There are many reasons that you may decide to invest in a property abroad. Not only do you have the opportunity to get more for your money than you would do in the UK, but you also get a base to use to explore a country you love, the chance of an excellent rental income and – if you pick an up-and-coming location – a future return on your capital investment.
But despite all these benefits, getting your head around buying overseas can be quite a challenge – there are language barriers, cultural and legal differences and the problem of doing everything at a distance. So what are the pitfalls you need to avoid and the right moves to make to ensure that your investment is a success and that your retirement nest egg grows nicely? We take a look…
Finding The Right Location
Start by carefully considering where you want to buy. You may have existing ties to a particular country, or you may want to find a location that is emerging onto the world stage and becoming more popular as a tourist destination. Wherever you’re buying, there are a few basic considerations to apply. To be attractive as a rental to tourists or locals, your property will need to be located somewhere fairly desirable, close to amenities and transport links. Find out about plans for any future developments in the area too – you don’t want to find that your tranquil getaway is suddenly located next door to a mega-mall. Equally, you could find plans for some new transport infrastructure that will help make a location more desirable.
Searching For The Property
How do you find the ideal place to buy? You can start online, as lots of the popular UK property listings sites, such as Rightmove and Zoopla have overseas sections. Some UK estate agents sell a selection of overseas properties, but these tend to be European. If you plan to buy on another continent, you may be best off searching on country-specific property portals – for instance, if Indonesia is your destination, start somewhere like https://www.rumah.com/properti-jual.
You could also try and locate a local agent to act on your behalf, although this may add an additional layer of costs. They may be able to alert you to off-plan deals from developers, but you need to be certain that the final value of anything yet to build will be in line with what you’ve paid, which can be difficult. Only take this approach with a highly reputable developer who has evidence of completion on prior successful projects.
Trade bodies such as the Association of International Property Professionals (AIPP) can help you to locate a good estate agent in market. Don’t just take their word for it on conditions though – find an expat forum and get some tips from there. Estate agents can be helpful, but at the end of the day, they have an agenda to sell properties. Try to gather as much information from impartial sources about the market as you can.
Finally, you can also attend property shows focused on buying abroad. Events like The International Property Show can be useful starting points if you’re unsure where you want to invest or need a lot of support.
Letting out your foreign property is a way to make healthy profits for a nest egg, or to make having your dream overseas home a more affordable reality, but there are risks that you need to limit as well. Knowing a realistic income to expect is key so that you can set your budgets accordingly. In some locations, there may only be demand in certain seasons for short-term holiday lets, and when the property is standing empty, it’s not making you any money. If you’re buying a property already used for this purpose, the current owner should be able to give you an idea of yields and how many weeks a year it’s typically let.
Make sure you back this up with some independent research and consider using a combination of domestic market rentals and a holiday lettings site like Airbnb to try to get maximum occupancy. Remember also to factor in the costs of maintenance and cleaning, for which you’ll probably be better off contracting with a local company on an ongoing basis.
Make Sure Your Investment is Covered
One of the first things you need to sort is an independent locally based lawyer, who is fluent in the language of your desired purchasing location and in English, They will be your essential connection to understanding local property law, resolving any issues with tenants and completing your purchase successfully. Make sure they have a clear understanding of how property laws in-country relate to non-residents. In some countries, you may need to use a notary – a government representative to oversee the transaction.
If you’ve chosen to buy off-plan, you need a strong contract that details a payment schedule and goes into detail about what the developer will deliver. Make sure it included a bank-backed guarantee that if the development scheme goes bankrupt or fails to complete, you are covered. Some developers will offer a guaranteed rental income or a leaseback scheme, so make sure detailed specifications of how these work are included. Also, make sure that you have the right insurances in place – both to cover and insure the property and specific landlord’s insurance if you’re renting the place out.
Sort Out Any Tax Implications
Any rental money you receive is subject to income tax. In some situations, you may be liable both in your country of residence and in the country of purchase, although some countries have national agreements in place to prevent this double paying.
Find a guide to how rental income is taxed to understand more. Capital gains tax must also be paid if and when you sell the property if it’s not your main place of residence, but this can be reduced or waived depending on the country and the length of time you’ve owned the property.
There’s also the possibility of inheritance tax in some countries, should you want to pass the property on in future years, and you must also pay council tax for the local area. Take all these costs into consideration when valuing your investment.
Mortgages on Overseas Property
Making arrangements for your mortgage can be done either through an international bank or a UK lender. You may be trying to take on a second mortgage or perhaps looking at re-mortgaging an existing property to fund your purchase. Start by looking at factors such as how much of your existing mortgage you’ve already paid off, what the best rates are that you can access on any planned borrowing, what your credit rating is and interest rates at the time.
High street banks in the UK are a good route, but not all of them operate in all countries, so you’ll need to find out who offers mortgages in the country you’re interested in. This means it can be far easier to get a mortgage for countries with well-established overseas property markets, such as France, Spain and Italy, but harder if you want to buy further afield. The bank needs to have offices in your target location because this is who you will need to deal with after the initial set-up.
If you choose not to use a UK bank, it is possible to set up a mortgage with an overseas lender by going through a specialist broker. You will be able to access tailored information, and usually, brokers have great contacts with local lawyers and estate agents that you will benefit from. Mortgage rates in some overseas destinations are much lower than deals offered in the UK – again, more so in the established Euro-zone markets, so it’s possible you can access a better deal by going this route. It’s important to remember that overseas brokers will not be monitored by the Financial Conduct Authority, meaning compensation for bad advice wouldn’t be available. You also need to remember that deposits tend to be higher and often non-refundable and that changes in the exchange rate can affect your repayments.
If all these elements are in place, you should be able to move forward with confidence and look forward to your new property.