Overseas property investments are becoming increasingly popular due to the ease of travel and the wide knowledge available on the internet. Learning about a country and upcoming hotspots has never been easier. However, owning overseas property is a huge undertaking that requires time, money and effort. Many investors regret their decision after it is too late so understanding the risks, challenges and management details is crucial to get the most out of an overseas investment.
There are countless risks involved in owning property abroad and neglecting to give due attention to any one of them can become an investor’s downfall. The obvious start would be to do everything possible to avoid the thousands of online scams and fraudsters. It is the investor’s job to know the ins and outs of the country and prospective property. Read books and online forums and utilise the power of local knowledge. If there is anything you need to know try asking a local, not a salesperson or someone connected to the business deal, and spend time in the area you intend to invest. You might be surprised what you can learn by a walk around the neighbourhood. To be more specific, here are a few high-risk areas investors need to watch out for:
The culture and language
It is no secret that managing a property in your own country is challenging. From negotiating a deal to arranging for repairs and renovation to talking with agents, management and lawyers, communication is a big deal and a big part of property investment. If you can’t understand the local language and style of communication your problems will be greatly compounded. Additionally, you need to understand how and why locals in the foreign country you are investing in view you, your culture and your government. While you may not think this is significant, or you may not assume you represent the negative aspects of your culture and government others might feel differently. It will depend on their past and present experiences, so get familiar on your country’s involvement from tourist behaviour to military intervention. This is especially important for those people who would be your direct neighbours and in tight-knit communities trust is a crucial aspect of being accepted.
Knowing and keeping up on the property laws can save you from a huge amount of trouble and headache. Practically every country has to top it off they can change at any moment without notice. You need to know how the legal system works in your intended investment country because it is different in every country. Property owners frequently deal with legal issues that involve issues or complaints against developers, contractors or tenants for example. Not knowing the system can turn a small dispute into an all-out legal battle. Additionally, find out what the property tax is for foreigners, understand the tax laws and understand how it will affect your TDSR calculations in your home country. Get yourself an excellent, well-reputed and established lawyer who can speak your language and the local language. This might seem obvious but some investors opt to deal with legal issues themselves to save on the costs which in turn leaves them vulnerable to the legal system. Get other independent legal opinions too and a full survey of the property. Lastly, don’t use cash. If things go wrong you won’t be able to get it back so using local banks with overseas branches are the wisest choice for solid records and support of your transactions
Beware of the term “emerging markets”, it is a fancy way to sell areas that may be having economic trouble. If during your inspection of the surrounding area or town you see boarded up businesses and homes this is a sign that you should be extra careful about your investment. In addition to your area of interest take a look at the overall economic situation and financial system of the country and the currency stability. Observe the recent past and any trends as this can be an indication of what is likely to come so you can avoid catastrophe. For example, from June 1997 to January 1998 during the Asian Financial Crisis the Thai Baht plunged 76.4% against the Singapore dollar. Those who had bought Thai property lost severely in foreign exchange and even more with the falling prices of their foreign property.“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” —Warren Buffett
The political environment is just as important to investment as any other element. Investing in a country with weak governance, civil unrest, coup d’états, or any significant type of conflict is a high risk. Circumstances can take a turn for the worst and you and your property will be the least of anyone’s concerns. At any rate, a backup emergency plan is always good to have. Consider consulting with a political analyst and if you are not 100% confident with the investment then don’t go through with it.
Managing from a distance
Chances are you are busy like most people are. Are you ready to buy a flight ticket, travel for one or two days and stay in a hotel every couple of months? Because this is part of what it takes to manage overseas property. With the advancement of technology managing abroad is easier as you can use video calls and satellite imaging to monitor your property and development. However, you shouldn’t trust a management company 100% year round to manage every aspect of your property to your standards. You will have to make trips to the investment site yourself. Additionally, asking a friend or family member to handle your affairs while you are away is a big favour and not their obligation and mixing business with personal relationships can bring tremendous conflict. If you want to own property abroad be prepared to take care of it yourself. If you insist on fully managing your property by yourself you can use online programs like Buildium and LandlordMax which aid investors in things like collecting rent, preparing lease documents and updating tenant information. If your property is for personal use, such as a second home or vacation property, consider if you will really be satisfied going to the same place every year and staying in the same accommodation. For the avid traveler or wanderlust this may present a boring prospect.