Words of wisdom from real estate guru "Saint"

[MCSE]

Great point of view Argento,

Yes, separating what is a service with increased value, and what is an investment is a very good point. I think one of the problems for a better value on the property in Argentina it's the currency it's too attached to the US dollar. Cavallo (former econ minister) proposed in 2001 to attach the currency to an international conversion of currencies, but he did that when De la Rua was about to fall, however, Cavallo was a visionary. He did the law for peso to dollar 1=1 conversion in the 90's /

Regardless, an apartment in 2004 value was around 1.100 per sq meter and today it's 2.100 per sq meter. USD. If you invested USD, you should have a good return for your investment, but as I menctioned before, the US dollar was devaluated and that's the real problem.

All these guys who now claim to be market predictors and make spectacular killings by buying cheap and selling dear are just in the main, bullshitters. The local guys who do have experience are finishing up their existing projects and getting out. Why you ask? Because they can add up and figure out exchange rates, not only in U$ dollars but also in cross rates with other currencies. The truth is that property has increased in value, but not across the board, only in select localities and only in U$ dollar terms. In Euros, prices for property in the Federal Capital have fallen back, same for Canada, Australia and Japanese currencies. Property prices do not give any yield of any significance. A case in point. A good friend bought an apartment in Belgrano Bajo in 1992 for U$90K. After 16 years that is about its price today. It currently rents for U$600 per month plus expenses, actually paid in Arg pesos. Three years ago the rent was U$350. So this year's rent is U$7200, a yield of under 8%. Maintainance costs in the 16 years are upwards of U$20K. Against the Euro, the capital value has been reduced by 20% and so the reality is, the investment has lost value. And I am not factoring in the current 25% internal inflation which sure makes it look even worse.

Another point. Somewhere along the way, these guys who claim they are making the big bucks, are confused about what is the property and what is the business. Running a serviced apartment business is exactly that. A serviced apartment business. And I notice they don't deduct the management costs and the weeks where they have no guests. Hell you don't need to own the apartment to rent it out short-term. None of the successful hotel chains owns their hotels. They merely operate and pay rent as do most of the apartment / hotels in the States and Europe. Property investment is about capital growth and a yield on current value, over and above inflation.

So will all these big-noters please post their predictions for the next 2 years, expressing the yields in a convertible currency and what the capital value of the property will be in 2010. Before the game, not on the Monday morning after. Then we can see if they are as good as they claim.

Argento

[Argento]

All these guys who now claim to be market predictors and make spectacular killings by buying cheap and selling dear are just in the main, bullshitters. The local guys who do have experience are finishing up their existing projects and getting out. Why you ask? Because they can add up and figure out exchange rates, not only in U$ dollars but also in cross rates with other currencies. The truth is that property has increased in value, but not across the board, only in select localities and only in U$ dollar terms. In Euros, prices for property in the Federal Capital have fallen back, same for Canada, Australia and Japanese currencies. Property prices do not give any yield of any significance. A case in point. A good friend bought an apartment in Belgrano Bajo in 1992 for U$90K. After 16 years that is about its price today. It currently rents for U$600 per month plus expenses, actually paid in Arg pesos. Three years ago the rent was U$350. So this year's rent is U$7200, a yield of under 8%. Maintainance costs in the 16 years are upwards of U$20K. Against the Euro, the capital value has been reduced by 20% and so the reality is, the investment has lost value. And I am not factoring in the current 25% internal inflation which sure makes it look even worse.

Another point. Somewhere along the way, these guys who claim they are making the big bucks, are confused about what is the property and what is the business. Running a serviced apartment business is exactly that. A serviced apartment business. And I notice they don't deduct the management costs and the weeks where they have no guests. Hell you don't need to own the apartment to rent it out short-term. None of the successful hotel chains owns their hotels. They merely operate and pay rent as do most of the apartment / hotels in the States and Europe. Property investment is about capital growth and a yield on current value, over and above inflation.

So will all these big-noters please post their predictions for the next 2 years, expressing the yields in a convertible currency and what the capital value of the property will be in 2010. Before the game, not on the Monday morning after. Then we can see if they are as good as they claim.

Argento

[Miami Bob]

Insight from the Master about the market that will never correct:

Apartmentsba.com.

Intermediate Member.
Username: Saint.
Post Number: 185
Registered: 5-2005

Posted on Tuesday, September 11, 2007 - 12:11 pm: Edit PostPrint Post.

Benco,

Yes, diversification is the key. It's part of the reason why so many foreigners are interested in getting their money INTO the real estate market in Argentina. It's still relatively cheap compared to most world capital cities around the world.

I've been flying around this year to evaluate real estate in many large cities throughout the world. It's amazing the value that Buenos Aires still represents. I was recently in London where property in Kensington was over u$s 25,000 a sq. meter! In Madrid and Barcelona where I was also researching it was about u$s 12,500 per sq. meter in prime areas / buildings. In Manhattan in many developments I was looking to buy into $15,000+ per sq. meter. In the ritziest area of Recoleta I can still buy for $3,000 or less per sq. meter and what's more incredible is that I can charge more per night than I can in Madrid or Barcelona! Case in point, I rented a million dollar apartment in Barcelona and I paid u$s 250/ night. That same apartment in Buenos Aires would cost about $250,000 and I'd charge $275 per night.

Diversification is good and the sub-prime mess is only the tip of the iceberg. I called the sub-prime mess publicly about 2 years ago. I predict it will get worse as more ARM (adjustable rate mortgages) set to go higher this and next year. The foreclosure rate in the USA is at an all time high. I predict the same thing that is happening in the USA will happen in London sometime in 2009 or 2010 (maybe sooner) They are handing out money there like it's free. The real estate has gotten so expensive that the finance companies and banks are being forced to give out loans to people that shouldn't be getting loans (same thing that happened in the USA) Some of the multiple ratios relative to the salary levels are insane.

