These days we are all aware of the exciting new investment opportunities that are continually emerging in new overseas markets. Thankfully, gone are the days when investing overseas meant only access to usual markets like Spain and France! Now however, with globalization as an ever-increasing trend, property markets all around the globe are becoming much more accessible to potential investors where excellent returns can be achieved.
Low cost flights to a multitude of previously unheard of destinations and the ease of local laws have helped to make investing overseas a straightforward and attractive option for many investors in recent years. The World is a big place and there will always be a market on the up! However, to purely find an overseas growth market is simply not enough - any purchase must be well structured and priced competitively in order to warrant investing your money.
Generally people look to purchase investment properties overseas for three specific reasons -
- As an investment
- As a holiday retreat
- As a retirement home
Many investors ultimately look for a combination of two or three of these when purchasing. All three investment purposes equate differently and it is important to define clear goals and a strategy before even beginning to search for the right investment.
Setting Yourself a Timescale
The first thing to be determined is the timescale that you want to work with. Will you hold your investment for numerous years and hold out for the overall capital appreciation, or buy ‘off plan’ and sell either before or after completion? Both of these and other strategies can work well, but it is vital to define and stick to a definitive path before getting started.
You must also decide whether you plan to buy-to-sell, rent, or do both. Many overseas investment opportunities will offer a few weeks free-stay each year for the owner, and have a management team in place to organise the letting of the property for the remainder of the year. We recently offered such a deal in Barbados offering guaranteed rental for the first 2 years. Guaranteed rental returns are often ideal and very attractive for the less experienced overseas investor, as the developers' confidence in local demand is very high and are very reassuring for the potential investor.
Location, Location, Location
This is probably the oldest saying in the big book of property investing and the most important factor to consider when investing overseas! There are lots of issues to be considered when selecting a location in which to invest, factors such as;
You will need to be confident that the country you are investing covers a region that is either in demand, or will have the potential to grow in demand over time. If the location is undeveloped, you need to consider how aspects from the weather to the geographical surrounding will affect potential demand.
Political and economic situations local to the area is always worth bearing in mind. Within many nations, the government will sometimes offer incentives in the form of tax breaks and subsidies to encourage the investment and the construction of certain types of property. There are often monies to be saved and profits to be made by the savvy investor if these incentives are utilised correctly.
Infrastructure of a nation is obviously vital to its success and continued growth. If this is not already in place it’s strongly recommend to look for these proposed extensions and improvements to infrastructure.
For example; Areas of Morocco are often difficult to access by road, but now the government has guaranteed the provision of the necessary infrastructure to connect the costal resorts with the rest of the country and onwards to Europe via over 1,000 kilometers of new roads, alongside increasing the number of flights to and from the country. Similar pledges have also been set out by the Bulgarian and Polish governments.
Weather as you would imagine, is also a key factor to be considered, especially if the location of the property is particularly geared towards the tourism market. You’ll want to be sure that the region you are investing in has enough natural sunshine or snow to ensure that you maintain high occupancy levels during its ‘peak season'.
The Local Demands
The demand locally is always a very key factor and should never be overlooked when considering investment overseas for several reasons. If you are purchasing with a view to renting then you need to be confident that local demand for your property is high enough for it to be rented for the majority of the year. You will need to assess and determine the occupancy levels you require, and be sure that these are achievable.
It is also worth investigating the trends in local rental figures; the difference between dormant rent levels and rising rents can make the difference between a lower steady yield and a rapidly rising income! This may seem somewhat tedious, but rental figures are often readily available, so taking the time to carry out your research before committing to purchase can often literally save or make you thousands of pounds over the coming years!
Local demand also plays a very important part in terms of your exit strategy. When the time eventually comes to sell, you will want to be sure that there are plenty of potential buyers not only in the form of overseas investors, but also in the local community. Therefore it is also a consideration that your investment property is competitively priced and affordable to the local residents of the country you are investing in. When looking to invest internationally, it’s often advisable to seek a good mix of local and international demand. Pure International demand is often by no means enough.
Growing Economies
A country's development can be fuelled by a fast-growing commercial and business sector. This change in the local economy can lead to a rapid rise in property prices, as locals are suddenly relatively richer and look to spend more money on their own properties. New Investors initially overlook this factor when deciding to invest internationally, and can miss out on the potential of excellent returns.
An excellent example of this is Sofia, capital city of Bulgaria; The majority looked towards the ski and beach resorts on offer in Bulgaria to invest, however the some of the greatest gains were to be had within the capital city itself. The corporate attraction was the relatively low costs of setting up and running a business in the area in addition to labour costs also being relatively low. Both are now showing signs of steady growth as the city is becoming very commercially and economically developed. Past performance in other countries shows that property prices will often follow.
Overseas Mortgages
Mortgage markets must also be investigated. In many countries, mortgage markets are not yet developed, and locals can borrow little or no money to finance their own home. If and when mortgages become available in these countries, locals will be able to borrow to purchase a bigger and better home, and the effect on prices can be astronomical! Likewise, you will need to seek advice on the mortgages available to you and other overseas investors. When taking leverage into account, it will at times make sense to invest in a growth market with greater levels of finance available rather than a high growth market with less finance available.
Further Advice
If you’re inexperienced when it comes to investing overseas, then well rounded advice is vital. We recommend contacting us but also speaking directly to solicitors about the legal aspects of any international investment. Also, to fellow investors who have already taken the plunge in the country you are targeting.
Experience is priceless, and an existing investor can not only recommend ways in which you could save money, but also point out the potential pitfalls that you may not have considered until it is too late. With any of the investment opportunities offered by Urban Investor, research is carried out before any opportunity is recommended to our investors.
What is your Overall Investment Strategy?
Within your investment strategy you will need to decide whether you want high yielding properties with an instant cashflow, or whether you can afford to profit from longer term off-plan capital growth. There are some large and relatively swift profits to be made off-plan if investing with the right company at the right price. It is vital that the discount you are buying at is in fact a true discount, and that quoted timescales are realistic.
The decision to invest for rental income versus capital appreciation is often a difficult one to make, and depends on other financial assets and commitments you may have. When buying off plan, you are obviously tying up a portion of your capital in the short term, in search of high returns upon completion. There are very good profits to be made this way if you can afford to tie up your capital in the short-run and offset this temporary capital shortage with income from other high yielding investments.
After Purchasing
Once you have purchased investment property overseas, it is wise to have a good management firm in place to let and manage the upkeep of your investment. Some investors unwisely leave organizing this important aspect until their property is very near completion only to find that there are few or no suitable management agents available at the costs anticipated. Property management costs are just as important as any other factor when calculating the monthly cashflow, and you should be sure that there is a suitable agent available and in place long before completion takes place.
Taxation is an area that must also be considered before investing overseas. If you reside in the UK permanently, you'll need to pay tax on your overseas income. If you live in the UK temporarily, you will be obliged to pay tax only on overseas income you bring into the UK. If a ‘double taxation agreement' exists between the UK and the country in which the income originates, then you will not have to pay tax twice. If you do not reside in the UK then your situation will vary.
Should you have any questions regarding taxation on any specific development, wherever you are from, you can contact us directly and we will be more than happy to point you in the right direction.
Finally...
The details above may seem a lot to digest, but it is all worthwhile when you find the perfect international property, whether it is for investment, a holiday home, retirement, or even a mixed combination of these!
We are able to advise anyone looking to invest in international property and currently have a number of recommended overseas investments at present. For our current availability and stock list, you can check out our international investments pages on our website.