1. PRO PERTY IN V ESTM EN T: T E N M O S T E X P E N S I V E M I S TA K E S P E O P L E M A K E A N D H O W T O AV O I D T H E M .

2. PROP ER T Y I NVES T MENT : TEN MOS T EXP ENSI VE M I S TA K E S P E O P L E M A K E A N D H O W T O AV O I D T H E M . Almost uniquely, property as an asset class is something the vast majority of working adults can understand. After all, it is a big solid immovable asset and we spend most of our lives inside one. There is no complicated mathematics involved and it is easy to compare prices. Everybody knows that are two ways you can earn money from a property rental income and capital appreciation. Despite its innate simplicity, the huge range of locations, property types, buyers and sellers (not to mention emotions!) have led otherwise intelligent buyers to make all kinds of extremely expensive and stressful mistakes. In this short paper, Im going to outline the top ten most expensive mistakes Ive seen property buyers make during my ten years in this industry. More importantly, Ill also describe how you can avoid them!Director, Torcana Ltd.2 3. 1C H O O S I N G T H E B E S T R E N TA L YI ELD I NS T EAD OF T HE BES T P ROP ER T YEvery day, I receive 5-10 emails from sellers promising outlandishly high returns from properties theyre offering. Heres a sample: Up to 191% returns from $15,000 14% net yields in Orlando Florida 20% returns in one year, government backed Fully renovated property, 18% return! To clarify: the yield of a property is simply its net income as a proportion of the sales price. For example, if you bought an investment property for $50,000 and you earned $5,000 per year in rental income after expenses, then your yield is 10% ($5,000 / $50,000). Generally speaking, the higher the advertised yield for a property, the more interested people are going to be in buying it. I know this because Ive marketed hundreds of properties in the past ten years and Ive spoken to thousands of people about buying them. If the choice was between buying investment property A with a 7% yield or a similar looking property B with an 11% yield, then most buyers would tend to go with option B.3 4. 1C H O O S I N G T H E B E S T R E N TA L YI ELD I NS T EAD OF T HE BES T P ROP ER T YHigh yield = high risk What we all need to remember is that yield is directly proportional to risk. This is a fundamental truth in every asset class. Example 1: You can earn 7% buying Spanish government bonds or 2% buying USA government bonds. Theres a reason for this difference investors demand a premium for the higher risk. Example 2: By investing in a small mining firm with rights to a gas field in China, you might earn 20 times what you invested after funds are raised to build and connect a pipeline. But theres a much higher chance that youll earn nothing at all. Real estate is no exception to this rule - the highest yielding properties are never the safest investments. They are the riskiest ones. If the initial rental yields are very high (12-15%), then the risk is also high that this property is located in a low income neighborhood and/or there are a lot of hidden overheads that you were not told about. In my experience, high yielding properties where you have added no value will almost always have higher maintenance fees, higher management fees, more transient tenants, higher unemployment rates, poorer access to schools, employers & amenities and difficult prospects for resale. In other words, you might get 15% the first year if nothing goes wrong. In years 2, 3 and 4 expect single digits (or worse, a negative return). Like everything else, there is a happy medium. In my view, a net yield in Florida of 6-8% is a very acceptable compromise between safety and risk.4 5. 2R U S H I N G I N T O A P U R C H A S E T H AT D O E S N T SUI T YOUR BUDGE TYou might think that people dont rush into buying property any more. Surely we have learned from all the crazy and ill considered purchases made during the boom? People consider all factors carefully before signing on the dotted line right? Nope, Im afraid not. Peer pressure still exists.People still dream of owning a home they cant afford.Buyers still worry that they might miss out if they dont take action now.We still seek reassurance from the seller (of all people!) that this will be a good idea.1. Budget is a hugely important issue. Im not just talking about setting some funds aside for unforeseen expenses (like buying a new a/c unit or an unexpected vacancy period). Buyers really need to analyze their finances very carefully before deciding that they can afford to purchase. For example: $75,000 might be a great price for a 2 bed condo in a nice part of Jacksonville, Florida and it might rent out for years with little or no trouble. However, if your life savings total $100,000, then you should absolutely not be buying this property. Depending on your age and the stability of your job, I would not invest more than 60% of my cash on a property in Florida (or anywhere else).5 6. 