Investing in Indo #4: 3 investors profiles

Before wondering how to find the best deals available in the market, define your “Why”. Why do you want to invest in a particular asset or location? What is your big idea?

I believe this is the most important question to ask yourself before thinking about investing in real estate in Indonesia (or in other types of assets). Understanding your “Why” will help to clarify your investment options and to avoid wasting your time, energy, and most importantly, money.?

From our experience, we encounter 3 types of (individual) investors:

1- “I want my own house”

The location and product type are among the most important factors to consider. Making a return on your investment is secondary. You might want a place for your holidays or a house you want to bequeath to your children and grandchildren. If you are in this situation, and before starting your research or talking to real estate professionals, you should be clear on:

• What’s your budget?
• Where do you want to live? If you don’t know exactly, ask yourself if you prefer to live near the beach or the mountains, are you looking for a busy area full of bars and restaurants or a more quiet place?
• What size are you looking for? Do you want a nice loft for yourself or a big house for you and your family?
• Do you want to build your house or to buy an existing one?

Also, keep in mind that foreigners cannot own land in Indonesia. It is critical that you understand how real estate investment works in Indonesia. Usually, leaseholds are negotiated for 30 years with clauses allowing the extension of the lease at market price.?

2- “I want a nice return on my investment”

Your main motivation here is to make money. The type of project you invest in matters less than the expected return on investment.?

In that case, I think it is important to ask yourself the following questions:

• Why invest in real estate in Indonesia and not in stocks, crypto, real estate... or somewhere else? You should have a sense of the returns you could get if you invest in different assets or markets, to compare your options. And remember "don't put all your eggs in one basket".
• What is your expected return? In Bali, the average return on a property was 8 to 10% before covid. At Tropic Invest, we don’t start a project if the expected ROI is less than 20%. Set your goals early.
• What is your exit strategy? Some properties are more “liquids” than others, depending on the location, if it is built or not, the type of construction... How long do you expect to keep your investment before trying to sell it? Can you wait a while before being able to sell your property?
• What is your risk appetite? In theory, the riskier the investment, the higher the reward. There are areas where the demand is, and will certainly remain, high (Seminyak or Canggu for instance). Investing there should bring you a stable minimum return. However, returns might be greater if you invest in projects in more remote areas like Nusa Lembongan or Sidemen.?

You will need to spend a good amount of time on due diligence, to get a sense of the project fundamentals:

• Market analysis
• Positioning and branding
• Pricing
• Costs structure?
• Ratios such as ROI, IRR, NPV, equity multiple
• Different scenarios: bad, good, awesome
• Legal structure
• Tax implications...

3- “I want both”

Who said you can’t have your cake and eat it too?

The good thing with Indonesia, and Bali in particular, is that you can buy a nice villa for the price of a 10 sqm “apartment” in Paris, enjoy it when you visit the Island of the Gods and rent it when you are away.?

You should expect at least an 8% net return on an investment in a villa in Bali, higher if you do some proper due diligence and work with the right people.?

The goal will be to find the right balance between the emotional aspect of the investment (a nice property near your favourite surfing spot for instance) and the financial one (good location, nice interior design, great property management...).

Finding the right property takes time. Talk to different people and agencies, do your research and due diligence, “try” the product if you can (sleep there one or two nights in the house you wish to purchase), don’t naively believe the many “dream sellers” you can encounter in Bali. And have fun searching :)

For those interested, Simon Sinek famous Ted Talk "Start with why"

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