How to avoid mistakes when investing in real estate?

What are investments?

What are investments in a general sense and how do they function? Why is keeping money under the mattress a less profitable solution compared to investing in various assets? This exciting yet complex term raises many questions and can evoke fears in the uninitiated. To clarify these topics, we turned to an investment expert — Ekaterina Kotlyarova, who is ready to share recommendations to help avoid common mistakes and pitfalls in the investment process.

Who is Ekaterina Kotlyarova?

Ekaterina Kotlyarova is the director of the international real estate investment agency "VIP Realty Club" and also leads a community of Russian-speaking professionals working in more than 18 countries around the world. In her opinion, Europe is currently experiencing a "seller's market," which creates significant challenges for those looking to invest.

Why is it so difficult to implement investment mechanisms?

Why is it so difficult to implement investment mechanisms in the post-Soviet space? The answer to this question is multi-layered and complex. One of the main reasons is the fears and disappointments arising from a lack of information among potential investors. While there may be a need for specific educational courses on financial literacy in the future, today it is worth discussing in more detail the main fears and frustrations related to investments, as well as considering strategies that help minimize common mistakes when investing in real estate.

What do they represent?

What exactly are investments? In a broad sense, investments are the process of allocating capital with the aim of generating either passive or active income on a regular basis. There are many ways to invest capital, but in this case, we will focus on investments in the real estate sector.

Key rules for investors

The key rule for every investor:“Be careful”Currently, in the real estate market of several European countries, the principles of a "seller's market" are in effect. This means that sellers set the tone, making investors' actions particularly cautious and requiring a high level of attention. However, there are also segments where prices can drop by up to 40%, and such markets may be interesting for investments.

Important questions for an investor

First, a new investor should ask themselves two key questions:

• What is the total of my capital?This can include not only personal savings but also borrowed funds, such as a mortgage or other types of loans.
• What are my expectations regarding the outcome (and in what timeframe)?There are two main directions to highlight here: short-term investments for resale and long-term rental of real estate properties.

Conclusion

Thus, the world of investments is a complex and multifaceted sphere that requires participants to have a conscious and measured approach. To minimize risks and achieve desired results, it is important not only to understand the market but also to be prepared for changes and challenges that may arise during the investment process. Every action should be carefully considered to avoid disappointments and achieve success in the investment market.

Main approaches to investments

In the field of investment activities, there are two key methods: "long-term" and "short-term" strategies. Let's examine the technical aspects of one of the popular choices among beginner investors - the short-term strategy, sometimes referred to as speculative, where assets are purchased with the intention of selling them within one to two years.

Short-term strategy

In this case, the investor must be extremely careful and conduct thorough calculations:

• How to initiate a refund of invested funds;
• What will the expected annual profit be?

In practice, the most commonly used option is to purchase real estate in the early stages of its construction from developers, followed by selling it upon completion of the buildings. In most cases, the increase in housing prices throughout the construction period can range from 10% to 30%. At first glance, this method seems quite simple and straightforward. However, based on personal experience, it can be asserted that these promised 10-30% often boil down to a modest 5-7%.

Reasons for the difference in profit

What is behind such a difference? First of all, completed real estate does not always find new owners quickly, which is especially relevant for resort areas and properties intended for seasonal living. An example can be seen in the situation where an investor invests in housing at the foundation pouring stage in countries like Bulgaria, Turkey, or Georgia, hoping for a 20% increase by the time construction is completed. However, when the property is finally finished, there arises a need to sell the apartment, and it turns out that the neighbors who bought apartments nearby also want to sell their investments.

Thus, they all enter the market with a similar strategy. As a result, in order to sell their property more quickly, the investor is forced to lower the price, usually by 5%.

Additionally, to successfully sell your apartment, it is necessary to engage a local realtor who is more familiar with the specifics of the market, which can take up about 5% of the income received. The transaction process can take a significant amount of time - it is not uncommon for it to drag on for a month, but there are cases where it can last a year or more.

Moreover, maintaining the property also implies additional financial expenses. There are often situations where developers optimistically claim that prices will rise, while in reality, they are falling (which can result in a loss of 5-10%). As a result, the investor finds themselves in a situation where they have to sell off their assets almost at a loss, and even with significant losses, just to recover their invested funds.