2R U S H I N G I N T O A P U R C H A S E T H AT D O E S N T SUI T YOUR BUDGE T2. Timing. Any real estate purchase should be considered a medium to long term investment. More often than not, this means you can earn a nice income for many years and sell at a profit in the future when prices have increased to a level youre happy with. With prices at 30% of their 2006 peak in many areas, I can see lots of buyers doubling their money if they resell in 7-10 years time. The flip side is that you should not purchase an investment property today if there is a possibility that youll need to cash out within a year or two. If this is the case, you could very well end up selling at a loss. Even if prices increase by 5% in the interim, you would end up with a net loss due to the purchase and selling costs involved.6 7. 3MI XI NG I NVE S T ME N T & VACAT I ON PROPERTIESFlorida can be both a great place to invest in property and a great place to live, retire and go on holidays. After all, it has a warm climate, a great infrastructure, nice beaches, hundreds of golf courses and more restaurants, shops and attractions than youll ever need. However, there is a big difference between buying investment property and buying vacation property. An investment property is just that, an asset you bought to maximize rental and resale income. If you are lucky, youll have the same tenant for several years and monthly income will be very regular. These properties are not for personal use (although some buyers will choose to rent full time for 10 years and then use it themselves during retirement, which I think is a great idea). Income can be earned from a vacation property, but it should not be considered a regular or a reliable income stream. Some months you earn lots of money, and others you earn nothing (but still incur running costs). Also, tourists are fickle and management expenses for short term lets are very high (a lot more work is involved getting 6 families in and out of a property during peak season compared to managing a single tenant on a one year contract). More importantly, the exit strategy for an investment property usually involves finding a local buyer who wants to live full time in that area. If you bought in a desirable location, you should have no trouble selling at market rates. On the other hand, the exit strategy for a vacation property usually involves finding a non local person who will buy it as a holiday home. Despite the millions of tourists coming and going, this is a shorter list of potential buyers.7 8. 3MI XI NG I NVE S T ME N T & VACAT I ON PROPERTIESIn my view, there is a profitable way and an expensive way to mix vacation homes with investment homes. The expensive way is to rent out your holiday home when you are not using it. Aside from irregular income, this can be very time consuming, stressful and the wear and tear on your fixtures and fittings can be substantial. While you might love the idea of having a vacation home near Disney now, your family might not be so enthusiastic in 5 years time. There is another, much simpler, more flexible and more profitable option. It goes like this: purchase an investment property, rent it out to a local on a long term lease and use the money earned to go on vacation wherever you want. The net income earned from a 2 bed condo should be more than enough to rent a 4 bed pool home for a couple of weeks every year.8 9. 4UNDE RE S T I MAT I N G T H E I MP OR TANC E O F I NS P E CT I ON RE P OR T S AND RE PAI RSHaving a professional property inspection carried out after youve made a deposit but before you have signed the closing documents is the best way to identify any major potential repairs. A competent inspection company will quickly identify issues a layman would not notice relating to wiring, plumbing, insulation, infestations, heating, air conditioning, damp and much more besides. Inspection reports usually cost less than $300 and could save you a fortune. For example, an unexpected purchase of a new air conditioner and boiler could easily cost you $10,000 and wipe out an entire years net income. While major expenses can be identified in advance, minor repairs will always occur during the lifetime of any property. Windows can break, fridges and washing machines eventually need to be replaced, leaks sometimes occur, filters need to be cleaned etc. These are all typical wear and tear issues that you should be prepared to pay for when buying investment property. As you would expect, some years will be more expensive than others. In summary, you can avoid major surprises by getting a professional property inspection done during your due diligence period and every landlord should be prepared to pay for minor repairs and other wear and tear issues. It makes sense to create a contingency fund equal to 3 months gross rental income to cover unexpected costs. Leave this money in your local bank account so it can be easily disbursed to the management company to cover additional expenses.9 10. 