What You'll Find in this Guide:
Overseas property investment has taken a bit of a beating in the last 2 years, but
the credit crunch has actually been good news for the industry.
Sure, thousands of people lost thousands of Pounds on properties that will never
be anything more than a dream to some and a plan to others, but people lost money
on overseas property investments long before the credit crunch, and will lose money
long after it, because of failure to do the proper research.
Now that so many people losing their money has had such widespread press coverage,
the people that are investing in property overseas, and in their own countries are
predominantly doing so after a lot more research.
People losing their money because of fraudulent developers stealing it, or because
a development never came to fruition, is bad news for the property industry. So,
by increasing awareness about the lengths of research that should be undertaken
before investing in an overseas property, the credit crunch will be good news for
the industry in the long run.
Overseas property, if done with the proper goals and the right research can be a
highly rewarding investment. A single property investment, overseas or in the UK
is never going to make anyone rich overnight, or even allow then to give up their
job. But if you go into an investment with clear and realistic goals, overseas property
is an affordable investment product that can make some solid returns.
Below we will cover the steps necessary to make a profitable and/or rewarding property
investment overseas:
Now, the research that should be carried out before paying for an overseas property,
to make sure you don't lose your money has been well documented. An article on Overseas
Property Mall recently covered the steps necessary particularly well because it
included the personal experiences of professional investors.
You can read the article by clicking here.
What that post doesn't cover is how to research a profitable investment, but I will
attempt to do so here. Before you can judge how rewarding an investment may or may
not be, you will need to decide what the investment will need to do so that you
could consider it rewarding; in other words: you must decide what you want from
your investment.
This is the most important type of investment covered in this article; not only
is it currently the most common overseas property investment, but even people not
investing for rental income per se would be foolish not to rent out the property,
if only to maintain the place and keep damp from setting in etc.
Here is a quick checklist of the main questions you should be asking about a potential
buy to let property abroad:
- How close is it to the airport(s)?
(properties in 20 minute radius have 39% higher occupancy rates).
- How long is the season, and what is the place like off season? Beaches closed? Shops
boarded up?
If possible best to keep away from towns or countries that have short seasons or
are very seasonal. If you want to use the property in low season, then at least
make sure there are some shops open for a pint of milk etc.
- Is it near amenities such as: supermarket, bank, doctor, dentist, shops, bars, restaurants
and pharmacy?
Having those close by is essential if your rental property is to be a success.
- Are there dining options nearby?
Another must for a successful buy to let.
- Is the beach nearby?
Obviously that is for a property in a sun destination. If you are buying in a destination
where the winter is tourist season, then obviously you exchange beach for ski slopes.
- Is the property finished to the highest possible standard?
Some people go as far as taking a builder on their inspection visit.
- What is your exit strategy from the investment should your circumstances change?
The capital investments section below gives full details of this.
That is a small list, we are busy creating a full and comprehensive checklist, as
part of the Essential Handbook of the Overseas Buy to Let Landlord (ebook),
register below to receive your free copy.
Every market you will invest in will have loads of factors and laws affecting rentals
of property, alongside the tax laws on rental income, which you may pay twice if
your home country doesn't have a double taxation treaty with the country you buy
in. Here are just a few examples of country and local laws that are not common knowledge.
- Spanish tenants are legally entitled to buy a property they have rented for 2 years
or more, whether the landlord wants to sell or not.
However, most buy to lett investors in Spain do so for holiday rentals not residential.
- Florida is zoned when it comes to rental, you cannot offer residential rental in
a short-term zones and vice versa.
- The US is as vast in terms of the law as it is in terms of size, and each state
has its own laws governing the landlord/tenant relationship.
In some states the landlord can retake the property after two weeks of non-payment
of rent, other states it is several months. Many people will buy cheap American
properties to rent residentially and it is essential they check the local laws carefully,
and have all contracts drawn up by a local lawyer, preferably who specialises in
property rentals.
Some investors say that being near local attractions is also a must, but that brings
me onto the next point about buy to let property investment overseas, like anywhere:
you need to know your target market and how you are going to attract them. This
is important, because most buy to let investors in overseas property do so with
a view to getting some use out of the property for themselves and their family.
Your cup of tea might be a rural property in Greece, or any warm Mediterranean location.
This could still be a very successful buy to let. It needn't be close to the attractions,
because your target market would be older people looking to get away from it all.
So look for peace, quiet, beauty and it being close to things they may want to do
like visiting olive groves and vineyards. Yes, the beach should still be within
a short drive, and have a quiet promenade for sunset walks. You may also want to
consider disabled access, and walk in showers, but that is an issue every landlord
should be considering in this day and age anyway.
That is really what it is all about with buy to let. If you want to use the property,
then you will know the locations you prefer, so research the country, then research
the area, then research properties, all with constant consideration to who your
tenants are likely to be.
Those not focussed on self-use, will be looking for the place with longest season
possible, and if possible the broadest target market, where they can find property
within their price range.