I think Benco you made excellent points. Diversification is the best thing. Yes, dollars are better than pesos but the dollar is an extremely weak currency around the world. I bought a ton of Euros and British Sterling a while back and they have all appreciated significantly and don't expect the dollar to get strong anytime soon. Look at the Canadian dollar. Remember when it was 65 cents on the dollar. In case people haven't noticed, it's 1:1 now. That should be a wake up call.

The world is a changing place. Remember when you read stories not a great while back about people starving and waiting for bread in lines in Moscow. Look what happened there now. It's the most expensive city in the world. Starbucks just moved there and a large Cappachino is almost u$s 9 there! Almost double of New York.

People are so pidgeon holed with a "the sky is falling, the sky is falling attitude" (especially as it relates to Argentina) History has proven that sometimes the best time to buy is "when the sky is supposedly falling". I saw the sub-prime mess in the USA and I'll start buying real estate again there once I feel it has hit the bottom which I think might happen in mid to late 2008. I think there will be some bargains out there. I first started buying real estate in Argentina in 2004 a good 2 years after the crash. I wish I bought at the bottom like my instincts told me and bought in 2002. Instead I wanted 2 years. Still, I'm buying more now than I did in 2004. I still believe you will see a big capital appreciation upwards in a country where there is nothing left to invest in besides real estate and the investment is in dollars NOT pesos. The locals can't and won't put their money in the bank and banks are itching to get into the mortgage market. All these things spell more supply side increase and supply side increase signals prices going higher. And you have a system that is almost all 100% cash now so these INVESTORS that bought real estate had 100% of the cash so the market is insulated and essentially bubble-proof UNLIKE the situation in the USA where it's all built on fantasy (credit)

[Seaman]

I bought the top floor which is always the most desirable.

Well, then Saint is advising 100% differently than any other real estate agent in Buenos Aires, and also differently then the locals.

They will tell you to stay away from the top floor since the top floor always has problems with leaks etc. (Yes I know, this is not valid in New York etc, where the top floor is the Penthouse, so the most desirable.)

[Miami Bob]

THE FOLLOWING POST WAS SPOTTED ON ANOTHER WEBSITE. I thought that many would be interested in how the Saint is advising his potential new clients today.

Apartmentsba.com
Intermediate Member.
Username: Saint.
Post Number: 193
Registered: 5-2005
Posted on Sunday, September 16, 2007 - 7:39 am:

Hi Alex,

Yes, I TOTALLY agree with you. Real estate, and any investment for that matter, has some risks. And that includes real estate purchased in the USA. People laughed at me a few years ago when I told them that banks were giving out too many loans in the USA and bad things were going to happen. That there was risks there. That has proven to be true.

As you mentioned, real estate has risks anywhere in the world. What happened in the Ukraine and Russian real estate market has been incredible. I also had the chance to buy real estate in Eastern Europe several years ago and I passed on it because of fear, distance (being so far away) and not knowing anyone there reliable to manage the properties for me. Hindsight is 20/20 but I wish that I invested in a small property there. They have gone through the roof so congratulations.

You were wise to move here and see the market personally and manage them. It's impossible to build up a company from afar. I first came down to Buenos Aires, came down every month (or more) for 2 years before I decided it had to be done there in person if I really wanted to build up a serious company. That was the right decision.

Your #'s are spot on. When I started my business here in 2002, no one in the city was offering luxury rentals. I was the first one. And at the time there were only 3 or 4 rental companies and they were all pretty much offering cheap properties. When I was making my business plan I knew the market wouldn't be the best at the cheap end but better at the high end. Why? Because the high end attracts better quality of rental clients. People that usually pay $150 - $500/ night are usually staying at 4/5 star hotels and that has proven to be the right call. Also, business, corporations and Embassies make up about 35% of my total clientele now and that is growing.

As I've mentioned before and on my website, the fixed costs of owning a property here are very low. You have your monthly condo fee (which is usually from 200 - 600 pesos. Of course it can be more if it's a big property or has many amenities in the building like 24/7 security, pool, etc) Your utilities are fixed and subsidized so they are extremely low. Your property taxes are set at 0.75% a year based on the listed price on the title deed. Your biggest expense will be your property management fee to have a company or individual manage your property and pay your bills, handle the rentals and the your next biggest expense will be the AFIP rental taxes of 21%. So most people are making great cash flow in the meantime the capital appreciation has been steadily going up.

Yes, this isn't rocket science here. You can plug everything into a rate of return spreadsheet to estimate net rate of return as you can plug in all the numbers and estimate return. Of course prices keep rising here.

Alex correctly mentioned that new construction projects offer amazing return potential. However, they also have more risk than pre-existing properties. You have to be really really careful who the developer is. These are all speculation projects and they are building the buildin with pre-sales and sales during the building. So if something happens you can get stuck.

My best returns have been getting in projects when there is a hole in the ground. I know the developers or worked with them before. It's frustrating waiting but often times you can have a 100% return in less than two years. I got into a few projects on new constructions in mid 2006 that will be done in January 2008. I bought a few floors in the building and the investment went up 100% from then until now. I bought the top floor which is always the most desirable.

So again, not everyone is a candidate to buy in Argentina but those that have the cash to do it and have. Have been pretty happy. I think someday Argentina (in several cities) you could see the scenario of what Alex described above. Waking up and a decade later seeing your properties worth a mini-fortune. That is the whole idea of real estate to me. Buy low, sell high.

Best of luck to all.