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Real Estate Investing for Former Communists
June 13th, 2007 categories: Real Estate News
A lot of people who are active in real estate investing eventually start to “go international”, and with good reason. If you do your homework you can find deals as profitable or even better than in the US. It is easy to put blinders on when thinking about overseas investments and coming to the conclusion that it is too risky, too everything…
The facts are that different countries and different cities undergo economic changes that are just like those in the US. We should remember that there are many economic principals that apply anywhere in the world.
Here’s one place I want you to at least think about – Berlin, Germany. Berlin is the largest city in Germany with around 3.4 million people. When the wall and Communism collapsed in 1989, Berlin became the capital. This was a good thing in that prewar-Berlin was once one of the premier cities in Europe. Taking its place with Vienna, Paris, and London life was grand. With the war and rise of Communism, Berlin suffered extensive physical damage as well as socio-economic damage.
With the re-unification of Berlin and it becoming the German capital there has been great speculation that there will be a rapid increase of people and industry flowing into the capital. 
While there has been large amounts of modernization and building (especially in former East Berlin), unfortunately the influx of outside cash, industry, and people has not yet occurred. As a result property values have declined. According to a recent article in the International Herald Tribune values dropped every year from 1996 through 2004.
The trend now seems to be reversing. By the end of last year Berlin had seen a significant increase in the amount of money being spent on property. You combine that with the fact that Berlin is probably the lowest-priced city in Europe. The Herald Tribune article states Berlin properties can be 20 – 25% of similar properties in London. Note NOT 25% less but one-fourth of the price…!! That should make you sit up and take notice.
Okay…you are now ready to jump the next Lufthansa flight to Germany? Be careful. Like I stated above, do your homework. First of all be aware that the US dollar is fairly weak when compared to the Euro. Currently $1 will only get you $0.75 Euros. Also note that unemployment and consumer confidence in Berlin has been negative. The general philosophy is that Berlin offers under-valued properties at this time. An undervalued product is often a good thing….the key is when does it not be called “undervalued” Most are saying that Berlin real estate is on the upswing, but the upswing is a long slow arc. You can’t expect to hop that Lufthansa flight this afternoon and play on the Riviera next year. Expect to hold onto your investment for possibly a number of years. However, if you have the staying power, your initial investment might be worth your efforts.