T
The Soup Dragon
Senior Member
Michthepropertyguru. This is the sort of opportunity I like and was going to post on till I read your response to the thread. (Would like to hear more on this particcular opportunity and have PMed you.)
Investors , lets put our knowledge to the test and see who triumphs
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J
JMBroad
New Member
1) You have €55K to invest in any region, any country ( Land , off plan, resale). You can use as little or as much of the 50K as you want.
2) You are allowed a mortgage if you want (typical 70% ) i.e. you can use the 50K as a 30% deposit and get a mortgage for extra 70% if you wish (fixed mortgage @ 4.9 %)
3) you are allowed more than one investment or multiple units. Split 50K any way you want.
4) You have to sell in 5 years
5) Prove in short concise points why you feel your future potential investment will be the best financially (Figures ans stats) and what you think your Total return will be over 5 years (Appreciation & Rental).
6) Buying costs should be taken into account in your chosen region.
7) Also lets say CGT in the country you reside in is 20% as a constant for everybody. Lets presume there is dual taxation laws.
8) Agents fee of 7% when selling
So who feels he/she has the best investment ? Lets see.
(I appreciate this exercise may take some time in calculating but it will be interesting to see who feels they will have the highest return on their investment)
NB: A final total profit return figure should be calculated after all tax and costs are deducted.
Would anybody like to change alter some of the above criteria before we start ??
Yes, One change to the above criteria In my example there are no mortgages currently available. Apart from that I can live with the rest.
So, I have 50.000 € available.
Speaking in the averages for the northeast of Brazil, the cost of land goes from
0.005 € to 0.05 € for huge plantations of Bio-Diesel land plots
1 € per m2 to 15 €/m2 for development size plots,
26 €/m2 to 123 €/m2 for small 1000 m2 plots to build houses on with basic infrastructure such as light, water, etc not necessarily on the beach
up to 300 €/m2 for villa plots within gated developments with facilities, infrastructure and resort amenities right on the beach.
Generally speaking the built selling value in €/m2 in Rio Grande do Norte (including communal areas) goes from 600 €/m2 to 1500 €/m2 for resort developments with luxury amenities right on the beach.
The villages in this part of Brazil are still very poor. Basic facilities are not always available to the population, waste disposal is still very rudimentary and in many cases the local villagers use an open tip somewhere near the village. Not the most pleasant of living conditions, which is why Brazilian and European developers are now creating resorts in the area in which both local and international individuals are buying to have a holiday home in Brazil without these issues. The Brazilian government just recently announced a campaign to invest millions into these very areas to improve living conditions for the inhabitants.
Pipa to the south was discovered about 30 odd years ago and is a striking contrast to the traditional Brazilian villages, the most rudimentary of which can be seen in the north of the state and inland. The streets in Pipa are clean, restaurants and hotels are booming and in many ways the village has been made more "European". Land prices for developers are scarce and few between and prices are closer to 40 €/m2 for development size plots. Villa sized plots are almost impossible to find.
There is another small village in the area which has (in my opinion) the same potential as Pipa but is still largely undiscovered and prices are extremely low as a result, with individual plot prices are closer to 3 €/m2 and sales value of the existing houses are around 130 €/m2 as in many cases the houses are old and in dire need of a refurb.
Development plot prices in this village have doubled three times at least in the past two years as local and international developers are buying up huge plots to build resorts targetting the European market.
Taking into consideration all the reasons Brazil seems like a wise investment (economy, political stability, growing middle class, increasing tourism, general awareness of Europeans concerning Brazil, etc) and assuming only a tiny percentage of the developers who have bought plots in the area develop them into resorts with hotels, shops, commercial units, etc. 5 years down the line everything indicates that the prices in this small village will have risen to at least the lowest price for the rest of the state.
Initial Investment 40.000 €
4 years later - sell two of the three plots. Expected minimum sales price - 50 €/m2 per 1000 m2 plot (considering location and the fact that there is a refurbable house on the plot) = 50.000 € per plot (100.000€ total). Take 45.000 € of the sales and renovate the last villa to luxury standards.