5N O T K N O W I N G T H E R I S K S T HAT CO ME WI T H VERY CHEAP P ROP ER T I ESDuring the property boom years, buyers looking at investment property in Florida often purchased the most expensive homes they could afford. With unlimited credit and reckless lending standards, many ended up buying property that was way beyond their means. Modest three bed pool home? Forget it. We deserve a 5 bed pool home with a large back garden. In the subsequent crisis years, many would be investors are doing the exact opposite - i.e. purchasing the cheapest property they can get their hands on, often using price as a substitute for research. Its $40,000 and used to cost $120,000. Whats the worst that can happen? Somebody will rent it. While it is true that property values have fallen tremendously, that does not mean the cheapest properties make the best investments. On the contrary, they are often loss making and time consuming. To illustrate the danger of targeting a cheap investment property, let me describe some condos for sale in Orlando Florida that I researched recently. On first glance they looked ok - a gated community with swimming pool, fitness center, childrens playground etc. Units ranged in price from $38,000 - $45,000 and net yields were 7-10%. Many of Orlandos main hotspots were within a 15 minute drive. Whats not to like? Plenty as it turned out. The HOA reserves were hopelessly inadequate to maintain the facilities and the building structures. Almost 50 of these units were in foreclosure or short sale with asking prices way below what was being offered to me. Average household income was one of the lowest in the city and the crime rate was very high.10 11. 5N O T K N O W I N G T H E R I S K S T HAT CO ME WI T H VERY CHEAP P ROP ER T I ESMost of the leases of the tenanted units had expired or were about to expire. Driving around and through this neighborhood was like something out of The Wire, a gritty TV show based in Baltimore. Perhaps youre not too bothered about the condition of a property as long as its generating a 10% net yield? I mean, its not like youll be asking your mother to spend the summer there right? However, you might want to consider the following: the rents will decrease because there are too many vacancies, your HOA will increase because too many people arent paying their monthly dues. Your repair bill is going to be high because the properties are nearly 30 years old and these tenants are much more likely to break stuff than those renting in a wealthy neighborhood like Windermere or Bay Hill. You will also have vacancy periods every single year due to tenants regularly leaving and/or refusing to pay their bills on time. In other words, that +10% net yield can turn into -10% quicker than you can believe. After all, were only talking about +/- $4,000 per year on a $40,000 property. As for capital appreciation? Forget it. You would do well to sell a property in this community for the same price you bought it for in 5 years time. That doesnt include the stress it will have caused or the hole it will burn in your wallet every year with those negative cash flows. If you are not careful, buying a cheap investment property during a downturn can cause just as many problems as buying an expensive one during a boom.11 12. 6NOT DOI NG YOUR HOMEWORK ON T HE SELLI NG AGENTIn my experience, prospective buyers often spend the vast majority of their research time examining potential properties but nowhere near enough time doing their homework on the person or company who is actually promoting it. However, if you ask the right questions, doing your homework on the promoter is easy, straightforward and very worthwhile. If your agent or realtor has been in business for a few years, he/she should be happy to put you in touch with a couple of satisfied clients who can verify that they were happy with the service received. A testimonial section on a website is not enough either you should make the effort to email and speak with previous clients. In addition to client references, every Realtor will have a license number you can double check and every overseas based agency who promotes property in Florida should be able to supply banking and accounting references. Dont be afraid of asking for these documents as the majority of people would take this request as a buying signal and will happily supply them. If I sense a client is getting hesitant, I would often offer to supply client and banking references without being asked!12 13. 6NOT DOI NG YOUR HOMEWORK ON T HE SELLI NG AGENTJack of all trades I would be a little wary of overseas based agents who promote properties in a wide variety of countries. The vast majority are honest and well meaning, but their lack of local knowledge may hurt your chances of securing a profitable long term investment. For example, the likelihood of an overseas agent with a limited knowledge and no local presence securing a genuinely great investment property in Florida is slim. The market is just too competitive. If you deal with people who are on the ground and happy to supply basic reference materials, then you can focus the rest of your energies on the property itself.13 14. 