Tips for investing in overseas property

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by Brian Turner

Investing in a home in the UK has always seemed a sure fire long-term investment.

However, investing in property as an investment comes with it’s own set of requirements and experiences - benefits and hazards - and this becomes doubly so when investing overseas.

Here are a few simple tips for overcoming basic pitfalls:

1. Have an investment plan

If you’re investing in property, you need to develop some form of investment plan.

That means deciding on what your realistic and affordable budget is, which should cover not simply any direct property purchasing costs, but also associated legal and professional fees, management and upkeep fees, plus relevant travel costs for viewing and visiting your property.

Once you have your budget you need to develop a fairly solid set of investment critieria. This should be based first on your needs and requirements ie, long term capital gains vs shorter term buy-to-let income, and secondly on sound property investment principles such as “location location location!”.

Whatever you do, avoid looking for “cheap deals” if you’re an inexperienced property investor, because these are often no better than the cheap deals at a second hand car dealer. There’s a reason for the pricing. It takes an experienced eye to spot a real bargain.

2. Research your property market

Property salesmen can get a seriously heavy commission, so they usually have no interest in matching the right property to the right buyer - they are rewarded for a sale to whomever, full stop.

So read around any sales pitch and do your research - find out how the local property market in your investment area has been performing for the past few years, and what impartial observers are predicting on the near and long term future.

Also ensure you research any developers you may be working with - what their reputation is like; state and progress from their previous developments; and the standard of their work - all are pertinent questions.

Doubly ensure you are familiar with local property buying, selling, and general development laws. Do learn how to make land registry checks to ensure ownership of properties and land as and when you need to, and read about possible unexpected penalties if you have to sell early, and tax issues such as local capital gains tax or equivalent, if any.

Additionally, do ensure you know how to carry out a proper property valuation in the country in question - just because a sales rep is asking for a certain price, it doesn’t mean to say that it’s a realistic price.

3. Property type and location

If you plan on a specific property type at the start, then explore your options thoroughly. You don’t need to be inflexible, but watch out that you are not too easily swayed from one choice to the next.

Also be aware that different property types sell better than others - such as penthouses and end terraces on larger development blocks, and don’t be tempted to buy cheaper units in such projects simply on price, if you’re going to have problems getting people to rent or buy from you at a later date.

If you buy into a renovation project, absolutely ensure you have an idea of local labour and materials costs, as well as expected project timelines.

And if you are looking for a specific location, justify it in investment terms - strength of market, future potential, and comparative prospects with other similar properties and even countries.

4. Use of property

If you’re buying abroad, there’s a good chance you would like to use it yourself for holiday rental. In which case, do ensure you can make suitable sales and maintenance arrangement so that the property can be rented out when not in use.

However, do ensure you are clear on any such agreements regarding how much time you can actually spend there for yourself, and at what times of the year.

Also watch out for transportation issues - the nearer to major transport links the more likely the property will increase in value in the longer term and be additionally attractive for renting to locals or tourists.

It’s also easier to travel to, for your own holidays, let alone visiting, appraising, viewing, even managing a property.

You are also more likely to find professional services, not least property management companies, at such areas.

5. Commitments

Some developers will have their own legal representatives to help you, and also offer you mortgages arranged for your needs as required.

Remember, however, that you should never be under any obligation to use these.

In the instance of legal advice, a lawyer acting for the company acts in the company’s interests first, not yours. So try to ensure you have legal advice on all pertinent issues from a legal representative outside of the development.

As for mortgages - well, developers can sometimes help reduce initial mortgage arrangements costs, but do ensure you seek competitive quotes from outside as well.

And don’t make the mistake of only comparing on interest rates - ensure you know all about fees, not least arrangement, but also penalties, especially on defaults and even early repayment.

6. Do the maths

Think about the costs of buying a property and moving in the UK - you have the initial home costs, legal fees, solicitors fees, stamp duty and related taxes. And then there are the moving and transport fees as well. It can be even more complex and expensive when moving abroad.

Even if you’re buying abroad to let, do bear in mind all transport fees and factor these in.

For buy to let also consider management fees, and similar general maintenance and upkeep fees. Some developers will charge for grounds maintenance on larger developments before you’ve even get to maintaining the property interior itself.

Also, if in the buy-to-let market, bear in mind conservative estimates for occupancy, and factor in possible vacancy periods beyond your control, such as between one tenant and the next.

And, of course, if buying abroad, make very sure you consider currency exchange rates when moving from GBP - Great British Pounds - to foreign currencies. Some currencies can be especially volatile, which can leave you open to escalating currency conversion fees, so do watch out for these as well.

Do keep all of these factored within your initial budget, and ensure you don’t borrow so much that should something happen - not least a downturn in the housing market - that you’re not left with your assets flapping in the wind.