13 Jan 2006
5 Most Common Mistakes Property Investors Make Abroad
Lets face it we are not all going to have a smooth ride when it comes to selling our investment properties, but why is it some people seem to make a living out of this business and the rest of us can’t shift our property that was supposed to make us rich??
Did you think about the following…
Exit Costs and Strategy for no sale
Buying a property abroad is easy. Selling it to make a profit is where it gets hard. There are numerous stories of disgruntled buyers, who can’t resell their investments 2 years down the line. The exit costs of an investment property can sometimes be as costly as the buying costs and many people do not take this into account. Depending on the country selling costs can escalate when you consider agent’s fees can be up to as much as 10%, higher rate non-residence Capital Gains and other legal/notary fees.
Scenario 1– Your property will not sell before completion
You should always consider the risk if you cannot resell your off-plan investment before completion. What are the consequences?
VAT to paid on outstanding payments
Final lump sum (may need a mortgage)
Mortgage set-up and closure costs
Mortgage Payments whilst property is on the market to sell
Scenario 2– Your property will not sell and you need to rent it out to cover costs
You will need to find a trustworthy rental company (A familiar story I’ve heard is that a property owner turns up to his holiday apartment only to find Mr and Mrs Bloggs are renting it for their two week holiday unbeknown to him)
Costs of rental agent’s fees vary, so do your homework.
Weight up short term versus long term rentals.
High maintenance/potential high return versus steady income/piece of mind
Brain on the plan syndrome
I heard this expression a number of years ago now, but still find that it rings true. Buyers on a property inspection trip abroad, make rash decisions. The "on holiday" mindset, often clouds their judgement. Just remember in your home country it is unlikely that you will buy a house in a weekend and part with £4000 without more research to back up your decision. Use a lawyer as in many countries there is a lot of red tape surrounding foreign ownership. Do your research before you get there and test the agent/developers knowledge.
Be careful of the property PR "hype". The "hottest place to buy" now may not be so hot when you finally get round to buying there.
Look at what has happened to Spain; it is difficult now to make a quick buck. This market is maturing and requires time for an investment to grow. Don’t get me wrong there are still great bargains to be had, but they are few and far between. Short term gains can be achieved in new emerging markets, but be aware its likely that the person sitting next to you on the plane has the same idea in mind.
This is probably the single most important decision, when buying a property abroad.
Choose you location based on your needs not the hype. What are its resale prospects? Think about what your potential buyer would be looking for in a second home. i.e. proximity to amenities, travel links etc
If you are planning on using the property yourself think about travel time and accessibility. Cape Verde may be the new Bahamas, but unlike Spain its not 2 hours flying time.
Listening to agents hype
Some of the more unscrupulous companies will "tell you what you want to hear".
"That piece of land is green belt and will never get built on, so you will always have this view"
"You will make 50% return in 2 years"
"You will be able to rent it all year round"
"There is going to be a beach club, with an infinity pool"
DON’T believe everything your hear as sometimes its either not true or its never going to happen. Let common sense prevail. Again research…the land registry at the town hall is usually a good place to start. Check your contract for that infinity pool!
"This development/resale is our exclusive product"
If you find a development/property you like, shop around with a couple of agents, as the price may vary.