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Simeon Mitropolitski is a Canadian analyst, of Bulgarian origin, and a former syndicated columnist with the Bulgarian News Agency (BTA). He is the author of several hundred articles dealing with hot political and economic topics, both national and international.

He was part of the first group of Bulgarian intellectuals and students that began the opposition movement that finally put an end to the communist regime in this country in 1989, and in 1996-1997 participated in international observation teams during the elections in several Balkan countries - Romania, Albania and Bulgaria.

In 2002 Simeon and his family moved from Bulgaria to Canada where they live now in Montreal, province of Quebec. Simeon is a Master of Political Science from McGill University and a B.A. of Political Science and History.

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In France such a scheme is called "credit lever" which means that because of the lower bank interest rates the actual mortgage may pay off the loan and even bring some profit to the investor. None knows exactly how long such "credit lever" will hold on so many investors are enthusiastic about putting now their money into this "guaranteed" profitable business.

But are these profits so guaranteed as it seems at first glance?

Unfortunately there is no such thing as "guaranteed profit" in the free market, says French newspaper Le Monde*. If you are going to use such scheme you will inevitably have to take some risks. Only on theory 6 percent of rent on the property price plus 1 percent of the property valorization each year are bigger than 5,5-6,0 percent of the mortgage. In reality there are several other factors that could diminish expected profit of 1,0-1,5 percent or even turn it into a net loss.

The first factor is linked with the openness of the market itself. Whether or not you may like it, but when the number of people doing something particular increase dramatically, with all other things taken equal, the expected profit will be disposed to decrease. In our case when many new investors enter the real estate market the property prices inevitably will go north. On the other side, when these many more than average investors put there properties on the rent market the buyers will be in a strong position to negotiate for better terms.

How this system really works. In France thanks to the low birth rate and tough immigration policy the population numbers remain almost stable for years**. In one particular segment of the real estate market (buys) the demand will go stronger. As a result the prices will go up. In the other market segment (rents) the picture will be opposite. The supply will grow, but the demand will remain the same. So the rents either will remain the same or will diminish.

It is like in the illegal multiple level pyramid financial schemes, the first will take most of the profit, the others may take nothing at all. Frankly speaking, the fact that such kind of investment projects are discussed in details in a newspaper far away from the financial circles means only one thing - that this scheme was already tested by many investors. This also means that maybe the newcomers won't be welcomed by the market.

But there is one more point that is particularly interesting in this article and it's the article itself or more precisely the newspaper that brought it to the public. Le Monde was always considered to be a left newspaper, not left in American but left in European meaning, that is a forum for socialist and other radical anticapitalist intellectuals. It's particularly intriguing that such a paper could have published an article suggesting to the investors how to manage their money in order to minimize the financial risks. 10 or 15 years ago such article in this newspaper simply couldn't be possible.

* - Emprunter pour investir dans l'immobilier locatif, une operation risquee, Le Monde - 17/02/2001, Isabelle Rey-Lefebvre

** - The opposite is true for the USA, where the population increase of 1 percent per year stimulates the business expansion (construction) which in turn creates more positions that may be filled by new round of labor force increase.

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