Sell the last house for anywhere between 125.000 and 175.000 € (average of many existing comparable units available on the market today on resorts)
Cash flow over 5 years -
Year 1: -40.000 € (three small units in an unknown area)
Year 1: -3.000 € purchasing costs
Year 1: -1.000 € property tax and waste collection costs
Year 1: -1.200 € miscellaneous expenses
Year 2: -1.000 € property tax and waste collection costs
Year 2: -1.200 € miscellaneous expenses
Year 3: -1.000 € property tax and waste collection costs
Year 3: -1.200 € miscellaneous expenses
(Total invested: 49.600 €)
Year 4: +100.000 € (sell two of the three units)
Year 4: -7.000 € (agency commissions of 7% per unit)
Year 4: -20.000 € 20% CGT (as OP stated)
Year 4: -45.000 € (rennovate third unit)
Year 5: +150.000 € (sell third unit)
Year 5: -10.500 € (agency commissions of 7% per unit)
Year 5: -30.000 € 20% CGT (as OP stated)
Final balance: 87.900 € (already having paid all expenses and withdrawn the original 50.000 € investment) represents a 177% profit return on investment.
Take into consideration that I've been very conservative with regards to what I personally think will happen to this town. I'm estimating in these figures that in 5 years time properties here will only be equal to comparable properties today in similar areas. Personally I think the town will take off and go way beyond any other area in the state with the exception of Pipa, it should become "the" place to have a holiday home. Additionally, the applicable capital gains tax on the sale of the properties would be less than 20% however there are also costs to send the money to Brazil, and the fluctuation of the exchange rate to consider.
Now this is all theoretical because first you need to find the right properties to buy. I missed an opportunity to buy the perfect one back in November for 14.850 € right on the beach in this town but next trip I'll spend more time there
2) You are allowed a mortgage if you want (typical 70% ) i.e. you can use the 50K as a 30% deposit and get a mortgage for extra 70% if you wish (fixed mortgage @ 4.9 %)
3) you are allowed more than one investment or multiple units. Split 50K any way you want.
4) You have to sell in 5 years
5) Prove in short concise points why you feel your future potential investment will be the best financially (Figures ans stats) and what you think your Total return will be over 5 years (Appreciation & Rental).
6) Buying costs should be taken into account in your chosen region.
7) Also lets say CGT in the country you reside in is 20% as a constant for everybody. Lets presume there is dual taxation laws.
8) Agents fee of 7% when selling
So who feels he/she has the best investment ? Lets see.
(I appreciate this exercise may take some time in calculating but it will be interesting to see who feels they will have the highest return on their investment)
NB: A final total profit return figure should be calculated after all tax and costs are deducted.
Would anybody like to change alter some of the above criteria before we start ??
Yes, One change to the above criteria
In my example there are no mortgages currently available. Apart from that I can live with the rest.So, I have 50.000 € available.
Speaking in the averages for the northeast of Brazil, the cost of land goes from
0.005 € to 0.05 € for huge plantations of Bio-Diesel land plots
1 € per m2 to 15 €/m2 for development size plots,
26 €/m2 to 123 €/m2 for small 1000 m2 plots to build houses on with basic infrastructure such as light, water, etc not necessarily on the beach
up to 300 €/m2 for villa plots within gated developments with facilities, infrastructure and resort amenities right on the beach.
Generally speaking the built selling value in €/m2 in Rio Grande do Norte (including communal areas) goes from 600 €/m2 to 1500 €/m2 for resort developments with luxury amenities right on the beach.
The villages in this part of Brazil are still very poor. Basic facilities are not always available to the population, waste disposal is still very rudimentary and in many cases the local villagers use an open tip somewhere near the village. Not the most pleasant of living conditions, which is why Brazilian and European developers are now creating resorts in the area in which both local and international individuals are buying to have a holiday home in Brazil without these issues. The Brazilian government just recently announced a campaign to invest millions into these very areas to improve living conditions for the inhabitants.
Pipa to the south was discovered about 30 odd years ago and is a striking contrast to the traditional Brazilian villages, the most rudimentary of which can be seen in the north of the state and inland. The streets in Pipa are clean, restaurants and hotels are booming and in many ways the village has been made more "European". Land prices for developers are scarce and few between and prices are closer to 40 €/m2 for development size plots. Villa sized plots are almost impossible to find.
