Checklist For Buying Income Producing Overseas Property
With better capital growth and higher rental yields than buy-to-let property in your home country, plus the added advantage of having your own holiday home that you can visit when it is not being let out, it is no wonder many invest in property overseas.
Many find the additional requirements and responsibilities of buying and renting out a property overseas daunting. However, with good preparation and expert help, you too can take advantage of these opportunities. We have created a quick checklist of things to consider when buying an overseas property with rental income in mind.
Location
Where to buy – Agents and developers regularly highlight opportunities in new markets, and you can find bargains in countries experiencing dramatic price drops, but more established markets may be a brighter path.
Access – How easy is international access to the area, and how reliable and safe are the transport options once you have arrived.
Developments in the area – what future building infrastructure projects and developments could impact the region or the property you plan to buy? For example, a new apartment block may obstruct your sea view, or the local authority may be planning a new road passing close to your property.
Outlook for the region – Local agents, forums and publications can be a good source of intelligence on the up-and-coming areas and new developments.
Financials
Budget – be honest about how much you have to spend on your overseas property.
Finance from local banks – If you need financing. What are the lenders’ policies, e.g. loan-to-value ratio (LTV), interest rates, life insurance, property and public liability insurance? Also, consider equity release on your home. It is usually easier and cheaper than finance from a foreign lender.
Return On Investment (ROI) Objectives – Take time to talk to in-country experts about the areas you are considering to get the best insight on what will meet your ROI goals. Mature markets such as Portugal tend to provide steady, lower-risk and lower ROI over an extended period. Suppose you have an appetite for higher risk and returns. You could consider new up-and-coming ‘digital nomad hotspots’ that have grown in popularity, offering good internet coverage, lower cost of living, good facilities, services, and attractions.
Rental Clients – Who is your ideal renter? Rentals to locals can mean a more extended rental season and are less affected by crises, e.g. nearby conflicts and pandemics, but at lower rental rates. Foreigners pay higher rents but are more demanding.
Costs – A clear understanding of all the costs involved in buying, owning and renting the property is essential to your ROI projections, e.g. lawyer fees, surveyor fees, insurance, utility costs, ongoing maintenance and repairs, property management, etc.
Taxes – You will need to get guidance on safely keeping your tax obligations to a minimum. For example, there may be a double taxation treaty you can use to your advantage.
Property Management Company – These specialists can provide great insight on possible income levels and occupancy rates before buying your property. Also, you will need a property management company to help with the property. They should be able to provide references, and you can easily find reviews and recommended companies on websites, such as Overseas Property Forum.
Capital Appreciation – As well as the rental income, it is important to consider the capital appreciation potential of the property. If your property is in an up-and-coming area or close to a proposed development, you could enjoy significant capital gains. It is possible to get moderate capital gains on your investment property, even in mature markets.
Property
Property Types – Renovation Projects can be a great way to build equity, but make sure you know how much the renovations will cost and how long they will take to complete. Off-plan/New Build properties can offer significant discounts, but they come with another set of risks. A resale property is the easiest way to buy a property and less risk, but it can cost you more.
Property Inspection – Whether a resale or a new build, we highly recommend you incur the expense of a property inspection by an expert.
Ownership & Rental restrictions – Countries can restrict foreign ownership. For example, Bulgaria allows foreigners to own apartments, but a foreigner can only buy properties with land via a corporate entity. Similarly, cities can have restrictions on short-term rentals.
Legal obligations – Ahead of purchasing your property, you need to understand your legal rights and your tenants’ rights fully.
New-builds – If you buy a new build/off-plan property, you will need to do due diligence on the development company. Where a developer has made promises about planned facilities for a Development, you need to evaluate the property on what already exists. Also, your lawyer can provide advice on mitigating the risks of the promised facilities not being built.
Property Titles – Your lawyer will ensure your rights are protected, ownership of the land, access to green spaces and amenities etc. For example, title deed issues have been critical for property buyers in Cyprus.
Visa / Residency schemes – Many countries looking to attract foreign investment offer visa/residency schemes that could provide additional benefits.
Get help with your overseas property plans?
We hope you find this checklist helpful. Investing overseas has many benefits and comes with some additional risks and responsibilities compared to buying in your home country. We can help you realise your overseas property dreams. Tell us about your requirements?
