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The 10 Functions of Successful and Sustainable Real Estate Investing

Posted by on 17/12/2014
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Growing Assets

One of the most fundamental expectations of investing in real property or real estate is that this property will go up in value over time. We want to buy a property for a price and hopefully sell it for a much higher price in the distant or not so distant future depending on the market and the type of investor that you are. When considering whether or not a property will go up in value, consider the economy of the country in which you are investing. When calculating the likelihood of yielding the greatest equity growth, some factors may include:

  • Strength of Employment
    Ø Growth in GDP
    Ø Increased Foreign Investment
    Ø Long Term Stability of Real Estate and other Markets
    Ø Taxing on Property Gains
    Ø Quality of Construction
    Ø Policies that Favor Investment

From garment growth to construction booms and a tourism influx that has increased by 50% since just 2011, Cambodia is brimming with potential business plans just waiting to unfold. Garnering multiple streams of income to accompany your real estate is easy if that is what you fancy and your property will do plenty for you. Construction is cheap and the prices right for a country expanding without a forecast for friction. Property values in Cambodia as well as the value of leases and businesses alike, especially those in prime location, will stand to benefit and thankfully there is plenty of room for foreigners looking to engage, at least for now!

Understanding Cash on Cash Return

Along with ensuring that the property goes up in value, you will want to understand what type of return you are yielding for the amount of cash that you are bringing to the table. Calculating your cash on cash returns can alter your investment decisions a great deal and bring other important questions to mind:

  • What are the tax structures like for capital gains or gains on real estate?
    Ø How easily can a foreigner obtain financing?
    Ø Can I easily move money out of the country the property is in, into my own?
    Ø Cost for establishing business entity for ownership?
    Ø Do I require a local partner?

Cambodia is easy enough to navigate in each of these areas. Ignore the fact that transparency and corruption concerns are often on investors’ minds when dealing with Cambodia. Cambodia established a Commercial Arbitration Law in 2006 that has made civil disputes easier to handle, and in 2010 a National Arbitration Center was established.

If you know the investment goals you wish to accomplish and understand that dealing with a developing nation’s ever-evolving policies is part of benefiting from its prosperous economic opportunities, then you will have a realistic outlook and will navigate your transactions successfully and peacefully.

Cash Flow

Cash flow is an aspect of real estate investment that makes it so much more attractive than other investments. The fact that you can leverage your money in many real estate investments makes property an attractive choice for where to put your money.

It would be nice if it was as easy as subtracting the mortgage from the rental yield in order to find out what your cash flow is, yet that would not be accurate. From concessions and incentives that will increase your cash flow to additional costs that will cut it, there are many factors to accurately calculating how much of the green will make it to your bank account each month. Some extraneous costs include:

  • Cost of Managing the Property
    Ø Taxes
    Ø Property Maintenance
    Ø Vacancy
    Ø Government Fees (Monthly, Yearly, etc.)
    Ø Zoning
    Ø Utilities, etc.

When considering your cash flow you also want to consider if there will be a change in your monthly yield and vacancy depending on “seasons” of travel or other causes. Will your aim be to capitalize with short-term rentals that can yield high returns on busy weekends and important holidays or will you have yearly leases that will be easy to predict? How much of that will be determined by you and how much by the market? Your cash flow will determine your short-term cash on cash return and how quickly you may recuperate your cash investment. Allow us to assist you in discovering the many ways you can gain immediately and over time by investing in Cambodia.

What Type of Renters can I Rely On?

The Role of the Property Management:

Over $2 Billion in foreign investments has not found its way to Cambodia for construction of real property in 2012 and for good reason. Despite record growth and expansion, knowing what to expect from renters is as important as any other aspect of investing in real estate. The potential for weeklong rentals at good rates, one year leases and the care that will be taken by those using our properties are but a few questions you will want answered when examining your profit potential. How consistent and persistent is the rental market? How much competition do I have and how is the government when it comes to encouraging future development? Can I count on growth that is sustainable or do policies shoot for bubble style building that has proven to be volatile on a global scale?