There is another small village in the area which has (in my opinion) the same potential as Pipa but is still largely undiscovered and prices are extremely low as a result, with individual plot prices are closer to 3 €/m2 and sales value of the existing houses are around 130 €/m2 as in many cases the houses are old and in dire need of a refurb.
Development plot prices in this village have doubled three times at least in the past two years as local and international developers are buying up huge plots to build resorts targetting the European market.
Taking into consideration all the reasons Brazil seems like a wise investment (economy, political stability, growing middle class, increasing tourism, general awareness of Europeans concerning Brazil, etc) and assuming only a tiny percentage of the developers who have bought plots in the area develop them into resorts with hotels, shops, commercial units, etc. 5 years down the line everything indicates that the prices in this small village will have risen to at least the lowest price for the rest of the state.
Initial Investment 40.000 €
4 years later - sell two of the three plots. Expected minimum sales price - 50 €/m2 per 1000 m2 plot (considering location and the fact that there is a refurbable house on the plot) = 50.000 € per plot (100.000€ total). Take 45.000 € of the sales and renovate the last villa to luxury standards.
Sell the last house for anywhere between 125.000 and 175.000 € (average of many existing comparable units available on the market today on resorts)
Cash flow over 5 years -
Year 1: -40.000 € (three small units in an unknown area)
Year 1: -3.000 € purchasing costs
Year 1: -1.000 € property tax and waste collection costs
Year 1: -1.200 € miscellaneous expenses
Year 2: -1.000 € property tax and waste collection costs
Year 2: -1.200 € miscellaneous expenses
Year 3: -1.000 € property tax and waste collection costs
Year 3: -1.200 € miscellaneous expenses
(Total invested: 49.600 €)
Year 4: +100.000 € (sell two of the three units)
Year 4: -7.000 € (agency commissions of 7% per unit)
Year 4: -20.000 € 20% CGT (as OP stated)
Year 4: -45.000 € (rennovate third unit)
Year 5: +150.000 € (sell third unit)
Year 5: -10.500 € (agency commissions of 7% per unit)
Year 5: -30.000 € 20% CGT (as OP stated)
Final balance: 87.900 € (already having paid all expenses and withdrawn the original 50.000 € investment) represents a 177% profit return on investment.
Take into consideration that I've been very conservative with regards to what I personally think will happen to this town. I'm estimating in these figures that in 5 years time properties here will only be equal to comparable properties today in similar areas. Personally I think the town will take off and go way beyond any other area in the state with the exception of Pipa, it should become "the" place to have a holiday home. Additionally, the applicable capital gains tax on the sale of the properties would be less than 20% however there are also costs to send the money to Brazil, and the fluctuation of the exchange rate to consider.
Now this is all theoretical because first you need to find the right properties to buy. I missed an opportunity to buy the perfect one back in November for 14.850 € right on the beach in this town but next trip I'll spend more time there
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M
mickthepropertyguru
New Member
Ya thats looks very possible. Thanks for that great post JMBroad.
You have great knowledge of Brazil.
Brazil for me is definitely in the top 3. But i think resales might be the way forward because in 2 -3 years there will be a flood of New Developments and off plan Developments on sale and may hold back the market to an extent.
If i had more time i would go there in the morning
You have great knowledge of Brazil.
Brazil for me is definitely in the top 3. But i think resales might be the way forward because in 2 -3 years there will be a flood of New Developments and off plan Developments on sale and may hold back the market to an extent.
If i had more time i would go there in the morning
J
JMBroad
New Member
The good thing about this location is... well... the location... It really is a special place but also only for a niche market - people looking for the nightlife side of Brazil would hate it there as it's very quiet.
I
Investy
Senior Member
JM, what about the cost of your providing the capital?
You either draw it out of a Bank account and lose interest (13800 lost compound interest before Tax. based on an interest rate of 5%),or you borrow against a UK property and make payments of £12500. Either way this has to come out of your bottom line.
