Property investment has had more than its fair share of publicity over the last decade or so. Tales of investors with huge property portfolios making vast profits abound in the mainstream media, but much of this interest is centred on UK based investing. Surely this is a little blinkered, isn’t it?
We think so, and it is one of the main reasons why we decided to compile a guide to help you get to grips with the overseas market. While the UK property market is undoubtedly one of the most stable and profitable avenues available to investors, it would be remiss of us not to look further afield as well.
Cliché it may be, but the world really is becoming a smaller place
Phenomenally cheap air travel and the amazing rise of the Internet are just two reasons for this. While it may have been possible for the mega-rich to take advantage of new and exciting investment opportunities across the globe 20 years ago, for the average person this simply would have been an utterly fanciful notion. Nowadays, however, everything has changed.
It no longer takes an army of advisors to discover what is happening in the overseas property market. You can find out pretty much all that you need to know from the comfort of your own home these days. Checking on a country’s average yields, searching for information on the local economy, or finding out more about how tourism is faring in the region you are interested in can now all be done with just a couple of clicks.
This levelling of what was once a very uneven playing field is affording regular folk the opportunity to look further afield for the best investment available.
So, why invest in property overseas?
It’s a good question, and the answer can vary from individual to individual. For some it can simply come down to mathematics and finances, while for others it will be the prospect of being able to enjoy a certain amount of time each year in the property that they invest in.
Putting your money into property overseas can be an exciting way to invest your capital and prove to be very rewarding. Many find that searching for new investment opportunities, and performing the relevant research to ensure that the scheme is viable, becomes more of a paid hobby than simply a way to turn a profit.
However, investing in property abroad is not always straightforward, and the varying taxation and property laws can prove to be a headache for some. That being said, even if you were investing in the UK you would still need to perform the relevant research necessary to make sure that you knew exactly what you were getting into prior to signing any documentation. Doing your homework is always key, regardless of where your investment property may be situated
What types of property investment opportunities are there?
When we think about property investment abroad we automatically conjure up visions of sun-drenched Spanish villas and idyllic beach life in our mind’s eye. While it is certainly the case that many UK investors choose to put their money into a property that they too can enjoy, you are far from restricted to just this option alone.
The routes available to those looking to invest in property internationally are wide and varied. Schemes such as off-plan projects that are redeveloping a local residential area can prove to be attractive, as can many of the social housing programmes that are being currently introduced all over the world.
New and exciting opportunities are opening up to those who wish to broaden their portfolios all the time, so being flexible is key to success. Maybe an opportunity to invest in a land plot Down Under will prove to be a better bet than the European aparthotel that you had set your heart on. Things can change quickly, so if you see a sweeter deal somewhere else you must be able to pivot at a moment’s notice.
Know your boundaries
If the sound of all that flexibility leaves you in a bit of a spin, don’t worry. There are a few things that will help you to narrow down the market so that you are not simply overwhelmed with choice. Consider the following points before you go any further:
- What do you want from the investment?
The most important thing to work out initially is exactly what you want from your investment. Are you going to be investing in overseas property simply to bolster your pension at a later date? We all know that the projections for pension returns in the coming years are far from optimistic, so making provision for the future now is an extremely prudent move.
However, that doesn’t change the fact that if you also want a regular income from your investment – as well as the opportunity to cash in some capital gains at a later date – your choices will alter considerably.
- How much do you have to spend?
Another factor that will obviously come into play is budget. Everyone has differing amounts of ready cash that they can invest into property abroad and working out what you have spare will help you to narrow your search further still.
- Are you prepared to borrow money if necessary?
Some investors simply want to put a lump sum that they already have into overseas property, whereas others may wish to borrow money in order to take advantage of a deal they may have stumbled across. Inheritances, for example, can often give those who would otherwise not be interested in investing in the overseas property market the opportunity to do so, but they may not wish to borrow further and increase their exposure. This brings us nicely to…
- What level of risk are you willing to accept?
If you are the kind of character that likes to keep things safe, then your investment opportunities will differ from someone who is more willing to take a few chances. Calculating just how risk averse you are can help steer you in the right direction when choosing which type of investment is right for you.
- How long do you want the investment to last?
Do you wish to cash your investment in after 5, 10, 15 or 20-plus years? Knowing how long you wish to invest for will allow you to separate short-term investments from longer-term schemes.
- Planning your exit strategy
Finally, knowing how you would like your exit strategy to play out can also help you make the correct decision for you and your circumstances. While it may seem odd to be planning on how to get out before you get in, all canny investors will tell you that this is indeed an essential consideration to bear in mind right from the outset.
Choosing the right property investment for you
Now that you have your investment parameters firmly in place, you can begin the search for the property that will hopefully meet all of your requirements. In addition to the points above, now is the time to consider what type of property is right for you.
