Big Ben tower and Houses of Parliament in spring, London, UK
Overseas Letting Market
Buying a property overseas is an interesting addition to any investment property portfolio. I have always suggested however, that you work out exactly what you want to get out of the property.
A strategy for overseas property investment is arguably more important than in the UK because it is something that is not as controllable. As I see it, there are three possible reasons for investing in property overseas:
- For a holiday home
- For capital investment purposes
- For rental investment
Sometimes, rather disturbingly, clients go into a purchase with only one of these in mind. One of my roles is to advise that clients look at all three options and consider the purchase as a true investment and not just a romantic idealistic notion; after all, that is how you would view a property purchase in the UK. Often, sun, sea and sand (the bulk of the decisions involving overseas purchases) makes people do strange things.
2nd Homes Are Big Money
According to Savills there are now over 400,000 households in the UK that own 2nd homes overseas. When you consider that on average a second home in Europe will be used for 12 weeks of the year, it means there is a lot of time to make some money letting the property out.
Letting a property in the UK is hard enough so how can you do this overseas? Here are three main examples.
- Working with a developer on a guaranteed yield offer
- Pay someone else to manage and promote your property
- Promote and manage the property yourself
Developers’ Properties
Working alongside a developer that offers a guaranteed yield is often attractive as it takes all the hassle out of renting the property. It usually means that the developer will take “charge” of the property for a set period of time, sometimes the whole year / sometimes less, and attempt to rent it out themselves. The downside is you won’t be able to use the property during this time which is usually over the better times of the year.
However, the developer would deal with all associated costs of renting for you which can add up quite quickly.
Long or Short Term Rental?
You need to consider whether you are looking for long or short term rentals. The latter is often the more prolific and profitable, though more labour intensive one of the two. The former often has associated legal aspects that need to be considered (most of Europe is very tenant friendly for example) and yields are quite low in the majority of countries.
Quite often, overseas property purchasers (especially investors) realise the difficulties of managing and promoting their property thousands of miles away; a good tip is to work with a company locally who can do this all for you. Usually developers have a management company on site, but more often people will want to use a third party company. You will obviously pay for this privilege and fees can vary significantly from 15% to over 25% of the rental amount in some cases.
Rental Management Companies
Advantages of using third parties are the extra services on offer. They will advertise and manage your property on all the large holiday lettings websites (homeaway.com and holidaylettings.co.uk are two obvious examples) and though their fee wouldn’t cover the advertising (about £300 a year) they would get discounts from these websites due to the nature of their business. Adverts are kept up to date for you and they manage all correspondence from prospective clients (a god send, believe me as there is only so many times you can answer e-mails about whether towels are included!).
Other Costs
When dealing with short term rentals there are additional costs should consider; cleaning after each tenancy for example, key holding services (never underestimate that!) and simply being there if anything goes wrong. Certainly the latter is cause for many heart attacks while dealing with overseas property rentals – it is not nice being thousands of miles away when the boiler blows up…..a third party is imperative here for obvious reasons.
Often, however, I recommend a combination of a DIY job and working with a management company. Most will not charge you for rentals that you source yourself for example but you can still utilise the additional services. To me, as an overseas investor myself, it is a no brainer. You can then use your own marketing expertise (social media works really well ) but have the back up you need to secure the rentals and your investment.
Overseas property investment, from a lettings perspective is harder, more challenging and riskier than UK investments. However, if it is done properly and you are aware of the risks and pitfalls it can be a viable inclusion into your property portfolio.Overseas property is one of the few investments you can actually use…what could be better than sitting on the roof terrace of your own property, with a glass of wine, overlooking the sea, knowing that you have made a safe capital investment and that your tenants will be paying you a nice fee for the privilege. A unique investment I think you will agree.
Editors Note
Before considering an overseas purchase get some independent local advice about the state of the market and the true legal ramifications of foreign ownership. Foreign property brings with it many issues you may not have considered before and is not for the feint hearted! Do LOTS of research and fully understand what you are embarking on.
