John Stepek provides tips on what to bear in mind when extending your portfolio overseas.
We’ve all done it – touched down in a particularly pleasant city or resort and fantasised about owning a home there. But daydreaming is one thing – if you want a profitable investment property rather than a holiday home, you have to be a lot more hard-headed. Here are some key points to bear in mind when investing abroad.
Location, location, location
Where do you want to buy? An “up-and-coming” destination may offer more scope for capital gains, but it’s also riskier – it might not “up and come” as promised, and the property-buying process for foreigners will be less established. A mature destination might not enjoy rapid price growth but rental demand should be more predictable, and the buying process should be smoother.
If buying off-plan, be extra careful. How financially sound is the developer? What’s their track record on similar projects? What happens to your money if they go bust or the project overruns?
Get to grips with the local rental market. Are you renting to locals or tourists? Different rules will apply to short-term holiday lets and long-term tenancies. If you are renting to tourists, how long is the holiday season and how many weeks a year is the property likely to be vacant? Is it close to the airport and on an established, reliable route?
Also, consider the country’s political climate. How would you cope with unexpected changes to taxation, or to laws governing immigration and overseas ownership of property? Even politically stable, developed countries are not immune.
Doing the deal
Property taxes and regulations vary widely from country to country, so make sure you understand and budget for these. Use an independent lawyer and surveyor with a good track record. If you don’t speak the language fluently, hire a translator who does, preferably one with experience of property deals.
Investors in popular destinations should be able to find up-to-date guides about the purchase process. In most countries, you’ll also be able to find expats happy to share both victories and horror stories. They may also be able to fill you in on the realities of the rental market, as well as local quirks.
Money, money, money
You can fund the purchase by remortgaging your UK home, and buying your overseas property outright. Alternatively, there’s an overseas mortgage. One key issue to consider if taking an overseas mortgage is currency risk. For example, anyone with a sterling income who had bought a home with a euro or dollar-denominated mortgage would have seen their mortgage payments soar after Brexit, as the pound plunged in value.
John Stepek is executive editor of MoneyWeek