As we have already touched upon, some will want a holiday home that they are able to rent out while they are not in residence, while others will simply want a more straightforward investment. However, there are some key points that you will need to take into consideration, regardless of whether you intend to spend time in the property yourself or not:
Yes it’s an obvious point, but it’s obvious for a reason. Choosing a favourable location is without doubt one of the most important factors for you to bear in mind when making your decision. Naturally, the things that make one location great may not suit another, so you’ll need to take a broader view of the investment when considering this point. For instance, if you are looking to invest in a residential complex then you will need to look out for amenities that will serve the local community well, such as schools and hospitals.
If, on the other hand, you are thinking of investing in a villa for holidaymakers who will be using the property on a short-term basis, things such as the proximity to the beach and local restaurants and bars will overshadow these services.
While this really ties in with location, transport links are so important that they deserve a dedicated section devoted solely to them. Having a reliable transportation network in close proximity to your property is vital regardless of whether it is to be used by locals or tourists, even if the types of transport may differ.
Another point to look out for is the variation in transport on offer. While a single and extremely reliable bus service may seem adequate, what happens if it does suddenly fail to offer the service required? Finding property with multiple modes of transport within a reasonable distance will always trump areas that are serviced by a singular route or operation.
- Avoid promises
Searching for a viable investment option can often leave you open to some shady characters who will promise you the earth, and yet deliver very little. While this can be more prevalent in some parts of the world than others, keeping a cautious eye out for things that appear too good to be true is always wise.
Never get suckered in on what can be considered prospective value, especially if there is a promise of improved infrastructure in and around your property’s district. While it can prove to be very lucrative if the proposed project does go off without a hitch, placing yourself at the financial mercy of such a volatile venture can also leave you high and dry.
Far better to invest in a property that has merits of its own and treat any future improvements to the local area as a welcome bonus rather than sole reason for your involvement.
- Research, research, research
This is a common point across many of our investment pieces, and for good reason. Knowing all that there is to know about your investment is paramount to your success in the property market. If you are buying a property from a development company you simply must do your due diligence on that firm before agreeing to any deal they may be offering.
Equally, if buying a holiday home from an individual, try and find out as much as you possibly can before you agree to buy. Ask if they have other properties, why they are selling, and exactly what is included within the terms of the sale. All of these things and many more besides can give you an idea about the person you are dealing with and they can easily be thrown into the conversation whenever the opportunity arises.
Regardless of who you are dealing with, following your gut instincts will likely stand you in good stead. If something doesn’t seem right or you are unsure about the deal after performing thorough research, walk away. Far better to trust your natural instincts and move on to somewhere else than go through with a purchase that you could regret for a very long time indeed.
Getting your finances in order
For those looking to secure a mortgage in order to purchase their investment property abroad, getting an Agreement in Principle is imperative. This should be done when calculating your budget as mentioned above, as it will give you a realistic target figure with which to work.
It will also give prospective sellers an indication of the seriousness of your intent. Developers and agents will see that you are there to do business and they will be far more likely to treat you with the respect that you deserve should you have this document to hand. Furthermore, having an Agreement in Principle can also help to get your application fast-tracked through their system as well.
Beware changes in the exchange rate
If it is at all possible, having a mortgage agreement in the local currency is advised. This is hugely beneficial, as it will help you avoid any unforeseen (and unwelcome) changes in the rate of exchange between GBP and the currency in which you will be dealing.
The same is true for the income that will be used to pay off the mortgage. You will be in a far better position to work out your finances if you are able to meet your monthly payments with income made from the local currency. That way, if the pound were to take a tumble, your initial calculations will not be affected by any such exchange rate fluctuations.
When it comes to paying tax on your investment, it is likely that you will have to declare your rental income to both the country in which you are a tax resident and the country where the property is located. Although the declaration is made in two countries it is unlikely that you will ever have to pay tax twice, thanks largely to the UK’s double taxation treaties that it has in place with many countries across the world.
While it can add to the expense that you will incur when buying a property abroad, hiring a reputable tax expert who is well versed in the relevant country’s tax laws is highly recommended. Full compliance is essential and many countries’ taxation rules vary greatly from ours here in the UK.
Know the law
Or, again, hire someone who does. It can be stupendously easy to fall foul of minor laws that are seemingly irrelevant, but can land you in a whole lot of trouble. Certain parts of the world require you to obtain a licence before you are permitted to rent out your property to holidaymakers, whereas other regions may not allow you to rent out a property to tourists at all!
Knowing the minutiae of local law is absolutely essential if you want your investment to run smoothly. Hiring a professional – preferably a fluent English speaker – will ensure that you do not miss anything that could cause you no end of problems at a later date.
With the right people onside and a fair amount of diligent research done yourself, investing in property overseas can prove to be an attractive alternative to the UK market.
Feature image credit: Mark Doliner via Flickr.
If you enjoyed this blog post then perhaps you would like to read “The Advantages Of Off-Plan Investments“?