The FT recently reported something which we believe to be very important in the overseas property market as a whole and not just the bank repossessed homes for sale in Detroit currently.

What went wrong?

In our view, the information that was given to investors was all about the positives and seemingly no consideration was given nor passed to investors about the potential risks they were about to take.

The properties were sold as an investment that would be refurbished and tenanted in 90 days, however some of the properties purchased by investors were neither tenanted nor even market-ready,

With no tenants in them producing any yields, the yields predicted were simply unsubstantiated and that is a very weak premise on which to buy a property. This is due to the fact that although one can predict whatever level of income is attractive only properties with contracted tenants are likely to provide genuine income.

The real problem as we see it.

The main issue with this investment was that the client was paying all the money upfront which included monies to cover the cost to refurbish the property and securing a tenant. There are much safer and better quality Detroit property investments where the properties are refurbished in advance of the client parting with any money and a managing agent with a tenant already in place.

It goes without saying that with any “buy to let property” you could still face ongoing maintenance issues, but at least with a tenant in a property when you purchase it, you have a better chance of covering those issues with a rental income.

The investors mentioned in this story placed a lot of faith in the marketing hype and many ended up with delapadated properties with no hope of them being tenanted. Anyone investing in this market place should be looking for minimal risks, a strong track record of property management with low tenancy voids and as a minimum, photographic evidence of the quality of the property both inside and out prior to purchase.

Two many middlemen taking too many cuts.

The other issue we can see with the repossessed homes being purchased was that there were too many people in the chain that needed and wanted to make a profit out of the purchase. A large proportion of the investment would have gone towards covering all these parties incomes, rather than the investment itself, a problem we see all too often in international real estate.

Is US property still a good investment?

Categorically, yes, and if you don’t take our word for it then see this recent video where Warren Buffet described the property available right in areas across the US as a good investment. Buying formerly repossessed homes for sale holds true value to the investor who is able to profit from high yields, the long term capital growth should be seen as a bonus and not expected nor relied upon, ever.

Marketing that is economical with the truth and investment schemes which have too many third parties profiting will always cause these kinds of issues.

At Davenport we will only deal with properties that have already been carefully selected, fully  refurbished and have a tenant in place with an agreed rental income.

In terms of the links involved in our chain there are only two, us and the property owners.

To see our Detroit properties and listings please click here, we also provide the same service for Atlanta properties.

We’ve been watching Cape Verde for a while, and in particular the progress of The Resort Group.

As an emerging market comes through the early stages passing past the point of where early adopters come on board, it reaches a near vertical line of growth. Ultimately, the early adopters benefit the most from this sort of growth however that’s not to say that there isn’t a whole lot of growth and income left, the cycle has only just really begun and the Early Majority then flood in.

Investors seeking high returns have good chances of getting achieving in this type of an emerging market. Given that national papers are reporting on this kind of progress indicates a comfort blanket of raw data.

We’ve watched the early adopters take do their part and now with the advent of national press reporting in, it indicates that the cycle has reached the early majority phase.

Sources:

Telegraph article

OPP article on hotel increase