UK investors have recently taken a greater interest in opportunities abroad which promise cheaper entry prices and higher rental returns on investments.
This is partly due to the impact of Brexit and the lack of confidence some investors now have in the UK property market.
For the investors of today distance is less of an issue than it used to be since technology has made keeping in contact with those on the other side of the world easy.
Investing in property overseas is also not a practice limited to the wealthy nowadays as shown by the 1.3 million Britons currently living in the EU. Looking abroad is now considered a good way of expanding your investor portfolio and protecting yourself financially in the case of a market slowdown.
Choosing where to invest is perhaps the most important decision to make when investing in property abroad. While it may be tempting to take a risk and invest somewhere which is set to be the next up-and-coming region, this is not always the safest option for an investment, particularly if you are a first-time investor.
It’s best to buy a property in an already established market. It will also make it easier to get a mortgage if you can prove the property is in an area which has a successful rental market.
These tend to be places which are close to amenities and attractions, such as within the city centre or near the beach. You need to think about who you want to market your property to because this will make a difference to the type of property you should buy.
If you’re targeting your property towards tourists, the property should also be easily accessible by car and/or is close to an airport. It would be an idea to consider what proportion of the year the area usually attracts visitors.
During quieter months, it’s likely you will receive less rent since there will be less attractions open for tourists to visit. On the other hand, if you would like to rent to a local living in the area, the property should be close to local amenities and should have access to public transport links. If renting to locals, you might also have to consider longer-term tenancies since those renting your property are unlikely to all be holidaymakers.
If you choose to invest in a new development which is still in the process of being built, ask the developer to show you their recent projects and their degree of success. You should not transfer the developer any money until you have a bank guarantee and until you receive a contract which assures you get your money back if the development is not completed.
If you do not plan to be visit the country where your property is located frequently, you should think about handing over management of the property to a local estate agent. They can help you market your property to find tenants and can deal with general maintenance and tenancy issues that you would not be able to deal with as easily from a different country.
Absent landlords are also more likely to be ripped off since they are not always able to react quickly whenever an issue arises. While hiring an estate agent will take from your profits, it will make managing your property a lot less stressful.
If this is not an option for you, there are many cheaper marketing options such as holiday lettings websites which you can use to advertise your property to holiday makers.
However, gaining access to a lawyer with knowledge of the local property market is essential. You do not have to use a local law firm since there are UK-based law firms which specialise in overseas property. This is good if you are UK-based and means that the firm who deal with your property are familiar with both the UK financial system and the local market abroad.
When investing in an overseas property it is important that you get your finances in order and are aware of the rules of the country you are investing in. It is best to be completely transparent about what you will be using the property for before you invest.
For instance, tax rules vary in each country, so you need to check whether you are liable to pay stamp duty or VAT. You must also pay income tax on any rent you receive.
It is also a good idea to study the exchange rates of the country you are looking to invest in. Exchange rates can fluctuate quite drastically year on year, so it is key that you pick the right time to buy.
For instance, on April 19th last year a Spanish property bought for €250,000 would have cost £209,000. By August that year the same property would have cost £231,000 due to movements in exchange rates.
Similarly, you should work out the best currency in which to transfer payments so that the exchange rate is in your favour. Exchange rates can put overseas property investments in your favour when the exchange rate is good. However, they can also make investing in property more difficult since you are required to understand the housing markets of multiple countries.
*Marc Trup is the Founder and CEO of Arthur Online