18 June 2011
It’s like this, when you buy a property overseas it’s a big deal. It’s a commitment that costs a lot of money, that takes a lot of time and that takes a lot of admin. You have to get it right. I know because I have done it and I’m going to tell you what I learned along the way.
It is vital that you think very carefully what you want the property for. This is important because your reason for owning the property will determine the type and location of the property. Here are a couple of scenarios that illustrate what I mean.
Scenario 1 is that you plan to buy an overseas property as an investment. Your main motivation is to make as much money as possible and you’d rather be renting it out than using it yourself. There are two financial aspects to an investment property, the capital gain (that’s profit you make by selling it at a higher price than you paid for it) and the rental income. You need to land a deal that is cheap when you buy it, expensive when you sell it and is making money for you the whole time you own it.
The countries where you can expect to cash in the greatest capital gain are those that have an emerging economy. That’s because house prices will always rise when an economy becomes more stable. Bulgaria is a perfect example, it’s a country that was very poor and is pulling itself out of a financial hole, it’s politically stable having recently joined the EU and it has successfully adopted a largely capitalist way of life. So do your research to identify a handful of candidate countries, you will need these tools: a few spare hours and the internet.
Your next step is to identify ideal locations for your investment property. It’s the rental income aspect that will help here because you need to focus on finding conditions that lead to long term renting. I know you can ask for more money with short term rental but it’s also a lot more work and it’s just not worth it. Where do people want to rent a property on a long term basis? The answer is where there are plenty of study or job opportunities because that is where people will want to settle down for at least 3 years. So look for university towns and find out where international companies have or are planning to set up satellite offices. If you find a place that has both these qualities then you have the makings of a winner.
The last step is to work out what kind of property to look for. Actually this is easy because the right kind of property will naturally exist: executive style apartments are available near financial centres, basic family friendly accommodation are available in resort towns, etc. So all you need to do is avoid the wrong kind of property. If you come across a bargain family town house next to a beach then forget it because you’ll never be able to rent it out all year round. That’s why it’s a bargain. Don’t do too much thinking for this step, just use your common sense and you’ll be fine.
OK, now consider scenario 2: you want a place next to the sea to take your young family on holiday. It’s got to be big enough to cook and sleep in, and a stone’s throw from the beach which is where you’ll spend most of your time. In this case your research will focus around things like ease of access (you’ll be flying over a couple of times a year) and a family friendly environment: a party town with nightlife that keeps your kids awake all night isn’t for you.
It’s pretty clear that these two scenario’s will lead to buying very different kind of properties in different locations. When I bought mine, I put quite a bit of thought into my needs and by the time I had finished even I was surprised by the conclusions. My motivation was a combination of the two scenarios I described and of course there were other factors that came into it as well. Think about your motivation, you may have a special interest in the country you plan to buy in like friends and family living there or maybe you can speak the language.
Whatever your reasons the method remains the same, work out your true motivation for buying and then use that to identify the country, location and type of property. Good, the next question is how do you research properties abroad?
