Dear Investor

I’ve had a busy few days with property investment seminars and a few media interviews including “A Place in the Sun” and the “Sunday Business Post” in Ireland.

For subscribers who live in Ireland, Jet-to-Let Magazine will be at the Sunday Business Post property exhibition in Dublin from Friday 16th February to Sunday 18th February on Stand H14. I will be presenting a seminar on property investment and will also be accompanied by a few senior staff members who can answer any questions you may have on investing in property.

We will also have an informal seminar on property investing, particularly looking at the Cyprus property market, on the evening of Saturday 17th February. If you wish to attend, then please call the office on 00 44 151 482 5526 if you are in Ireland or 0151 482 5526 if in the UK.

Welcome to our new look newsletter which we will send out each week with news items and a few comments from yours truly. We are well underway with the next edition of the magazine which we hope to have with you by the end of next month. We now have a large number of subscribers resident outside of the UK and Ireland in 25 other countries including Australia, Denmark, India, Kazakhstan, Kenya, Libya, Nepal, New Zealand, Oman, South Africa, Spain, Switzerland, UAE and the US to name a few. That would be an interesting seminar circuit!

I am often asked whether I consider Eastern Europe a good investment area for novice and experienced investors alike.

Well, the former possibly and the latter yes, why not?

So, why the difference?

Experienced investors should understand the concept of “negative cashflow” investing, which basically means that the rental income does not cover expenses or operating costs.

The concept is that you trade income (in this case you “subsidise” the operating losses from other income sources) for potential capital growth.

This strategy clearly carries a significant risk – why?

What if property prices actually fall, rather than rise?

What if the paper capital growth is not materialised?

What if there is no re-sale market?

What if locals cannot afford to rent these new build apartments?

What if already high interest rates rise? (big risk, particularly in non-euro currency areas such as Romania)

I think Romania is a case in point where some of the forecasts really do beggar belief. It is difficult to understand some of the hype. Here are some facts:

New build property aimed at non-Romanian investors (i.e. you and me) starting at £60,000

Average local salaries of about £150 per month or £1800 per annum

House Prices to Earnings (HPE) ratios on these Romanian properties - a staggering 33.33

UK HPE today at 5.7 is considered to be high!

Real GDP growth in Romania is forecast to decline by almost 50% over the next 5 years. (The Economist)

And a volatile currency

Often companies marketing developments in some of these countries publish Return on Investment figures of 200% to 300%. I am very sceptical and would ask for examples where in the re-sale market investors are achieving such returns.

Or is it a marketing ploy based solely on developers raising prices for subsequent phases and sold in the main, to other “investors?”

I think markets such as these should be avoided by novice investors who should cut their teeth in more traditional markets where the risk adjusted return can be as strong as any potential return in some parts of Eastern Europe.

Food for thought.

Dominic Farrell

P.S. Happy Birthday Mum