Investing into a property portfolio has been the dream of many would be entrepreneurs. While investors can quietly build a fortune by buying into the right market, the whole process can just as quickly bring you from utter excitement to gloom.
It isn’t enough to simply find a lovely looking property for the right price anymore. There are a lot more factors at stake and much can go wrong. It’s bad enough to own property in the UK if you want to believe the many horror stories about renters from hell, but what do you do if your property is thousands of miles away and you can’t just drive there to see what is going on?
When you buy overseas, in the least take the same level of care and caution as you would in the UK. Employ an expert lawyer to advise/act on your behalf, and not the one recommended by a vested interest (VI).
It pays to take everything people with a vested interest say (developer/sales agents or a lawyer recommended by them) with a healthy dose of mistrust. Also, be sure to test their statements against factual market reality.
In those cases we first need reliable and bullet proof information, as well as an able and qualified lawyer on the “battlefield”.
Informing yourself about the possible pitfalls of investing overseas could be the difference between building a healthy property portfolio and having to declare bankruptcy. Just look at how easy it is to be confused because of conflicting information in our post titled “Prospects of real Estate in Beijing After the Olympic Games“.
In that case it is forum member who spread conflicting and inaccurate information and we strongly advise you to always check facts with a lawyer. Besides the obvious, there are more factors who could potentially become an issue for your overseas property investment.
1.) Cost of travel to investment property
If for any reasons you are ever required to attend a local court case in the country where your property is situated you could face huge potential costs. Plus with the increased cost of crude oil, air travel to and from Britain will soon become a lot more expensive.
Soon it could be the end for cheap airline travel anyway. Therefore, if you don’t have the financial means to travel to and from your investment property destination at least once a year, it might not be such a good idea to invest there in the first place.
2.) Your why
Is your why fueled by market trends, a real need, or do you feel you just have to invest in that particular country because everybody else does? Not everything that sounds rosy ends up being so.
Be sure there is ample demand for rental properties, otherwise you could find yourself spending your own money to cover the mortgage. If you invest to spend cheap overseas holidays think again. Have you really done the calculations on the bottom line? Is it more cost effective to own a property, opposed to flying there once in a while and renting a place instead?
Investment properties are not always the answer.
3.) Don’t believe the hype
How many first time investors fall for the hype of glossy magazine ads, pamphlets and online ads. Some shoddy operators fly their prospects in and shower them with expensive champagne, accommodation and food while shoveling the contract under their nose.
While you might feel like royalty you could have just signed your life away for a worthless piece of overpriced real estate. Be wary. Do your own research and if in any way possible try to speak to local residents first before you buy.
Another classic is to find yourself facing a wall of building cranes while you gaze out of your investment dream property. It might also help to check for noise nasties such as close by train tracks, highways or other disturbing factors that could potentially diminish your chances of renting your newly acquired investment property with ease.
Unless you have a bona fide Bank Guarantee or your money will be held in escrow do not pay a deposit.
4.) Market viability
How easy it is really to rent out your newly acquired property? You know as much as we do that an empty property is losing money. How many houses are occupied within the area? As it stands now you certainly wouldn’t want to invest in the Spanish market (unless you can afford to have an empty house), since thousands of houses stand empty.
It would be pot luck to have yours occupied amongst a row of ghosts. Speak to several property agents within the prospected area to gain a good understanding of the rental market before you buy.
5.) Value potential
If you buy with the idea to make a future profit, be sure to understand the potential of your property. It’s better to buy a low maintenance property that is easy to upkeep and doesn’t require a lot of running costs, rather than going for the cool looking mansion.
Many buy into areas full of new development only to find themselves facing huge competition when the market dries up. Try to stay realistic and do your own research before you buy.
A classic example is Bulgaria where Brits have paid £50k for 2 bedroom apartments and thought they made a £10k profit because the developer was selling the next phase at £60k. In the meantime they can’t even find a resale buyer at their original purchases price. Many also made the mistake of taking the developers advice to buy two units, one to keep and one to sell at a profit!!
In the end, it all comes down to using common sense. If it sounds too good to be true, it usually is. Today’s economic position doesn’t allow much room for error for investors. Better to stay on the safe side and play the waiting game if you are not 100% confident it is the right investment for you.