All of those questions and more will affect the renting climate of your property when it comes to both vacation and resident renters alike. Employment can be driven by policy as well as economy and tourism based rentals can easily be affected based on supply and demand. Very few places in the world satisfy the many needs we have when it comes to feeling confident in the always unpredictable future of a rental market. Cambodia boasts multiple developing industries as well as an overall countrywide development of society and housing. This overall development ensures that quality housing will long be in demand. Both budget backpackers and the likes of the rich and famous are attracted to the cultural appeal and timeless treasure that is Angkor Wat.

With a strong and booming economy and the right team watching out for your property, it is hard to go wrong when investing in both residential and commercial real estate in Cambodia. We are here on the ground to ensure that your renters and property are cared for. Additionally, we attract more renters by having an online and local relationship with local and expatriate/foreign businesses and assist you by keeping with the pulse of the local Cambodia policy changes that may affect your real estate investment. This local presence additionally allows us to personally review all renters and protect the integrity of your property. A strong rental market backed by a reliable local presence make Cambodia a premier place to find qualified renters.

Liability

What would you do if the unthinkable happened and there was an incident on your property? How is he system if someone is not paying rent for a property? What payments do I owe when I buy a property and what should I know when it comes to the investment and potential risks? This is the part that so many don’t enjoy speaking about yet there is occasionally going to be incidents.

Cambodia has arbitration system and additionally works continuously on developing trade and investment related practices that establish simple solutions to the common issues of foreign investors. The Council for the Development of Cambodia (CDC), Cambodian Investment Board (CIB), and Cambodian Special Economic Zone Board work together to educate other countries on investment into Cambodia as well to formulate solutions to combat corruption and lack of regulation . The work of these organizations has resulted in political and regulatory improvements that have led to a recent upswing in investing and an increase in tourism related business opportunities.

Remembering that Cambodia is part of ASEAN and receives the benefit of trade agreements between many SE and other Asian nations, is important in understanding the powerful ties Cambodia has. May 2013 will see ASEAN members and the group’s six major trade partners kick off negotiation to become the world’s largest economic block by 2015. SE Asian economies will only become more intertwined and acting early in the game can have countless benefits.

Ease of Maintaining Property

Though perhaps less of a worry than some of the other topics, property maintenance can become quite the hassle when it is difficult to access what you need or the labor to do the job is expensive and/or hard to come by. You’ll want to know that the property you have invested in was constructed well to begin with and that its utilities were installed properly.

Investing in a “Destination” Location is a  Bonus!

Cambodia has been dubbed the most popular place to visit in 2013 by many publications and there are many reasons as to why. Whether you are looking to travel or a week, a month or are looking where to spend the next 5 years, the Kingdom of Cambodia has viable, valuable and enjoyable options for you. All of this coupled with the fact that you can access many of SE Asia’s gems within a short and inexpensive flight, makes Cambodia very enticing. For those who are considering making it their investment home, even for part of the year, you can’t go wrong with Cambodia. Indulge your senses at local markets daily and eat like a king for the price of a pauper. Engage in cultural events as often as you please and mingle with an expatriate crowd that is both socially responsible and enjoyable.

You might not have guessed that Cambodia and Siem Reap in particular would attract so much attention. The first two months of 2013 brought 280K unique tourists to the International Airport in Siem Reap. This does not account for the 350K+ that came in by land or water to the famed Kingdom of Cambodia. There is a fair chance that a majority of these travelers will reach Siem Reap.

Something unique and endearing about Cambodia is the large number of NGOs that work with the local community to improve the quality of life for Khmer people. Varying causes create a presence that is broad and sturdy in its approach to assisting long term development. With one of the highest rates of NGOs per capita in the world (2,465 registered though many believed to be inactive or small) , many are attracted to serve in Siem Reap, Cambodia for many enduring reasons. In addition to adding warmth to the atmosphere, the NGO community also serves the investment and overall community of Cambodia. Cambodia is working continuously to empower their working class to become more capable and as the country continues to develop, everyone who lives and invests in that development stands to benefit from such. The NGO presence has set the groundwork for evolving the education amongst adults and children alike and establishing systems and structures to sustain social and community growth.

