There are hundreds of thousands1 of UK citizens who own at least one property in another country. Countries like France, Spain and Portugal are popular choices for a second home for a variety of reasons. Warmer weather, a nice vacation spot – among other benefits. Investing in property abroad is a little more complicated than your typical investment, but has proven to be a good strategy for many.
If you’re considering purchasing property in a foreign market, then here are some questions you need to ask yourself:
1. Buy-to-Sell or Buy-to-Let?
The question every investor needs to ask – will you be purchasing a property, or part of a property, with the intent of selling it on at a profit or do you intend on renting it out to a tenant, in order to generate monthly income?
We’ve discussed the benefits and the downside of both strategies in the past, but it does get a little more complicated when discussing foreign investments. Your decision will really depend on your answer to the next question.
2. Which country are you looking to purchase a property in?
It’s a good idea to evaluate the current state of the different property markets around the world. You don’t want to put your money into a marketplace that has been declining in recent months. It makes sense to choose a country that is on the rise. Ivan Radford from The Move Channel releases a new report every quarter, measuring the top property hotspots based on a number of different factors.
In 2016 Q2 report2, Rome the “eternal city” of Italy, was placed at the top of list, closely followed by Florence, Lyon and Cascais. We’d recommend regularly checking for the latest report. They’re typically released at the end of a quarter.
3. What local laws do you need to be aware of?
Whether its tax, landlord or construction-related – it’s important to know of all the laws that may affect you as a property investor in any given country.
The last thing you need is to find out that you’re unintentionally breaking the law. For example, if you’re buying off-plan in Spain and the plot is located within the “public domain”, you could lose all ownership rights due to the Spanish coastal law known as “Ley de Costas” 3.
Of course, there may even be criminal charges to consider (depending on the nature of your rule-breaking).
This is one extreme example but is a helpful reminder to always consult with a legal expert who familiar with local law.
4. How much are you willing to spend?
Again, this is a question property investors must ask themselves – regardless of where they wish to operate. But it is especially important here, because it could well determine which market you decide to enter – as mentioned above.
You may find that you can stretch your budget a little further in the US, if the pound is doing well against the dollar at a particular moment. Or, if it is currently quite weak against the Euro, then it might be best to delay your decision for a little while.
Comparing two cities directly is also an option.
For example (without getting into the specifics of two equivalent properties in equivalent regions) a quick comparison of average prices between London and Paris gives you an indication of how you start to select one location over another, to make the most of your budget.
According to Numbeo2 figures sourced in January 2017, the following comparison makes for interesting reading:
Average price per square metre in London: £15,167.504 Average price per square metre in Paris: £9,500.125
Of course, there is far more to consider than price alone, when making an investment of any kind. If you’re looking for further guidance, try our piece on choosing the right property investment for you6.
But whatever you do, never invest more than you can afford to lose.
5. What is your long-term strategy?
Are you looking at a long-term investment in one property? Will you look at investing in more, similar properties if the first proves successful? Again, a lot of this will depend on the marketplace you choose. Some are known for being stable over a long-period of time, whereas others can be inconsistent.
It’s good to have an understanding of the type of tenant you may have (should you choose buy-to-let). Will these be holidaymakers, or local residents?
You will also need to decide whether or not you will be handling all the management yourself, or if you’ll be delegating to an agency.
As mentioned, investing in foreign property can be complicated. There is a lot more to consider than what we’ve mentioned here – but this should hopefully get you started.