5 things you have to know and ask before you invest offshore?

5 things you have to know and ask before you invest offshore?

Private Property South Africa
Scott Picken

Dear Potential Offshore Investor

Napoleon said, “Information was nine tenths of any battle.” The challenge is do you have the right information, are you choosing the right partners, making the right investments and most importantly asking the right questions?

  • 1. Information_ – like water, the right information makes you finically healthier, but the wrong information is like poison._

  • 80% of people who invest offshore lose money and the investment becomes a tremendous headache in a short space of time! According to Real Estate Web -http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page206?oid=54920&sn=Detail – you could also make far better returns in South Africa.

  • The reason for this is that people make decisions without the right information. Sure the sales person gives them allot of information, but invariably they will give people what they want to hear?

  • An example of this is in the last few months South Africans have bought $184 million on the Gold Coast in Australia. They think they are getting a real bargain, but when you talk to Richard Dunn, OzInvest Acquisition Manager, a company who spends millions on research, says, “We get offered opportunities on the Gold Coast every day! At the moment we would never offer these to our investors as there are huge vacancies and the property values are in real trouble.” Similar examples are Manchester or Leeds, where South African investors believed they were buying real value (perceived huge discounts) and yet there is huge oversupply, banks are not lending and there are huge rental problems. Do we need to talk about the information presented on Dubai and how that has changed?

  • The questions you need to be asking:

  • i. “How much do you spend on your research monthly?”

  • ii. “Can you show me how you have communicated this research over the last couple of years, so that I can see you really understand your market?”

  • iii. “Can I see the research from an entity that doesn’t have a vested interest in selling something to me and who substantiates this information?”

  • iv. If someone is based in South Africa – “How often do you travel over to the investment country to understand the market and make sure you are keeping up to speed with current trends?”

  • 2. Partners_ – the key to the vault of success!_

  • In life there is a saying, a chain is only as strong as its weakest link.

  • Investors often underestimate how important the choice in your partner is to your long term success. Dr Dolf DeRoos, the World Famous International Property Investors says, “You are only as strong as your team.”

  • Many investors invest because they like the salesmen, they have been referred by a friend or they associate with a brand. This can be catastrophic to your success!

  • The questions you need to be asking:

  • i. “How long have you been helping people invest internationally?”

  • ii. “How many people have you assisted to invest in this specific country?”

  • iii. “Is this your core business, or something which is supplementary to your estate agency business where you help people buy homes?

  • iv. “Are you a property investor yourself and have you bought international property?”

  • 3. Rentals_ – the life blood of property investment!_

  • Property Investment fundamentals live and die on cashflow. Experienced property investors understand this and it is why they succeed in all property cycles. Inexperienced investors are always chasing the bargain, and yet often they find a great bargain or focus on capital growth, only to realise there is no rental market. This often destroys the investment and in many instances them financially.

  • Examples of this are Manchester where you can get 60% discounts but there are 2000 units oversupplied on the market. Dubai which is also at a 60% discount, but has massive oversupply problems (The numerous developers who offered rental guarantees who have gone bust are testament to this). And then Las Vegas which is 70% down, but there are 5000 families leaving a month as tourism is down by 60% and there are 32 000 homes on the market.

  • If there is one thing you have to be certain on is the rental market and where this demand is going to come from. You need to ask:

  • i. “How can you ensure me of the demand for my property when it is ready to rent?”

  • I am not talking about a 1 or 2 year rental guarantee from the developer, which has often been included in the price. I am talking about me receiving long term sustainable rental income at market related rates from the demand which exists.

  • ii. “Are you prepared to put your money where your mouth is based on this guarantee or assurance?”

  • How would you sustain this long term if you were wrong?

  • 4. Local & International Offices_ – geography is so NB!_

  • Many salesmen will travel to South Africa with a suitcase, put on a classy presentation, meet you in a hotel, sign you up, take your money and then leave in a couple of days. This is where all the problems start and you can’t get hold of them or find out what is happening, etc. and this is how a “great investment” (supposedly) turns into a lemon.

  • To be successful you need to ensure the partner you choose to invest with, not only has offices in the foreign country, but also offices and a physical presence in South Africa. It makes such a difference when you can speak to a local South African on the phone, on the same time scales and if needs be come and see them in their office whenever it suits you.

  • Questions you need to be asking:

  • i. “Where are you offices in South Africa and in the country I am investing in?”

  • ii. “If you don’t have offices in South Africa, how can I ensure that you will still be here in a couple of months or years when I need help with the investment I have bought?”

  • iii. “I would like to visit the property. Who is going to show me around overseas?”

  • iv. “How do you understand the market unless you have someone who is permanently looking for opportunities and living in the property market?”

  • 5. After Sales Support_ – the helping hand you need! Trust me!_

  • Most investors only focus on the purchase of the property and they forget how important it is to manage the sale. Salesmen are also only interested in closing the sale, but most importantly not to help you right through the process, when you are investing from afar. Many companies claim to provide the full service to you, but where are they based and how are they going to do it?

  • Questions which you need to ask:

  • i. “How big is your aftersales team and who will be assisting me personally making sure the property transfers timeously into my name?”

  • Sorry I am not talking about the salesmen, I want an Aftersales Professional who has been dealing in this for many years and understands the nuances between South African property and overseas property.

  • ii. “What happens when the property is ready? Who will be assisting me with transfer of the property, inspections, etc?”

  • iii. “Can I see referrals from people who were happy with your service?”

With these simple questions you can ensure you don’t buy lemons and you can take advantage of the significant opportunities. It is not only wise it is prudent to invest some of your wealth in foreign markets. In the Real Estate article above it talks of the tremendous opportunities locally. We completely agree with this and continue to make great money in South Africa, through the use of strategic partners as they suggest. However once you have made this money, it is essential, if not irresponsible not to, to take some of this wealth and invest overseas. To achieve your goals of Asset Preservation, Capital Growth, a Rand Hedge, Diversification and Positive Cashflow in first world currencies – you need the right information and partners and most importantly to be asking the right questions!

Good luck!

Scott Picken




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