7FA I L I N G T O A P P O I N T A C O M P E T E N T P R O P E R T Y M A NA G E RA property manager generally has two roles to play: keeping the property owner happy and keeping the tenant happy. Its not an easy job and it is very labor intensive. A professional who manages your portfolio and your tenants well over a number of years is worth his/her weight in gold. All property managers charge additional fees for placing a new tenant or renewing the lease of an existing tenant, so you should make yourself aware of these and input them into your calculations. The better your management company is at doing his/her job, the happier the tenant will be and longer he/she will stay. Having tenants move in and out on a regular basis is a stressful and expensive experience that should be avoided at almost all costs. Amongst other things, your management company is responsible for: Liaising with your tenantEnsuring they pay on timeOrganizing any repairs necessaryCommunicating with you on a regular basisPaying you the balance of your rentProviding monthly statementsPlacing new tenants.14 15. The best management companies are those who know how to keep tenants happy and nip problems in the bud. Equally, property owners who delay or refuse to make repairs risk disrupting their own income stream. Slack management and inflexible landlords are frequently the cause of unnecessary vacancies and tenant disputes. Dealing with vacancies Vacancies are part and parcel of being a residential property landlord. While there is always an element of good or bad luck involved, this is an area where an investor can take considerable steps to minimize disruption and costs. The amount of time you put into researching the location of your property and the track record of your management company will be saved tenfold in future problems avoided. There are a number of questions you need to know the answers to before purchasing a rental property: Is there a strong rental market in this area?Is it zoned for long term or short term rentals?Is demand from locals or foreigners?If foreign demand dries up, can locals afford to rent this property?Is it easy to evict tenants?Your property manager is your eyes and ears on the ground so it is very important that you develop a good working relationship with them. They work for you so please do not be afraid to ask questions and seek advice, but be polite and respectful. To minimize vacancies, make sure your management company has a track record of keeping both tenants and landlords happy. Get some references from them! If a request is made by a well behaved tenant, make sure they get a polite reply and that action is quickly taken to solve their problem.15 16. 8F O R G E T T I N G T O F I L E TAX RE T URNSEverybody who owns a US property must file tax returns to the US authorities every year, even if the property is not earning any income. Overseas residents will need to get a tax number (ITIN) and a non resident social security number. Both are very easy to apply for. A 1040-N is the standard form most people need to complete every year. This is a very simple process and filing returns every year shouldnt cost more than a couple of hundred dollars in fees. Failing to file tax returns and pay property or income tax is a very serious issue in the USA, even though very minor amounts of money are often involved. If nonpayment goes on for long enough, you could lose your property through a forced foreclosure. The key is to make contact with and appoint an accountant during your first year of ownership who can file returns on your behalf. The accountants and tax people we work with have helped hundreds of overseas residents file straight forward tax returns over the past ten years.16 17. 9F OR GE T T I NG T H AT C AP I TAL A PP R E C I AT I O N TA K E S T I M E , PAT I E N C E A N D P L A N N I N G .At the height of the real estate boom, it would probably be fair to say that far too many people invested in short time scales without giving sufficient consideration to tax, finance, cashflow and underlying demand. So, how do we avoid falling into that trap again? Anybody fortunate enough to be acquainted with financially successful people will probably agree that they are unlikely to invest their hard earned income without a long term plan in place. If they wanted to retire in 20 years time, you can be sure they had a 20 year plan in place (or at least multiple 5 year plans). Its also likely they have a firm control of their cashflow and stick to a set of basic investment rules before committing to anything. What are these basic rules? I certainly wont pretend to know all the secrets, but I do have some guidelines that all serious long term buyers should follow. Short term investing is for gamblers. Very few people can do this successfully. Purchasing something with a long term view is far more likely to yield profits. Think about where you want to be in 8-10 years time, and invest with that in mind. For example, I think its unlikely property prices in certain parts of Detroit will increase between now and 2020, but well chosen properties in Florida should rise in value substantially (they already have in certain zipcodes).17 18. 