Home

Research Aids

Articles

Links

For all your Overseas Property Needs

Top Ten Tips For Buying Investing Abroad

Article written by Diarmaid Condon in 2006

In the main purchasing a property overseas should take at least twice as much effort as purchasing at home. It would seem a natural progression that any effort put into purchasing an Irish property should, at the very least, be doubled for an equivalent overseas purchase. The prospective purchaser will, after all, not be as familiar with the general area, local customs, language, etc. so it should stand to reason that more effort, rather than less, is necessary. Purchasing a property abroad on a whim while on holiday may seem like a good idea at the time but in the cold light of day back in Ireland when annoyances such as income and capital gains tax liability, inheritance issues, funding, etc. rear their ugly heads the picture can be changed radically. There are many factors which must be considered when purchasing overseas, below I have outlined just ten of them. They are in no particular order and the list is not meant to be exhaustive, but if you can abide by most of them your overseas purchase should be an enjoyable rather than a stress inducing event.

1. Do your homework in advance

As with most of the tips in this piece, this seems like a very obvious piece of advice. Unfortunately, as with many of the others, it is quite often left unheeded. An inspection trip with a prospective agent is a great idea once you have done your investigation, given a thorough inspection to the general area in which you wish to purchase, checked your ability to raise finance and settled on the type of property in which you are interested. Expecting a 3 to 5 day inspection trip or a brief visit with an agent to suffice instead of proper on the ground investigation is probably the chief reason for subsequent displeasure with overseas purchases. Always remember, a sales agent, no matter how well intentioned, is paid to sell, not to ensure that your property needs are fully satisfied.

2. Locate independent legal and financial representation

This is in fact more difficult to achieve than it sounds. By their very nature, those involved in the legal profession who engage in conveyancing, will have connections of some description to developers and agents. This makes finding one who can represent you properly and without natural bias very difficult. In resort property areas it is even more difficult as the vast majority of business in these regions is connected either to tourism or real estate. It is difficult to advise other than to find a representative with reasonable English, capable of offering appropriate accreditation and in whom you have reasonable confidence. If possible it is good to get a reference from someone who has used them in the past but this is, obviously, not always possible.

Financial advice is often overlooked but it is every bit as important as legal advice when purchasing as you will want to know what tax breaks, if any, can be availed of, how and when your local taxes should be paid, where it is best to raise finance, what forms need to be returned to the appropriate authorities to show that you are tax compliant, etc. Financial advice is also necessary here in Ireland as you will have to submit your returns here and pay any amounts outstanding.

3. Speak to other who have purchased in the area

Again this sounds like a very obvious part of the pre-investigation process but it is amazing how many people have proceeded with an overseas purchase in an area with which they are not entirely familiar having spoken to no-body other than a sales agent. This is not meant to discredit sales agents in any way, they are paid to do a job at which most are very good. It is the purchasers own fault if they do not balance the information received from sales personnel against the invaluable on the ground experience of others who have been through the same process. Previous purchasers will have a good idea of the pitfalls which may be in store, but are not likely to be part of most sales presentations. It is a lot cheaper to learn from the mistakes of others than to go about making them yourself.

4. Know exactly what you want and how much you have to spend

Salesmen can be very convincing if they want you to purchase something they've got which isn't exactly what you want. Their salary is riding on it so it is easy to see why. It is imperative that you are either happy to be flexible on what you want and how much you wish to pay or else are very fixed on exactly what you want and what you have to spend. Otherwise you will run into inevitable problems when you are trying to pay a mortgage for a property that is 20% more expensive than you can afford and still not exactly what you wanted.

Work out your finances assiduously in advance and always leave a little to spare. When was the last time you heard of a property purchased by a regular punter costing less than was originally intended? In most areas extra taxes and expenses on purchase will amount to approximately 10% of the original purchase price. It is, therefore important to calculate the total amount you have to spend and ensure that the price quoted in writing by the estate agent or developer does not surpass 91% of this figure.

You should have a long chat with your accountant before even considering an overseas purchase so that you know exactly what your financial situation is, how and where you are going to raise the capital and how the investment will affect your current tax situation in Ireland.

5. Be diligent with your calculations

Following logically on from the previous point is the ability of an investment property to "wash its face" in terms of rentals. One of the chief failings of property purchased for investment in resort areas is that they do not fulfil the potential planned in terms of weeks letting achieved.  This is a difficult topic on which to generalise as there are many variable factors which effect rentals such as positioning, property quality, facilities, economic conditions, etc. In the main, however, it can be assumed that any rentals quoted by sales people will be at the top end of the expected range, it is not in their interest to quote you anything else. It is advisable that you half the quoted rental period and see how this affects your bottom line. Do remember that local taxes, letting agent's fees, rates, etc. are likely to eat up about 25% of your gross income. If you can survive on your income following these deductions then you will most likely be fine, otherwise you may have to re-consider your purchase. It is better to receive the shock of a property not paying for itself before you purchase, it is a lot less expensive than finding out afterwards.

