Many people dream of owning a second home or investing in property abroad, but buying overseas property is fraught with risks and potential pitfalls if you’re not adequately prepared.
Many a would-be real estate investor has found themselves in a state of financial meltdown having made an unwise investment in the wrong place with the wrong approach.
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On the positive side, investing in foreign property can also present a wealth of benefits, such as allowing you to capitalize on major tourist markets, take advantage of weaker currencies or simply have a second home for yourself.
Provided you carry out plenty of research first and avoid being seduced by the incessant sales patter that you’re likely to come across, there’s no reason why you can’t profit too.
1. Personal Experience
You might have heard about extremely cheap property in another country or have been seduced by sales talk raving about capital appreciation and supposedly guaranteed success, but there’s no substitute for personal experience.
As you’ll hear again and again in the world of real estate, location is everything, and if you don’t have personal experience of the location you’re interested in, then you’re not ready.
Some novice investors even go so far as to purchase property in places they’ve never even been to, particularly off-plan property that hasn’t even been built yet. Even if there seems to be absolutely every contingency plan in place, you should never even think of buying in a region that you don’t know personally, and a brief visit isn’t going to be nearly enough either.
2. Local Knowledge
There’s no substitute for local, first-hand knowledge, even if you have spent plenty of time in the area you’re interested in buying in.
Local knowledge is not just a matter of getting to know the local real estate market by viewing as many properties as possible (though you should be doing this too). It’s also about truly getting under the skin of the place, and it pays to have trusted local friends who can help you out too.
There are many things about any foreign country that you never really get to experience unless you live there yourself. However, if you’re planning to invest abroad, that might not be an option, in which case you will need to reach out to the local populace to ask their advice.
Local people will often be able to give you invaluable insights into the region and legal and ownership practices in that country.
3. Investment Potential
Buying a second home in a foreign country is one thing, but when your primary goal is to make a profit in the short or long-term, a property’s investment potential is everything.
As such, there’s much more pressure on you to learn not just about the current state of the market, but also its past track record as well as which direction it is likely to head in the foreseeable future.
It’s very important to avoid the hype and see where the true potential lies, which is often in property of inherent historic or cultural interest rather than hyped-up development projects.
Consider, for example, the billions that investors lost in Spain in the 2008-2015 property crisis which has now left much of the country’s Mediterranean coast scattered with the ruins of unfinished development projects.
4. Legal Restrictions
Almost all countries and territories enforce strict legal limitations on the purchase of real estate by foreigners.
For example, some countries might disallow foreigners to purchase land, while others don’t allow foreign purchases at all unless you have some kind of special residency permit. Before you start looking into buying abroad, always make sure you are familiar with the legal implications to avoid wasting time.
Real estate legislation varies enormously from one country to the next.
For example, while most apartments in the UK are purchased under a leasehold title, this form of ownership doesn’t exist in many other parts of the world. Due to the difference in local laws and customs, it is imperative that you work only through a local solicitor, preferably one who has plenty of experience working with foreign investors.
5. Borrowing Limitations
In most cases, you will not be able to obtain a mortgage in a foreign country unless you are resident there and meet various other legal requirements. Even then, obtaining a mortgage outside of your own country tends to be notoriously difficult, no matter how good your credit rating.
Even if you have a generous deposit to pay up front, it will still be complicated, particularly if you don’t work with a mortgage broker.
Since investing abroad is generally only advisable to fairly experienced investors, you should ideally be making a cash purchase only. However, if you still need funding, the best option is usually to remortgage a property you have back home, since it’s not usually possible to obtain a mortgage in your home country for investing in a property abroad.
Our Final Words
Buying property abroad is undoubtedly complicated, but as with most things that require a lot of work and preparation, the rewards can be very high, so don’t be too disheartened by the drawbacks involved.
Nonetheless, there are many factors to take into account, including local tax requirements, any additional bills that might apply and local ownership laws.
Of course, there is also the process of Brexit looming over us. This creates extra uncertainty for those owning foreign holiday homes and Brits investing in property abroad, particularly in Europe.
To be on the safe side, always seek professional advice before making any commitment.