Of course it is nothing short of breathtaking and moving to experience the expansiveness and the faithful obligation to detail that is Angkor Archeological Park, yet Cambodia offers something more. To be about the growth and expansion that is the economy and social structure of Cambodia is exciting. Imagine spending the morning watching the sunrise over temples, enjoying a delightful Swedish or Thai massage before taking a dip in your condo’s pool, then watch the sunset on Angkor Wat and head to Pub Street where western standard restaurants of all types serve foodie favorites at a favorable price. The range of offerings from high end eateries to traveler dining is impressive and indicative of the fact that Siem Reap is suited to sustain growing tourism.

What Type of Economy Can I Invest In? Which Ones are Wise Choices?

Understanding the type of market that you are investing into can be as important as the investment itself. We like to believe that we can rely on markets from wealthy nations such as the USA and the UK but 2008 showed us that no housing market was too big to fail. This is to demonstrate that there is more to consider than the total GDP of a market when you consider how your real estate investment will perform. The growth and exposure of the market, cash flow, policies and more will determine the overall performance of an economy.

Frontier economies are meant to be good choices for investment. Cambodia is a genuine “Frontier” market. Numerous popular publications put out yearly lists of the best places to invest. Countries’ economies are placed into categories of emerging, frontier, solid real estate investing etc., and then they are ranked. Rankings in these types of articles are based on various polls and opinions and discovering the best information and correlating facts can be tedious.

Cambodia has “free-trade” access to resources, education and more due to its participation in ASEAN and with a wonderful work ethic coupled with fertile social ground for effective growth, this is a sort of once in a life time opportunity to do something great in an even grander place.

Government is Friendly to Foreign Investors-Liquidity and Legality

Many changes have taken place to continue to make Cambodia friendly to foreign investors. Since 1994 when Cambodia elected for an open market economy, many were invited in though the infrastructure was not established enough to suffice for many. With numerous trade agreements and being a member of the World Trade Organizations, you can trust that certain practices will be easily administered in Cambodia. In 2003 the World Heritage Foundation ranked Cambodia 35th for Economic Freedom among 170 countries and economies ranked. This ranking in the top 20% should give investors hope in the evolution of the economic system and its ability to deal with some of the “old fashioned” issues.

In vertical projects the Cambodia government approved foreign ownership of up to 70% on floors above the second floor, beginning to give some sort of “property rights” to foreigners. Most understand that one of the most beautiful things about Cambodia is that you can own businesses and buildings alike 100%, this is something that is not commonly found in SE Asia and neighboring Vietnam and Thailand do not off the same independent opportunities. That being said, you are not able to own the land as a foreigner and approaching the idea of land ownership must also include a partner who is Khmer, so this must be considered when investing in Cambodia. The good news is that 2001 brought new regulations that protected the interest of foreign investors.

An arbitration center was established in 2010 to handle disputes and although corruption on minor issues is certain still in the process of being “cleaned up” by the Anti-Corruption Unit, no major issues have been reported. Growth is of the utmost important to both the citizens of Cambodia and the government. The education of the middle class to fill the demand for highly educated workers is of utmost importance to government and non-government organizations who plant seeds here! With friendly and progressing policies as well as a team of support to prevent and swiftly address any potential issues, Cambodia can feel like investing at “home.”

Finally, the Cambodia government is favorable to banking growth and stands firm in requiring cash, collateral, etc. to back loans offered by banks. The default ratio for bank loans fell in 2010 to 3% from 6% the previous year and bank lending activity increased by 26.7% to over $3Billion in 2010 alone. Specialized banks exist specifically for financial real estate and similar type loans are in place and Cambodia is ripe for responsible and sustainable development.

Land Ownership and Rights for Use

Do you want to own the land where you are investing? More importantly, do you need to? How important is it? What is the risk if I don’t and will I be able to easily handle a dispute should an issue arise? These are all important questions to have answered when you are purchasing real estate in a foreign country.

The history of Cambodia is complicated yet with the hard work done by locals, NGO’s, investors and expats alike, the future for Cambodia is bright. A decadent place to trust your future finances and a delight for visiting and perhaps even living don’t simply “pass” on Cambodia when you are considering your own foreign affairs. In a world where markets are converging, the means of making and managing money are diversifying.