This is the easiest category of property investment, because practically any property,
anywhere in the world will appreciate in value over a long period of time. The capital
investor however, is looking for the biggest appreciation over their chosen period,
which takes research (spot a trend forming).
This has always been difficult to find, but off plan units come at a discount because
of the perceived risk of buying property that only exists on paper. The bigger the
risk the bigger the discount. So the discounts are quite substantial on off plan
properties in emerging markets. Thus, when the development is completed an instant
profit can potentially be made.
Now, anyone who invested in an off plan property for short term capital gains after
mid-2006, has probably been massively disappointed, because the property was completed
after the downturn set in and they have been unable to sell. However, if they did
their research into the developer and the development properly as covered in the
article linked to above, they will still see the kind of price growth they were
looking for in the next couple of years.
Of course, in the current climate, off plan property is not the only way to get
a discount. Around the world there are literally thousands of properties being sold
at below their market value. When their respective markets recover some of these
properties will regain their value quite quickly, others won't, again it comes down
to research.
Take Spanish property, which has always been among the most popular with British
buyers and had gotten relatively expensive in recent years. Now there are thousands
of repossessed properties going cheap, and thousands more properties being offered
at substantial discounts. These are a potential nightmare, there is a great article
here explaining how to judge whether a Spanish property is cheap or a bargain.
Not all of these properties will regain their value quickly, now that everyone knows
about Spain's problems with oversupply. But if you follow the research guidelines
already covered in this article, especially those on the external link, then you
should be able to choose one that will regain its value almost immediately after
the global recovery is complete.
America is another goldmine for short term gain opportunities. Again this is because
of the thousands of repossessed properties, distressed sales, and stressed developers
selling properties at well below market value. Florida is a particularly good opportunity.
The same rules apply about choosing a cheap property or a bargain as in the article
linked above.
There are hundreds of places offering discounted properties, Portugal is another
good one.
When buying a property for short term capital profit, again it is about looking
into your target market; who are you going to sell the property to.
If you are buying in an area popular with expats, and plan your exit strategy based
on expatriate buyers, then you must avoid the most over-developed areas; sunbathing
is not a spectator sport, and most people will want a half-decent view on at least
one side of their holiday property.
If you are planning to sell to the locals then you want to choose a practical property,
-- good quality without overdoing it -- that will be affordable based on local wages
even when it has regained its value. You want to choose such a property in an area
where the population is growing, and where the economy is, or will grow strongly
in the near future.
Chosen carefully using all the guidelines above, you should be able to sell a heavily
discounted (either off plan or distressed) property bought now, for at least a 30%
profit within 2-5 years.
This is the easiest of all overseas property investments, because -- as was previously
mentioned -- most properties around the world have, and will continue to grow in
value over the long term. It is like 10 steps forward in every boom and 2 steps
back during a correction.
Going for long term growth gives you a wider choice, but to maximise the potential
gain many people believe you should look towards emerging markets. Established market
property very rarely grows in value by over 10% per year, though prime properties
(over 1m) in the world's great cities like London are the exception to that rule.
So, unless you have over 1m burning a hole in your property investment budget, emerging
markets offer your best chance at making a huge gain over the long term. Look for
an emerging market with strong growth forecasts for the economy.
Take Brazil for example, where it is forecast to grow into the world's fifth largest
economy in the next 10 years, but property is currently a fraction of the price
of that found in the world's largest economies. The forecasts are that by the time
Brazil is one of the world's largest economies, property will be around the same
price as in those economies.
There are dozens of emerging markets with huge economic growth potential, so how
do you choose? When it comes down to it, you will probably end up using your gut
to a great extent. To help, after you have researched the potential for economic
growth and made a shortlist, answer these questions on behalf of each country:
- Is the country politically and economically stable?
- Does it have a stable currency
- Is the legal system established
- How does the legal system operate in terms of property ownership?
Also look at crime rates and corruption. Not how high they are, because they tend
to be higher in emerging markets, but how they are being dealt with, and whether
the measures are working.
This is to determine whether or not they will affect the growth in your property's
value further down the line. Usually if the country has a stable government and
established legal system, crime and corruption will drop as the economy grows and
wealth increases. I mean Britain used to have so many criminals we had to ship them
abroad, (some would say it still does but that is another story).
Emerging market investment is not for the faint hearted, but you should never risk
more than you can afford on any property investment. However, if you don't cope
well with stress then you should opt for the lower gains found in an established
market.
Capital Gain Investments - the Rentals Factor
As was mentioned when we covered buy to let investments abroad, it is a good idea
to rent out your property, even if you buy for capital growth, because properties
quickly go to rack and ruin if they are left unused.
So, even when your main consideration is capital growth you should still be looking
at a property that can be rented out. Probably residentially is your best bet, to
take care of the property, but obviously in tourism areas a place that can be let
out to holiday makers (see buy to let points above).
Again remember that rental laws differ from country to country, region to region
so look out for that (see examples). In fact, if you haven't already, read the buy
to let section, because, as it says it really applies to all overseas property investors
anyway.
This is the first in a series of guides and self help articles for overseas property
owners and potential future owners published by
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