Peter Esders, commercial director at Judicare Group www.judicaregroup.com, an international legal services company provided Part One of a Beginners Guide to investing in overseas property and what people need to be aware of two weeks ago in www.homesandtravel.co.uk. For Part One, please refer to Homes&Travel. Part Two continues with essential information for overseas property purchasers:
- If you are being offered a ‘guaranteed rental’ or a ‘guaranteed capital appreciation’, ask how that actually works. If those figures don’t materialise who is going to make up the difference? In all cases the guarantees are only as good as the people or companies behind the guarantees. In many cases these guarantees are worthless.
- Sometimes a rental guarantee is given for a period of a couple of years. Generally speaking in these cases all that is happening is that you are paying too much for the property and getting your own money back over a period of time.
- In some areas you can’t rent out property without a license. Identify the legal requirements of renting out property before you buy.
- Some complexes do not allow tourist lettings so this also needs to be identified from a legal point of view.
- If you are taking out finance to buy the property this will have a significant impact on profitability. Most people struggle to cover the cost of the mortgage from rentals alone let alone make a profit. The greater the mortgage the more difficult it is to cover it from the rental.
- If you are taking out a mortgage make sure that you can afford it even without the rental income as that way if you can’t rent it out you won’t have any problems. Certainly don’t rely on ‘guaranteed’ rental income to cover the mortgage.
- Think carefully before buying a property that relies on cheap airlines to carry people to that destination. If that airline pulls out of the route, that can leave you with a property that people cannot get to as easily.
- Think about maintenance of the property in terms of costs and also the logistics of who is going to do this.
- Keep an eye on your rentals if you are using somebody else to manage them. Are you getting all the rental income or are some weeks rental being hidden from you? Phone the property once a week to see if somebody answers. If they do then somebody is using your property and you want to know where the rental income is. Another more subtle way of doing this is to get to know the neighbours and get them to let you know when it is being used.
- Don’t rely on things happening in the future to base your investment on unless you are willing to gamble on that happening. That theme park or airport may not be built in the end.
- Don’t underestimate the ability to rent out your property to friends and family. You will be amazed how many come out of the woodwork when you have a property abroad.
- Instruct an independent lawyer. You would always use an independent lawyer when
buying a property in the UK so why do anything different when buying abroad? You need somebody to help you through the legal process and that person needs to be on your side and not the side of the seller, agent or developer. If there is an issue with the property you need to be aware of it and also need to know how to solve that problem safely. As a result, you need a lawyer who is not involved with the property in any way.
- Find out about costs and finance. The costs of buying abroad can be significantly higher than in the UK. It is therefore vital that you do some calculations regarding the final cost of buying when looking at your budget and build this into your total spend. Many people don’t do this and are then surprised when the costs are higher than expected. They then start cutting costs such as lawyers, valuations and surveys – which is when they start to get themselves into trouble. Finding out about the total cost of buying ensures that you can afford the property and makes sure that you stick to your budget.
While the process of buying in some countries may appear to be similar to that in the UK it can be very different in others. In some, for example, there can be two different contracts to sign prior to completion. Many countries use the Notarial system (qualifying statement) to transfer property rather than the system that we are used to in the UK. In some countries the searches are even carried out after you sign the preliminary contract. What you are trying to achieve is essentially the same. You want to buy the property free of charge and problems, and make sure that you make payments when it is safe to do so. However, this process can be very different overseas.
Part Three will be available on Homes&Travel in two weeks time.
Peter Esders is available via: http://www.judicaregroup.com