Investing abroad is big again. Great opportunities abound in top cities overseas, but what do expat investors need to know before rushing off to the next hot spot?
The outlook for solid property returns from investing abroad is bright. However, beyond the seductive promises, awe inspiring photos and meticulous little models the reality is each opportunity is only as good as the execution and fit for the individual expat investor.
So what important considerations should property investors keep in mind in selecting the best units for their personal portfolios and maximizing the opportunities available to them?
1. Know Your Exit Strategy
Sophisticated property investors understand that their exit strategy is as critical as entry and selection. It is a factor which should be defined before inking any conveyance documents. Whether this is a plan to exit in two years or to hold as a legacy property which will be passed on in an estate is unimportant. But it does need to be defined and take into consideration what property values are likely to be at that time and what other factors may effect efforts to liquidate.
2. Choose the Best form of Leverage
Those investing abroad should take a moment to consider their financing options. With rates at great lows, and projections for growth bullish there have been few times when taking advantage of leverage has been as appealing. However, is it better to seek financing overseas, back home, using a combination of the two? Which mortgage features may reduce rates for the long term, increasing yields and overall returns? Will cross collateralizing existing property holding reduce borrowing costs effectively or simply restrict flexibility later on?
3. Select Property Management Service in Advance
Of any factor involved in investing abroad one of the most important is property management. Regardless of the upfront attractiveness of any opportunity, the end results and total returns will only be as good as the execution and management. Attempting a DIY approach to investing abroad and waiting until after taking on a new asset to begin the search for a manager can be serious detrimental to returns and cash flow, not to mention incredibly stressful. Know who will manage in advance.
4. Seek Truly Independent Advice
A trusted advisor and intermediary makes a dramatic difference when investing abroad. There are many parts to the puzzle of purchasing any real estate, which can be increasingly dramatized when buying overseas property. From simply sourcing the truly best investment properties to obtaining a mortgage to tax advice there are monumental differences to be found. An independent advisor with broad knowledge is uniquely able to make unbiased recommendations for the benefit of the investor.
5. Choosing Sparks versus Embers
The media loves highlighting new overseas property ‘hot spots’. However, just because a news outlet fills a slot with a specific destination or publishes a paid for sponsored story doesn’t make it the right move for every investor. Make sure to look beyond the headlines and align location choice with personal strategy and goals. Is it better to ride the media into the newest exotic location promising the highest returns, invest abroad where the heat of demand burns brightest, or get in once a market has stabilized and the hot embers are expected to go on offering more moderate growth, but with less chance of getting burned?
For those investing abroad currency plays a major role in net gains. Selecting a reputable foreign exchange vendor is just one step. For those making installments on off-plan and new build properties overseas, or maintaining a long term international mortgage, which currency capital is held in and loans are financed in can make a significant difference in the real cost and net profit.
7. Factor in Travel Costs
Recognize how location and travel may play into the profitability of a given property. Some key questions to ask before committing include; do you want to go there? Live there? Does residency come as a perk? Cost of regular travel to the destination in the worst case scenario you will need to manage the property? Ease of banking? Will this all be offset or rendered irrelevant by having an established manager, and the property type. What if you move? Where do you plan to be in 5 or 15 years?
Contrast investing in Detroit versus London for example. Detroit may have become famous for dirt cheap property, but will investors ever be able to effectively manage it, or ever be able to visit safely? In contrast; British expats who regularly travel back to the UK and know the property market intimately may find London their best move.
8. Keep Apprised of Future Developments
Well-chosen investments abroad may require little ongoing attention beyond monitoring regular income deposits in the bank. Still, it pays to stay tuned into developments and evolving trends for opportunities to raise leases, adapting to new tax changes, timing re-sales and more.