“Mr. Papageorgiadis, I bet your foreign clients are eager to find desperate real estate owners, close to suicide”
There is a gentleman who has been reading all that I wrote during the last months and understood that I am searching for "desperate" people, to steal their properties. Let us read together his opinion:
Marmic (his nickname) wrote to me:
"I understand what you mean Mr. Papageorgiadis, yet I don't think that Romanians are so special in wanting to obtain more then common sense allows. I bet your foreign clients are eager to find desperate real estate owners, close to suicide, in order to have a very profitable bargain, isn't that so? Business as usual! High profit and morality never get along. Who wants to lose an opportunity?
Best regards,
Marmic"
«Fast, cheap, without checking the documents» (!)
During 2010 I lost a very important deal. I shook hands with an owner to purchase the shares of a company which owns some assets. After our agreement, he practically refused to conclude what we had agreed, as my lawyers "asked him for too many documents". He chose to sell to a local "smecher" who offered him 40% less money, but accepted to buy without any checks and controls (!)
In this case who was the one who "searched for people close to suicide"?
If you don't need money, DON'T SELL
I have a friend who has been here in Romania since the 70s. He is very well connected and succeeded to acquire an impressive portfolio of properties in Bucharest. His income is steady and he does not have any special "vices". Since the end of 2008, he keeps on asking me "Should I sell something?" Knowing that for him "sell" means "find someone to buy my property for the highest possible price that ever existed in Romania and not a penny less", I told him "don't sell, keep your properties for the future". And this is what I suggest to everyone who presents himself as "someone who doesn't need money". DON'T SELL, keep your properties, there will be better times than now.
The reality we live in
So, if you are an investor today:
– The banks don't give you loans.
– If they give you, the interest rate is very high.
– Most of the banks LAUGH when you go to them proposing an investment in Real Estate.
– 80% of all rents are "fragile" and 70% of contracts are "vulnerable" and "possible to be cancelled at any moment".
– More than 60% of all developments suffer, especially the residential ones.
– More than 70% of all properties are expected to remain blocked for another 12 months (at least).
– The Romanian economy did not surpass the crisis, despite all the "predictions" of some "experts".
– Many properties in Romania are still more expensive than similar ones in Western Europe (!)
Facing this reality, do you know any investor willing to pay crazy prices? Why? Isn't it normal for everyone to search for opportunities, if he is in the rare position of having cash now?
Do you have any connection to this reality? Or do you live in your own world, where… "everything is perfect"?
It is a buyer's market nowadays
When a property costs 100.000 Euro and it gives you 8.000 Euro / year, this means that the yield you obtain is 8%. So, if the bank can lend you with the same interest (7 – 9%), what is your reason to buy the property? You will find it very tough even to pay the monthly instalment. So in this case you will ask for a minimum yield of 10% (or if you can borrow with lower costs, you will accept 9 – 9,5%). This is a discussion for A Class properties. When we refer to B Class, you will target a higher yield, assuming the risk to remain without tenant, the contract to break, the rent to be reduced etc.
Many people ask me: "So what does this mean? Should I sell at a lower price and let the buyer benefit of the higher prices in the future?" It seems that the answer is simple: Yes. If you don't find anyone to pay you what you want and you need the money now, you will have to accept the game's rules. It is a buyers' market after all. If you want to keep the future profits of the property for you, then keep it until then and pray that your prediction was right!
Do you remember 2008?
Just two years ago. Do you remember our reality back then? It was a sellers' market and all prices were crazy. Let us take a "high" price for 2010. A price that someone is asking, without anyone to pay for it. If you compare it with the price (of the same property) in 2008, today's high price looks very low!
If one wanted 100 Euro in 2008 and now he wants 60, while the market offers to him 40, he is expensive and he will probably not sell. But this 60 is 40% less than 2008. So, if you compare his price with the recent past, does this mean that this person is "ready to commit suicide"? No, he just started to adjust to the real world. Even if he still asks for a price that the market does not justify, he realizes by himself the market's evolution.
Simple investment strategy
Nowadays, most investors have an easy to understand investment strategy: Either they obtain the price they consider as attractive, or they don't invest. This is very simple and it is not related to morals, hate for the owner etc. If you want a higher price, wait for better times. If not, you will have to accept what the market gives you. Exactly as the buyers had to pay a lot in the past, as this was what the market gave them back then.
Did I make myself clear enough?
PS. Romanian internal market is weak, as we all know. Without the foreigners to return and invest their billions, I doubt that the prices will rise any time soon.