Long-term strategy

On the other hand, there is another approach to real estate investment, which involves purchasing properties for the purpose of renting them out — this is a long-term investment strategy. However, even here, beginners may encounter challenges.

For example, in some countries, renting out an apartment requires a special license, and the process of obtaining it can be quite complicated (in some regions, a short-term rental license is practically unavailable). In other countries, only legal entities can rent such properties, which also complicates the task for individual investors.

Conclusion

As a result, both of these investment methods have their advantages and disadvantages. Each investor should thoroughly analyze their choice of strategy to minimize risks and achieve optimal financial results.

Restrictions on property rental

In some countries, such as Turkey, starting from 2017, short-term rental of real estate can only be done through registered legal entities. Thailand also has specific restrictions on such practices.

Challenges of long-term rental

Moreover, simply renting out an apartment for a long term and not worrying about its condition for several years is not an easy task. In some countries, having a contract with a management company may be the norm, and sometimes tenants require close attention. It is quite challenging to fully consider all aspects of this type of investment.

Positive and negative aspects of strategies

Thus, each investment strategy has its advantages and disadvantages, and in order to maximize the potential of investments, it is essential to have complete information.

Manipulations by the developers

It is impossible to ignore the fact that sometimes developers may manipulate information, counting on the ignorance of buyers. When it comes to short-term investments in real estate, it is crucial to understand what interest rates you are focusing on and what goals you are trying to achieve.

• There are many subtle aspects that don't receive enough attention.
• Due to this, builders often mislead inexperienced investors, which is especially common among construction companies in post-Soviet countries.

Differences between regions

There are significant differences between investing in Russia and in European countries, as noted by well-known satirists on multiple occasions. The first major disappointment that investors face is related to the inflated forecasts from developers and agents.

Most Russian-speaking citizens in the post-Soviet space have unrealistically high expectations compared to the actual situation in Europe. Developers often take advantage of this by offering attractive yield rates, basing their calculations on Russian rubles.

The essence of the deception

The essence of the deception is as follows:Six percent per annum in euros is not at all equal to ten percent in rubles. Although this may seem obvious, many investors still fall into the trap of attractive promises and do not calculate the actual profit for the year under specific conditions.

Disappointments of investors

Another reason for disappointment among investors may be the relatively low level of returns on long-term investments. Typically, the actual return on long-term investments usually falls within the range of 2-5% per year in euros.

In practice, this indicator often fluctuates between 2-3% per year. However, residents of European countries generally do receive a significantly higher percentage of income from such investments, as in most cases they use almost entirely leveraged capital.

Conclusion

This allows them to significantly improve their investment results and ensure stable income, unlike many Russian investors who may overlook real expectations and associated risks.

Restrictions on purchasing real estate in Europe

Currently, residents of Russia, Kazakhstan, and Belarus are facing serious challenges when trying to purchase real estate in European countries.

Costs of property maintenance

First of all, it is important to understand that any investments in real estate require ongoing costs for maintenance, especially when it comes to long-term investments. These expenses can significantly impact your overall returns.

In most residential complexes in Europe, management companies provide support, and apartment owners are required to pay for their services separately. Secondly, to find tenants, it is common to turn to third-party agencies, which may also charge additional commissions.

All these expenses can add up to those very 200 euros a month that you will receive from the tenants. As a result, the net profit may turn out to be significantly lower than expected.

Return on investment timelines

The investment strategy in Russia typically requires about 15-20 years to break even, while in European countries this period is approximately 10-15 years. However, it is important to consider the high risks associated with real estate investments in the post-Soviet space. In contrast, investments in Europe are viewed as safer.

The difference between personal use and investments

It is also important to understand that purchasing real estate for personal use is not equivalent to investing. Many people who grew up in the countries of the former Soviet Union believe that the best option is to buy property near the sea. However, it is worth noting that such properties often have significantly lower returns compared to other options.

Moreover, this property is not always profitable. The main reason for this is the seasonality of the use of these properties. For example, in countries like Turkey and Bulgaria, the season is very limited.

Investment goals

The main goal for any investor should be to acquire assets that can generate income. Of course, it's nice to make a profit, but one shouldn't expect fantastic amounts.