Also your gains will be taxed abroad / here / both, so the net return becomes less still.
When I explored land plots in Exuma, the Bahamas I went right into the history. In the 1970s many Scandinavians were encourage to buy plots.
What I found is that the majority of plots merely went up with inflation and returned less than had the money just been left in a Bank account.
Those that did have significant gain shared some commonality;
1) They were on the beach or had great and close sea views
2) They were near to pre existing roads and servicexs (electricity lines etc)
3) The super gainers were next to or within the walls of luxury development projects, for example the highest gainers were right on the best beach where plots changed hands for millions. The same happened on the island of Abaco. The old timers told me in the 1970s "you couldnt give those darned plots away", yet the best beach plots then went onto to become mega gainers.
4) My top tip is this: ELEVATED PLOTS WITH OCEAN VIEWS. What with unstable weather patterns and global warming I beleive a premium market will develop for elevated sea view plot the world over
Hopefully you will find those elusive super gainers.
I was offered a Brazillian beach plot with permission for £30,000 (500m2 I think) by Ocean Estates but I just couldnt get to the bottom of how safe this purchase was, whether I could physcially build, whether there was a danger of tidal surge (so you cant get insurance) and so on.
You either draw it out of a Bank account and lose interest (13800 lost compound interest before Tax. based on an interest rate of 5%),or you borrow against a UK property and make payments of £12500. Either way this has to come out of your bottom line.
Also your gains will be taxed abroad / here / both, so the net return becomes less still.
When I explored land plots in Exuma, the Bahamas I went right into the history. In the 1970s many Scandinavians were encourage to buy plots.
What I found is that the majority of plots merely went up with inflation and returned less than had the money just been left in a Bank account.
Those that did have significant gain shared some commonality;
1) They were on the beach or had great and close sea views
2) They were near to pre existing roads and servicexs (electricity lines etc)
3) The super gainers were next to or within the walls of luxury development projects, for example the highest gainers were right on the best beach where plots changed hands for millions. The same happened on the island of Abaco. The old timers told me in the 1970s "you couldnt give those darned plots away", yet the best beach plots then went onto to become mega gainers.
4) My top tip is this: ELEVATED PLOTS WITH OCEAN VIEWS. What with unstable weather patterns and global warming I beleive a premium market will develop for elevated sea view plot the world over
Hopefully you will find those elusive super gainers.
I was offered a Brazillian beach plot with permission for £30,000 (500m2 I think) by Ocean Estates but I just couldnt get to the bottom of how safe this purchase was, whether I could physcially build, whether there was a danger of tidal surge (so you cant get insurance) and so on.
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J
JMBroad
New Member
So that we can best compare all the scenarios, we all have to play by the same rules
I mean the compound interest rate loss would apply to any and all of the situations mentioned here so by comparing predicted RoI's we can get a common denominator by which to evaluate them.
As we were using RoI as our measure I included it as well although probably the best indicator would be another (for example, IRR, XIRR, NPV or MIRR depending on your "flavour of the month" ).
30.000 GBP for a 500 m2 plot in Brazil without a building on it = 39.383 € or 79 €/m2 - which is at the top end of the individual plot prices I mentioned for the area and (imo) would have to be something very very very special.
If you compare that to my example, you were offered half of one of the properties I looked at (which had a building already on it) for 2.6 times the price. The locations and surroundings would have to have been outstanding to justify that.
I mean the compound interest rate loss would apply to any and all of the situations mentioned here so by comparing predicted RoI's we can get a common denominator by which to evaluate them.
As we were using RoI as our measure I included it as well although probably the best indicator would be another (for example, IRR, XIRR, NPV or MIRR depending on your "flavour of the month"
).30.000 GBP for a 500 m2 plot in Brazil without a building on it = 39.383 € or 79 €/m2 - which is at the top end of the individual plot prices I mentioned for the area and (imo) would have to be something very very very special.
If you compare that to my example, you were offered half of one of the properties I looked at (which had a building already on it) for 2.6 times the price. The locations and surroundings would have to have been outstanding to justify that.
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mickthepropertyguru
New Member
Thanks guys, Does anyone else think they have got the best investment ?
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