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What to look for in an investment overseas property

Let’s imagine you are looking to buy an investment property overseas. As it’s an investment property, you want other people to rent it from you whilst it’s also growing in capital value. Sounds easy, doesn’t it? Unfortunately, it’s not that easy. There are a number of factors to consider before making your choice.

Location, Location, Location

Whoever coined that phrase is correct. Location is very important! There are four key factors you must consider here. They are Tourist Infrastructure, Climate, Overdevelopment and Demand.

If you are thinking of buying into an area which already has an established tourist infrastructure then that indicates a stable area which is used to dealing with tourists and caters for their needs. If you want to speculate that a new tourist ‘hotspot’ will eventually become popular, then that is not investment.

Climate is important of course. Seasons change in certain countries so that it may only be attractive to most holidaymakers for a part of the year. Choose a location where the season is long and attractive to holidaymakers with lots of sunshine hours.

Overdevelopment, or more importantly, underdevelopment, is critical to your success. If the area in which you consider investing is already overbuilt, then your competition increases but even worse, your property is situated in unattractive surroundings.

Demand for rental property in your chosen area must be high. If demand outstrips supply then that is the ultimate goal. You don’t want an investment property where there is, as yet, no demand. This is also tantamount to speculation.

Property

The quality of finish and the facilities within your investment property are also important. If you are to attract tourists to your property all year round then your property must also be attractive.

The facilities in the surrounding area must also be varied and easily accessible. You want to provide something for everyone if possible. This becomes much easier in a purpose built resort where most tastes are catered for. If the grandparents want to wander off, your children want to play but need to be supervised and you just want to relax, then most other families will want to do the same. Select somewhere that can happen without too much fuss.

If you can also find property where someone else will take care of the maintenance and marketing then you’ve struck gold.

The Developer

You will need to know what arrangements the developer has in place for structuring financing for the development and where your money is going when it leaves your bank account. You also need to know how many payments you must make and within what timescales.

You should know whether the developer owns the land on which he is building or is it mortgaged to a bank. It’s much safer if they have bought the land outright because it means they’re in control and not a bank.

Will the developer be around when the development is complete or will he be interested only in selling properties and moving on to the next development? If so, how will he be contacted in the future and what guarantee is there that he will return to deal with snagging issues?

Also important are planning permissions and bank guarantees. You’ll need to know the position on both for your own security and peace of mind. Neither of these is necessarily a guarantee of anything, as many investors have found in the past, but it’s better than having none.

The Purchase Process

The remaining details to consider in your overseas investment property are the purchase contracts, currency exchange and tax and inheritance laws.

You should most definitely consider engaging a lawyer to review your contracts to ensure they are compliant with the laws of the country in which you are purchasing and are not to the detriment of you, the buyer.

You should also ask your lawyer to advise you on the tax and inheritance implications of your overseas investment property. You’ll need to know what taxes you will be due to pay on the earnings from the property and whether and how you will be able to leave your property to relatives or friends. This is important because in some jurisdictions property passes to the state on death and just because you have inheritance sorted for your UK property, it does not automatically follow that the overseas property is covered without arranging a separate will in that country.

In Conclusion

There are no doubt other aspects of overseas investment property purchase that should be considered but if you get all the above right then you’ll have gone a long way to ensuring that you are investing successfully and not speculating.