Top 10 Overseas Property Mistakes
Buying property is a major financial decision, so today more than ever buyers are exercising extra caution when purchasing their dream homes abroad. Below are the top 10 mistakes to avoid when making the decision to buy.
Allowing your heart to rule your head.
Many first-time buyers make hasty decisions, then find themselves with something they never really wanted or that doesn’t fit in with their original investment criteria. Start by asking yourself some pertinent questions:
What is your budget, including any building reforms you wish to make?
Will you really able to use your holiday as often as you’d like?
Will your family/children visit you as often as you think?
Is it important for you to speak the language of the locals?
What is medical care like in your country of choice?
Are there direct flights serving your chosen location?
Is the property easily accessible?
Forgetting to buy low.
For a truly worthwhile buy, it’s important to seek out the lowest possible price in order to maximise your potential return on investment. This could be in the form of an off-plan pre-release or launch price. In the case of off-plan property, if it doesn’t compare favourably with that of similar finished or soon to be finished developments in the surrounding area then you are gaining nothing by buying off-plan.
Settling for any unit.
Once you’ve found your chosen development or resale property, be careful to select the right one that will allow you to sell it on easily if you wish. It is human nature to select well appointed properties, with views and south facing terraces above other alternatives at the same address. Penthouses and end of terraces normally sell faster and fetch higher prices than any other units.
All well-located property will always be close to local transport and amenities. A rural property will be far more marketable in the future if it is easily accessible, within close proximity to good quality roads and not far from an international airport or city. If you plan to live away from the property some of the year and rent it out, it will also need to be located within easy reach of a reliable management company to help with any lettings or maintenance in your absence.
Unable to resell.
If there is plenty of similar accommodation for sale in the area, ask yourself whether there is an oversupply or simply no demand? Also, ask yourself what makes your property stand out from all the rest, should you wish to resell?
Misunderstanding guaranteed rentals.
Many off-plan developers undertake to find tenants and guarantee all rental payments for a specified number of years. However, be aware that gross rental guarantees do not include costs such as service charges, management fees and ground rent, while net guarantees do. Some developers will work the price of the guaranteed rental into your purchase price, so be sure to do your sums and comparative market analysis, as it may not be worth your while accepting the guarantee. See our buying off-plan guide for more information.
Poor currency exchange.
Transferring thousands from your local currency to fund your overseas property purchase brings the potential pitfall of losing significant sums of money, purely due to daily exchange rate fluctuations. By booking a favourable exchange rate in advance with a professional money exchange broker, you could save yourself as much as 2,000 euros on a 200,000 euro purchase! Remember that your mortgage may be in the local currency, so you’ll need to examine the potential impact exchange fluctuations could have upon your future repayments. See our foreign currency exchange guide for more information.
Not getting a lawyer.
Always employ a qualified, independent, English-speaking lawyer. He/she will check out the contracts you are expected to sign (both the reservation contract and subsequent private sale contract) and confirm that documents are correct. Be sure never to sign a contract that you don’t fully understand and try to get one certified version in English. See our guide to international lawyers for more detailed information.
Being blind to taxes.
Tax rules vary greatly from country to country, so you should get specific expert advice on the subject. Expect to declare and pay tax on any rental income, particularly if you use a rental agency in the country where the property is located. As you are the legally registered owner, in most countries you will be expected to pay capital gains tax on your profit upon resale.
Not keeping up with building progress.
Many overseas developers, agents and lawyers do a very poor job of keeping buyers informed on the progress of a property transaction or construction, so make sure you regularly contact them yourself to keep well informed.