9F OR GE T T I NG T H AT C AP I TAL A PP R E C I AT I O N TA K E S T I M E , PAT I E N C E A N D P L A N N I N G .High quality assets attract a premium at purchase and resale. If you want something to generate a long term and reliable income with a minimum of headaches, then be prepared to pay a little extra for a better location, a larger property, good facilities and a well run management company. The additional cost will pay for itself many times over in the long run. Stay away from gimmicks - the best deals dont have them. Examples include guaranteed rentals (especially if they are over 10%) overly generous payment terms, a new golf course or airport on the way, a big global event coming to town etc. Ask yourself a simple question: where do people want to live? Stick to the fundamentals such as location, average income, build quality, the financial health of the development/developer and proximity to high quality schools and employers.18 19. 10NOT S P ENDI NG ENOUGH T I ME T HI NKI NG A B O U T A N E X I T S T RAT E G YAt Torcana, we have always believed in simple universal principals of property investing which apply equally to booms and busts. They are Purchasing in the best location your money will get youBuying at the bottom rather than the top of the cycleCrunching the numbers properly carefullyUnderstanding what due diligence is necessary and how to do itOver the long term, real estate that adheres to these principals has proven to be a strong wealth preserver, a steady income earner and a smart hedge against local inflation. Think very carefully about who you can sell to in 8-10 years time. It is far safer to purchase in areas where locals rent and buy, as tourist markets are notoriously fickle and prone to bubbles. All of the products and services Torcana source are with long time frames in mind and we firmly believe that it is the decisions we make now that will determine how wealthy we will be in 2020, not those we make in 4 or 5 years time If you are willing to choose carefully, investment property in Florida can be a tremendously rewarding and profitable addition to a balanced portfolio. This is particularly true in the current environment when high quality property can be purchased at prices last seen in the 1990s.19 20. T H E T E N M O S T E X P E NS I VE MI S T AKE S P E O P L E M A K E A N D H O W T O AV O I D T H E M Summary: 1. Choosing the best rental yield instead of the best property 2. Rushing into a purchase that doesnt suit your budget 3. Mixing investment and vacation properties 4. Underestimating the importance of inspection reports and repairs 5. Not knowing the risks that come with very cheap properties 6. Not doing your homework on the selling agent 7. Failing to appoint a competent property manager 8. Forgetting to file tax returns 9. Forgetting that capital appreciation takes time, patience and planning 10. Not spending enough time thinking about an exit strategyIf you enjoyed reading this report, you can download additional ones for free by visiting here.20 21. A B OU T T OR C AN A Torcana Ltd is an award winning investment specialist which promotes a variety of completed, conservative and cash flow positive properties in the USA & UK. Our focus is on established and affluent areas with strong domestic rental and resale demand. Additional Services As any property landlord will know, selecting and paying for the unit is only the first step to ensure that your asset is as profitable and trouble free as possible. For this reason, Torcana has built strong relations with companies and individuals who are well placed to assist buyers with a range of important sales and aftersales issues in the US real estate market.Optional services that our partners can provide include: Arranging property inspections Opening a local US bank account Arranging insurance for your property Currency transfer service Obtaining non-resident social security number(s) US notary services, required for the IRS and saving a trip to the US Embassy Annual tax returnsFor non US based buyers in particular, these services can offer peace of mind, avoid unnecessary penalties and save huge amounts of time, energy and money. If you wish to learn more about purchasing in Florida or indeed discuss any of our current opportunities available then please visit our website (www.torcana.com) or call one of our highly experienced members of staff. We will be delighted to guide you through the purchase options and the market as a whole.21 22. GETTING IN TOUCH WITH USColin Murphy DirectorDavid Shaw Sales & Sourcing ManagerUSA: +1 321 806 1195Skype: torcanaltdIreland: +353 1 4433 991investments@torcana.comUK: +44 207 193 4024www.torcana.comThis document contains general information relating to the purchase of property and its contents should not be construed as legal or other professional advice. This is not an investment offering. While all reasonable care has been taken in the compilation and publication of this information, Torcana Ltd make no representations or warranties, whether expressed or implied, as to its accuracy or completeness and the content is provided for information purposes only. Torcana does not oblige any buyer to use existing property management services and recognizes their right to rent his or her property independently. Furthermore, Torcana Ltd shall not be liable, directly or indirectly, to the user or any other third party for any damage resulting from the use of the information contained or implied in this document. Buyers should always seek appropriate legal, tax & financial advice from suitably qualified professionals before taking, or refraining from taking, any action.22