i) Large sustainable income investing and emerging market because of fundamental shortage of property and infrastructure due to high barrier to entry of real estate development from shortage of liquidity and high interest rates.
ii) A large population size and overpopulation causing housing shortages.
iii) Low labor costs and as a result of abovementioned demand created, a higher end user sale is typified in the emerging market (influenced by high inflation which the property market value adjusts well to). Due to shortage of low interest funds, property is often financed using “off-plan” sales (where seller pre-sells units and uses the progress payments established from buyers to finance the construction of the units once basic infrastructure is in place).
Let’s look at some examples of why return on income generating real estate investing can be between 40% and 60% ANNUALIZED on offshore property investment income in emerging markets:
Development of a 20 unit multifamily condominium building that is naturally in high demand due to housing shortage in an emerging market such as Lagos Nigeria in Sub-Sahara Africa can be evaluated as follows:
1. Land purchase, sale and resale costs not including construction - $1.2M
2. Development costs - $150/unit @ 20 units = $3M
3. Resale Price - $350/unit @ 20 units = $7M
4. Term to develop and resell 1.2 yrs. (14.4 months)
5. Distributable Annualized Project Return on investment (ROI) = ($7M-$3M-$1.2M = $2.8M)/ ($1.2M+$3M = $4.2M)/1.2 yrs. = 56%
6. The return on investment (ROI) is actually higher if off-plan sales are used and the total investment from the investors is lower: For example, a reduction of $1M in investment financing cost will show an annualized ROI of 73% instead.
As this is a short duration buy and sell development, in the event a rent and resale strategy is used i.e. rent for 5 years and resell within the rising market cycle, the Annualized ROI will be in the 40%-60% range using all the above-mentioned techniques. Rents in this market are paid upfront every two years which will help increase ROI further.
Realization of the above
high returns involves an adept active real estate investment manager that can
select the right site and utilize a turnkey approach to syndicate and implement
the investment through exit of its investors and development team. For interest in investing in
similar high profit and secured projects for income investing (contact our adept team today).
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