If the lure of buying an inexpensive property overseas in hope it will prove a lucrative investment opportunity over the long term is too great to resist, just remember that old caveat “buyer beware” still holds true. That doesn’t mean you should give up on the dream of holding property abroad. Just do your homework because overseas investments involve significant additional risks you need to be comfortable with before you start.
Of course, there’s never been greater access to international investments, and investing overseas can potentially help diversify a portfolio and give access to opportunities not available at home. But it’s more difficult to ensure the investment suits your needs when you lack local knowledge or can’t regularly inspect the property.
So before you take that leap of faith into foreign ownership, consider the following issues when looking to invest overseas:
Property markets are often in different stages of the property price cycle, so find out how prices have behaved where you plan to make your purchase. A trend of rising prices in Australia doesn’t necessarily mean values are doing the same overseas. Jump on a plane to do your homework in the country of choice. And make sure you have all the necessary permissions, licences and planning consents before signing a contract or agreement. As always, seek professional legal advice before you do anything.
There may be barriers to entry you’ll want to know about. For example, in the US foreign buyers can’t invest in housing cooperatives but can purchase single-family homes, condominiums, duplexes or town houses. In China, there are no restrictions on the types of properties foreigners are allowed to own but investors must have worked or studied there for more than one year prior to purchase. Make sure you calculate all the tax you’ll be liable to pay, both at home and abroad, and as an Australian resident you can be taxed on your worldwide income, including rental income from overseas property and capital gains on overseas assets.
Find a real estate agent
Don’t succumb to pressure to sign up with a deposit before you’ve obtained independent advice. It’s best to secure a real estate agent with a good reputation and references to ensure costly pitfalls are avoided. In the US the sales commission is paid by the seller, so buyers don’t pay to have an agent work on their behalf but licensing laws differ in each state. Check out an agent’s credentials as the licensing system in some countries doesn’t always ensure they’re qualified to guide you through the maze of finding, evaluating and financing real estate. Plus good property managers and tenants are hard to find, especially when you’re so far away — you’ll need someone on your side.
Retain a lawyer or broker
Although not mandated in the US, UK or Europe, it is a good idea to seek the services of a real estate solicitor (attorney), and where possible a good mortgage broker too, to help with any legal issues or questions you have along the way. A property lawyer can review the sales contract, check the title and other documents relating to your purchase — and advise on legal and local tax issues concerning the property. Just make sure they are fluent in both English and the local language where you plan to buy.
Payment via currency transfer
Changes in exchange rates affect the amount of money you receive or send. Even a small change to the rate could drastically affect the value of your purchase or the income you might receive. Obviously, you’ll need to pay for your overseas property in the relevant foreign currency, either as a large lump sum or as regular mortgage payments. Investigate local laws before using a currency exchange service abroad, or at home. It may sway where you choose to buy.
For those with a sense of adventure, global property investing can pay off but the factors discussed above are just some of the risks you may face. Remember local politics could mean that your entire investment could be at risk, so ensure that any country you invest in is politically stable too.
With any investment it’s important to get advice on how it fits with your goals, risk tolerance, investment time frame and overall portfolio.
Allied Investment Group advisers specialise in assisting clients take control of their finances so they can have more choices and security now and in retirement. Armed with this advice, you’ll be on your way to finding financial freedom and building wealth for the future. It’s never too late to start. Call 1300 886 149 to put your plan in place.