Peter Esders, commercial director at Judicare Group, an international legal services company, provides Part One of a Beginners Guide to investing in overseas property and what people need to be aware of. Part Two will be appear on www.homesandtravel.co.uk in two weeks time.
“There are plenty of ways of dealing with a property from an investment point of view, ranging from buying a property and do-it-yourself through to completely hands-off investments. The advantages and disadvantages of them depend on each one but the following may give some idea of them and also some general things to think about
- Start with the exit strategy. How easy will it be to sell the property should you need to? How easy is it to get your money out of the country? If you are looking at capital growth then this will only materialise when you actually sell rather than any theoretical paper profit. If you can’t see it, then you haven’t made a capital appreciation.
- Think about the property. Why would people want to rent it? Why would people want to buy it from you? The reasons will tell you whether the property is likely to be a good investment.
- If you are renting out to holiday lets then you need to be near what holiday makers want. What you want from a property may be different from what other people want. If this is purely for an investment you need to identify what other people want rather than what you want – beach, pool, town, country, nightlife, riding/sailing/shopping etc
- Think about taxes at the beginning. There can be significant legal tax savings to be made by structuring your purchase in a way that is tax effective. It might be that putting the property in the name of a company is more advantageous. The solution as to who should own the property is very different when you are buying an investment from when you are buying a property for personal use. You should also think about what taxes need to be paid and when.
- Make a spreadsheet to work out the annual running costs compared to capital gain or income to identify whether this is as good a deal as you think. Use realistic figures rather than the figures given to you by somebody who will get lots of commission when you buy the property.
- Don’t be tempted to have selective amnesia when it comes to rental income. In most cases you will have to declare rental income from the property in the country where the property is located and also in the country where you are tax resident. Many countries have double taxation treaties to avoid you paying tax twice.
- Don’t be tempted to rent out for cash and not declare it. The tax authorities know that this goes on and have teams searching for properties for rent. You may get an enquiry asking for a price list and when the property is available. You will think that it is a new enquiry and will send that information. You will have unwittingly told the tax authorities when the property is already rented out for and for how much.
- Be honest with yourself. Too many people say that they are buying for an investment but what they really mean is that they are buying for their own use and then want to rent it when they aren’t using it. This is very different from a pure investment. For example if you use the property during peak holiday times you aren’t renting it out and are therefore missing out on the peak income periods.
- If you are promised certain capital appreciation or income do your own homework as to whether these are realistic. Assume that the figures are being inflated to make the sale. Remember the adage ‘Lies, damned lies, and statistics.’
- Being told that you can get £1,000 per week rental income for a property and that you can rent it out for 40 weeks a year doesn’t necessarily mean that you will get £40,000 rental income as you may get considerably less weekly rental in the off season. Don’t, therefore, jump to conclusions based on statistics being given to you.
Judicare Group is a legal services company specialising in property investment recovery. In this role it works solely on behalf of buyers (not developers or agents) helping them to seek compensation in the event of problems with the purchase of a property overseas.
The company has a network of lawyers around the world and currently has client cases in 14 international jurisdictions Bulgaria, Brazil, Cape Verde, Cyprus, Dominican Republic, Egypt, Greece, Morocco, Poland, Portugal, Spain, Turkey, Turks & Caicos Islands and the UAE.
To contact Judicare, go to: http://www.judicaregroup.com/.