When calculating for capital appreciation it is important to remember that property in general worldwide usually only appreciates at between 5 and 10% annually. Expecting rates higher than this is not advisable. It is also important to check with your financial advisor what your capital gains liabilities will be on sale and remember that you will have to account for the balance here in Ireland, or in the case of countries without double taxation treaties, pay the entire Irish capital gain liability on top of the local liability.

6. Keep accessibility in mind

It may seem obvious but if you find it difficult to get to the area in which you are about to purchase then it is perfectly feasible that others will also. This is not something which is likely to enhance the future value of the property and it is unlikely that off-peak rental will be very attractive. You will often find that coastal areas some way distant from the nearest airport have very reasonably priced property for sale. It is perfectly valid to purchase in the off chance that a new airport or motorway will service the area at some stage in the future but it would be very unwise to expect a quick return on such an investment. You may well not at this point mind a hop to London or mainland Europe before taking a direct flight to your destination. It is valid to consider, however, that if you need to visit the property regularly or if there are problems down the line, this extra leg on the journey is likely to become very tedious indeed.

7. Purchase the property for the required purpose

This sounds like a strange point but it is one on which many have foundered. Many of us would like to purchase an overseas villa with its own pool, good sea views, access to amenities and privacy. In reality the purchase of such a property is normally well outside the pocket of the average investor and is not likely to fulfil the investment requirements most overseas investors. If you are purchasing for investment then the best property to purchase is a small apartment in an area with good year round climate, adequate access to amenities and decent views in an accessible area. If you have money to spare you would be better to purchase two small units rather than one big one. The simple fact is that small properties are easier to let in the off season and also easier to offload when you wish to sell. Larger properties, particularly freestanding ones, are more difficult to let, more expensive to maintain and drastically more difficult to sell when you need to move on.

The problem is that many people decide to purchase the property they would personally like rather than the property that is going to do the job they require most efficiently.

8. Purchase with a view to sale value

"The day you buy is the day you sell" is an old adage that is very appropriate in the case of overseas property. Once your property has been purchased you will not be able to change any of the major factors which affect its value such as position, aspect, available amenities, size, etc. When you are purchasing you should put yourself in the shoes of a seller and query what advantages the property has. These are the items that will make it stand out from the crowd and mark it as a potential purchase above other similar properties. If you cannot find any of these before you purchase the property you certainly won't be able to find any after the fact. You should definitely reconsider the purchase in such circumstances, if not you must be prepared for a very long wait or vastly reduced price when you wish to sell it onward, particularly if you are selling in a slow sales environment.

9. Invest for the long term

Returns actually achieved on property investments are very susceptible to market conditions and it is most unwise to put yourself in a position where you have to sell at short notice, particularly in a slow market. Property should always be considered a long term investment vehicle, a minimum period of 10 years is advised as the target. This is not to say that you will not sell before this time, it is simply that you can survive without selling for that period if necessary. Property markets worldwide are invariably cyclical, with about a 5 to 7 year cycle. Allowing a 10 year span will ensure that you have the opportunity to hit at least one if not two peaks in the market in which you can choose to sell your property at an acceptable profit if you should so wish.

If you are prepared to hold out until buoyant conditions govern the market you will practically always do well, unless the property or development is intrinsically flawed. If however you are under pressure to sell at short notice you will find that you will be termed a "motivated seller" and be most unlikely to realise full potential from your investment.

10. Trust your instincts 

Most individuals, couples or companies who travel abroad with the intention to purchase an overseas property will have had some exposure to a real estate market of some description. This may well have been when purchasing their own home here in Ireland or they may have purchased overseas before. As such, these people in the main have pretty good instincts guiding them in terms of what they can expect for a given investment. If it sounds or looks too good to be true then all is generally not as it seems and it is better to investigate further, even at the risk of losing a property, rather than get caught with a poor investment. When you are being spun the tale that this is the last of this lot and the next ones will be a good deal more expensive, you should always consider that you do not actually want the last property in any development as it is almost invariably the least desirable unit and you would be far better investing in a more expensive unit where you have your choice of property. If a development or developer is in any way reputable they will be building more property in the future, more than likely not too far from where you are currently looking. The market does not cease entirely when you purchase a property, equally it will not cease if you decide to wait a while and consider a particular property further.

Individuals offering you a bargain in a local bar or restaurant are invariably up to no good and you get what you deserve if you deal with them. If you don't trust a salesman or developer or are not receiving the answers you require from them then move somewhere else, most people have pretty good instincts when it comes to overzealous sales staff.

It is generally better to be a little overcautious than too casual. Large investment purchases are, in the main, not made that often and should therefore be given the consideration they deserve. This holds whether you wish to enhance your portfolio into the future or merely enjoy the investment you have made on its own.

____________________________________________________________

Further Information:

For a selection of property from around the world click here. 

For a listing of agents selling overseas property click here.

For independent articles on overseas property click here.

For advice on purchasing property overseas click here.

For news on the world of overseas property click here.

For new releases and product updates from agents around the world click here.

For a list of upcoming overseas property exhibitions around the country click here.

You may also enjoy a visit to the OverseasCafe.com's topical blog at http://overseascafe.blogspot.com.

For all your Overseas Property Needs