• Currently, the Turkish market is considered quite promising, with particularly sought-after destinations in Alanya and Istanbul.
• The minimum investment threshold in Alanya starts at around 40,000 euros, while in Istanbul it is from 80,000 euros.
• It is important to note that the return on investment from quality properties in Istanbul is significantly higher.

Recommendations for investors

I always advise my clients to consider purchasing real estate in major cities and capitals, especially if they do not want to take risks and want to avoid the complexities associated with local markets.

It can be confidently said that most clients from Belarus, Russia, and Kazakhstan prefer properties in Alanya, while Europeans more often choose Istanbul.

Problems when choosing real estate

Our compatriots can purchase property in Istanbul, but most often it will be a type of property that will be difficult to sell in the future. The main reason is that many investors enter the market with a limited budget, which significantly reduces their options.

Therefore, it is essential to approach real estate investments seriously and thoughtfully to avoid unforeseen situations that could negatively impact your profitability and lead to financial losses.

Problems with real estate investments

At certain moments in life, a person imposes additional limitations on themselves by choosing real estate on the coast, hoping to spend their retirement years there. However, such a choice does not always lead to successful investments. The homes available on the market intended for retirees often fail to guarantee the profitability of the investment.

Real estate market analysis

Specialist in international real estate, Ekaterina Kotlyarova, who heads the agency "VIP Realty Club," emphasizes one of the key points that investors face — recent buyers from Russia, Belarus, and Kazakhstan are entering the market significantly later than others. When it comes to real estate in Western Europe, opportunities for high profits are virtually non-existent. The only exceptions are those moments when the market begins to experience a downturn.

Currently, for example, in Italy, there is a "low" market, but many Russians and other Slavic investors are unaware of the situation. Typically, the first to receive information about favorable prices are the British, followed by the Germans, and only later the Americans. Slavic buyers often enter the market at the same time as the Israelis, when certain trends are already starting to emerge and prices have already increased.

The main rule for investors

The main rule for investors is as follows: buy assets during a price decline and sell them when their value reaches a peak. However, many newcomers entering the market make decisions during a period of growth.

To understand the market dynamics, it is enough to analyze real estate prices in a specific city over the past two years. If the cost per square meter is gradually increasing, even if only slightly, it indicates a growing market. Conversely, if prices are declining, it points to a downturn.

Although it may seem straightforward at first glance, all the data is available for study, but beginners often simply don't know where to look for the information they need.

Cycles in the real estate market

Almost any relatively stable real estate market goes through a seven-year cycle, which includes:

• price increase;
• peak mark;
• period of stagnation;
• price reduction.

For example, in Russia, prices have increased by 40-50% over the past year, while in Italy, they have decreased by similar amounts. This raises the question: where is it more preferable to buyreal estate? Of course, in Italy.

Market situation

Moreover, the decision should be made now, as prices in this country have started to gradually rise, and the overall market situation is changing. In fact, the best opportunity to buy was just yesterday, and if this window of opportunity is missed, it will be too late in three months.

Unfortunately, investors from Belarus, Russia, and Kazakhstan often miss out on this three-month period, which ultimately leads to them being sidelined and losing opportunities for profitable investments.

Conclusion

At this stage, it is necessary to summarize the discussion of the key aspects of real estate investing. I hope that my analysis and the advice from Ekaterina Kotlyarova have helped you better understand what steps you need to take when starting your journey into the world of investments. Despite the many fears and misunderstandings, it is important to remember that the right information and preparation are your main allies on this path.

Don't limit yourself to just basic knowledge; strive for continuous self-education, experiment, analyze, and don't be afraid to make mistakes, as they are part of the learning process.

Key aspects of successful investing

• Conducting financial operationsIt may seem confusing and risky, but understanding the nuances of local and international real estate markets will help avoid common pitfalls.
• Choosing the wrong strategy can be costly, but the right approach and planning are what can lead you to success.
• Study the current trends and specifics of the market to find the most profitable investment opportunities.

In conclusion, the best investment is not just about putting in money; it's also about the time and effort you are willing to invest in your self-development and exploring opportunities. The world needs knowledgeable investors, and perhaps you are the one who can truly change your financial destiny through wise decisions and well-considered strategies.

Strive for knowledge, develop your financial literacy, and may your path to successful investing be filled with luck and prosperity!