How To Think European and Make a Fortune in Real Estate

by: Kevin Stillmock

I have been investing and advising real estate investors in Eastern Europe for the better part of a decade. A growing number of investors with a pioneering spirit have been lured to this part of the world, in search of hot investment opportunities that can yield profits that are uncommon in North America and Western Europe.

I have seen many smart, successful investors come here from America and try to apply American investment techniques with varying levels of success. Anyone looking to invest in Eastern Europe would be well advised to understand the unique factors that motivate the market in this region. Many of the distinguishing factors of Eastern European real estate are actually distinguishing factors of European real estate while others are purely regional in nature.

Here is the long and short of what you need to know to think Eastern European and invest wisely in Eastern Europe :

The European Union drives the market … .or it does at least partially. Most Eastern European countries are being considered for EU membership or soon will be. The prices of the European Union set the benchmark for prices in emerging European markets and drive speculation. Eastern Europe is not similar to Central South America which has no similar benchmark to follow. Europe tends to be more expensive then America in almost all facets but in particular in regards to real estate. Prices may seem high by American standards in some Eastern European locales (particularly Capitol cities) but may be quite low by European standards.

Time and time again, Central and Eastern European markets have proved that the EU has a tremendous impact in increasing property values. Just look at Hungary, Poland, and the Czech Republic . Each market saw a steady growth in value in the time leading up to EU ascension and continued/s to see remarkable growth for a period after. Note also, that many of the prices in the above countries for everything from apartments to land are more then they are in most American locations.

In some ways Bulgaria or Croatia joining the European Union is akin to Alaska or Hawaii joining the United States of America. It is a radical transition with radical implications.

Prices have gone way up and, though they may not reach London or Paris prices, still have long ways to go.

Cheaper is not always better. I am told of the story of an American woman from Washington state that was looking at a raw land opportunity in the north of Romania in 2002. When she discovered that per square meter was actually higher then in her hometown she promptly advised her agent that there was no way she was going to pay more money for land in Romania then she would in suburban America. Her thought process is quite understandable. However, it also proved to be quite incorrect. Land in her hometown has shown reasonable growth over the past 4 odd years but the land that she could have acquired in Eastern Europe would have earned her about a 400% profit has she sold in the summer of 2006. Similarly, many investors come to me and ask me "how much land can I get for x amount of dollars." The answer I inevitably give them is "a lot, but unless you are starting a park or a farm, I'd rather help you buy the most profitable land, not simply the most land."

An investment in a smaller plot of land at a higher price can be better then a lot of land at a lower price. In the right area, the property value will also increase much more rapidly then somewhere in the middle of nowhere where property is particularly cheap. The game of Eastern European investment is capitalizing on the rapid growth of property value. If you pay more for your land then it would cost in Hometown, USA it can still be an incredible steal.

Follow the market. My friend bought an apartment in 2001 for $10,000 and she just sold it for $60,000. She doesn't have any real estate training. She more or less made the profit by accident. She just "followed the market" to use her words.

Had I seen the apartment 5 years ago, not fully appreciating then what I appreciate now, frankly I wouldn't have given even $5,000 for the place. The neighborhood is full of old, grey, semi-dilapidated looking buildings. I would have assumed, that someone would come and knock them all down one good day....Boy, was I wrong.... Now a studio in one of the building sells for $60,000, a 2-bedroom for over $100,000. Rent is minimum $400 a month.

Europeans like to live in the city, in apartments often over houses in the suburbs. So now matter how much new development there is, a premium remains on apartment complexes inside of the city.

The moral of the story is follow the market.

Western Europeans, Brits in particular, have popularized investing in "Off Plan" properties to capitalize gains in Eastern European markets.

I was recently speaking with a US-based real estate friend of mine and referred to off plan opportunities in Eastern Europe. He was relatively unclear on what I was talking about. Even the most qualified real estate investors in America aren't clued-on to the off plan real estate phenomena in Europe and the UK in particular.

If you google the term "off plan properties" you'll see scores of web sites listed, most of them from the United Kingdom. Off Plan properties are big business on the other side of the pond and are increasingly the most common way for British investors to seize opportunities in emerging markets of Eastern Europe.

UK based firms with British nationals on the ground in various Eastern-block countries establish relationships with qualified developers who are preparing to launch new product (usually apartments in apartment buildings) and strike agreements with them to represent those properties to there current and future clientele back in Western Europe. In doing so, they secure below market prices to make there offer as attractive as possible and move as many pre or in-construction stage apartments as they can.

Buyers pay between 15-40% down and then usually the rest within 12-18 months when they are handed the key.

Generally, investors can also qualify for mortgages. With there new investment property as collateral, and pay for the second balance via the rent they can then receive. The multitude of reasons why off plan opportunities are so attractive to UK investors is outside the scope of this article but can be summarized succinctly; the investor has all of the work done for him or her.

The agency has located a new building, in a strategic location, with high rent potential in a region where property values are accumulating on a regular basis much higher then in the UK or Western Europe (or America for that matter.) The agency can also manage the property and help the buyer secure financing. This is why thousands of apartments are sold off-plan to UK and other investors every month. Off plans are by-and-large how Europeans invest in Eastern Europe.

What works for Europeans will work for Americans just as well.

It Doesn't Have to All Make Perfect Sense

A moment of candor: you will never fully understand all of the factors driving the Eastern European real estate market. After doing business here for years, I still don't. All I know, is that you need to think differently then "American" when it comes to investing here and that you can make a lot of money if your invest it right..probably more then you could in your hometown or anywhere near it.

High returns and legendary profits are the norm here.

Yes, they happen in America too. People get 212% returns on investments in America in one year. Those are exceptions to the rule though. In Romania, however, an entire town in 2005, called Brasov, recorded an average growth of 212%. Similar growth in other towns has been common. That's the difference here: incredible profits are to be expected and if you get a normal profit, you did something wrong.

Coming to Eastern Europe is coming to a place where the exception is the norm in real estate and in a good way.

Everyone in Eastern Europe seems to be in agreement on one thing: local real estate is where the money is.

It's when you are willing to think a little differently, understand the market from a local perspective and decide to invest wisely versus follow pure instinct that you significantly increase your prospect for profit.

Remember, it's not how much you buy with your investment, but how much you profit from it. There's a big difference there.

About The Author
Kevin Stillmock

Anyone looking to invest in Eastern Europe would be well advised to understand the unique factors that motivate the market in this region. Many of the distinguishing factors of Eastern European real estate are actually distinguishing factors of European real estate while others are purely regional in nature. Here is the long and short of what you need to know to think (Eastern) European and invest wisely in Eastern Europe.

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