear about a $100,000 apartment for sale in the capital of another country, we get skeptical of the legitimacy of the deal. Well in case you are green in this area, you have to acknowledge the fact that overseas properties are generally much cheaper when you compare them to those that are in Singapore. And when you get really involved in overseas property investment, you might also find many instances where $100,000 for an apartment is expensive even though a particular apartment is worth more than that. This is especially so for emerging markets.
Why is this so?
When property owners get stuck in an early buyers phase, their cash flow are struggling just to keep afloat. Jobs are decreasing in their cities and the population of ready tenants decrease as well. In many cases, they have to rent way below market rate just to get people interested. When competitors are slashing rental for the small number of tenants, it is difficult not to follow suit. This contributes to the cycle of value depreciation. This often happens in cities where there are major economic downturns. Big corporations moving out of the city or cutting jobs to save costs can trigger such downturns as other corporations follow suit.
And in markets like these, investors who are already holding onto bleeding properties will be desperate to let go of their money losing apartments. In some cases, you might even find sellers willing to pay you to buy their property! They may offer to pay agent commissions and top up the difference between your purchase price and outstanding mortgage to close the deal. If you negotiate further, they might throw in their mother-in-laws as well!
These desperate actions are actually taken with a logical assessment. If owners continue to allow their cash flow to bleed on the existing properties, they may indeed run into defaults in future and record bad personal credit. These undesirable credit records can affect their financial plans over a number of years affecting every loan they apply with banks. It will be like having financial chicken pox where everyone is avoiding you. This is the last thing any property investor who leverages on credit wants.
So when they run into someone who is willing to takeover their properties, it is like seeing a ray of light in a dark tunnel. If in fact properties are doing badly, you might think about why would you want to buy it? The answer is simple. You have identified that the market has bottomed out and it will start rising in a year or two. You do this by tracking transaction time, transaction volume and the city plans.
A lot of sellers are not really investors. They just got on the property wave without even spending time learning about property investments. These sellers simply do not realise or know how to identify the beginning of an emerging market and changes that are going to happen.They don’t keep track of the latest press releases from the city planners on economic development. They may even know about it but does not have enough cash flow to wait it out. Thus the desperation to sell. These are the types of sellers that buyers want to work with.
In extreme cases, sellers may also allow a buyer just take over a mortgage to save themselves. If you are going into this channel, just make sure you have a good lawyer to provide property legal work on the arrangement. Thousands of deals are done this way. Savvy investors can also takeover all these mortgages and come to Singapore seeking “property investors” for money to fund these mortgage payments. Newbie players taking part in these schemes think that they are buying property. But in fact, they are not. They are just providing cheap financing for these savvy investors to make a killing on properties in emerging markets. This is classic no-money-down property investing.
Maybe now you will see that properties in emerging markets are very attractive propositions. Here are the main reasons why:
1. You will be an early buyer in a rising market. The type that people talk about in property workshops.
2. Sellers actually view you as hero who saved them. They will make concessions just to push the deal through.
3. As sellers are not keeping track of improving market data, they will be selling for less than what the property is worth.
4. Because sellers are desperate to let go, they are receptive to giving you special terms.
Convincing Yourself Is The Toughest Part In Emerging Markets
It is very hard to trust your own judgement in emerging markets. When you have collated enough data to tell you that the market is changing, your friends will tell you that you are crazy. Your wife will ask you to stop and your mother will ask you drink some herbal soup. But the fact is people who make big money from properties are those that go in before everyone else is just trying to get in.
A real estate investing guru will tell you that he has a course that teaches you what to do. They are busy selling you more courses and selling you properties that they have a share in. You have to trust yourself to make a killing in emerging markets. Do you really think a savvy investors who is actively acquiring properties in a city will advise you to go in and drive up the prices so that he has to pay more on the properties he wants to buy? The only people you should listen to are real property investors who make their money through properties. Not entertainers who get up on stage to tell you you can make money from real estate.
For every person making real money from property investments, there will be 10 more who have never made money but thinks they know exactly what it takes to do so. Ignore them. They are just giving theories and bad advice. Collect your data, do your research, and trust your judgement. How bad can it go? Overseas properties are cheap when compared to Singapore anyway. You will be like a kid in a candy store.