|1. Where do I start? |
Identify what type of investor you are, what type of investment you want to make, and what your financial limitations might be. Particularly consider your aversion to risk and what you want to achieve as a long term financial or lifestyle gain.
2. Why should I invest in property?
Investing in property combines the prospect of making large capital gains in the right markets with the satisfaction of a tangible asset. Money can be made in a variety of ways, not just through buying and selling: rental income, equity release, using debt to gear your money and minimise your cash outlay, and lastly, but by no means least, by utilising some creative financial vehicles you can significantly mitigate your tax burden.
Property markets have their blips, but largely bricks and mortar rarely lose their value, and even in a downturn, if you have bought a property or commercial prospect in the right location, it will never lose its value. The Duke of Westminster, the second richest man in Britain, is living proof of this.
On an emotive note, property investment can also be a lifestyle investment. Building a property portfolio in exciting or interesting areas, such as new ski or beach resorts, or flourishing capital cities where you can also enjoy the fruits of your labour can be far more satisfying than simply owning a vault of gold.
3. Where are the best places to invest?
The best places to purchase property are locations where there is evidence of investment that will add value to an area, in turn increasing the value of your property.
But the best property investment isn¡¯t just its location. It is also about choosing the most dynamic markets, identifying the political and economic outlook, getting the timing spot on, assessing a country or region¡¯s accessibility and surrounding infrastructure, and perhaps most importantly, looking to a country or region¡¯s future to gauge a market¡¯s sustainability.
4. Should I invest in residential or commercial property?
Choosing to invest in residential or commercial property comes down to how you¡¯re structuring your own investment strategy, and most importantly what kind of property the market demands. For example, an area may have an over-supply of office space but is crying out for new apartments or homes to accommodate an influx of workers. Take the creation of a new airport village, such as the one in District 18 in Budapest. The regeneration and expansion of the airport will boast new hotels, shopping malls, bigger terminals, and offer more international flights. There is no doubt that commercial investment on this scale will determine the need for a significant amount of new local housing for staff and crew. So in this case, investing in residential accommodation with a clear commercial foundation is an ideal combination for a property investor looking for a secure year round rental opportunity with excellent capital growth prospects.
Naturally, your budget also makes a difference. Commercial propositions, such as shop and office space typically cost a lot more just because the saleable areas are so much bigger. With residential property you can limit your purchase to a single unit. As regards rental yields, this comes down to local demand in the marketplace.
5. Should I aim for capital growth or rental income?
Ideally, aim for both capital growth and rental income. But always ensure that the market and the location give you the opportunity to rent out your property, and that the rent covers your outgoings, such as maintenance costs, void periods, and any mortgage you may be servicing. In the event that there is a market downturn and you can¡¯t sell your property, you may need to ride a wave where you can¡¯t find a buyer when you want to. Don¡¯t leave yourself exposed to the risk of needing to capitalise on your property to support its outgoings. Make sure you buy into an area where property is always sought for rental purposes.
6. Is it better to have a holiday home or a private business?
Choosing between whether you want a holiday home or a property that you rent out as a private business is entirely your choice. The ideal scenario is that you can rent out the property for the majority of the year, and use it for a few weeks for yourself. It¡¯s worth noting that unless you intend to be very hands-on to service the turnover of tenants, make sure you source a reputable local property management company who can look after your property while you get on with the other important things in your life.
7. How can I mitigate the legal issues and planning laws of buying abroad?
In the potentially lucrative international emerging markets, legal issues and planning laws are the biggest hurdle for any investor. It is a huge area of contention, and the legal issues are idiosyncratic to each country. Indeed, each country¡¯s legal issues and planning laws could fill a book in their own right, but in a nutshell, make sure you appoint a reputable independent legal representative who has experience of conveyancing at both a commercial and residential level, and ideally someone who is local to the area, and is therefore likely to be aware of any sticking points.
Never leave it to the developer or the seller to reassure you that the title deeds or a planning permit they are showing you are proof that they own the property or have been granted the green light to build.
It is also worth pushing your lawyer to analyse the context of a new property development in relation to EU law, and even international law. This wider context could come up later. Take for example a development in Bulgaria built in a stunning National Park. The Mayor or local counsellor¡¯s palm may have been greased to bring the project to fruition, but the EU soon clamped down, identifying the building¡¯s location was in breach of EU law and put an end to its construction.
8. What are the tax implications of buying abroad?
Tax varies country to country, and depending on whether you buy as an individual or through a company, your tax liability can vary considerably. Never assume you can get away with not paying your taxes, however seemingly incompetent or laissez-faire an emerging market¡¯s administrative approach might be. It will catch up with you in the end.
Research on where and how you can best mitigate your tax liability should be considered imperative by an investor looking to optimise his or her returns. One of the most tax-friendly countries to invest in property is Montenegro for example, where there is no CGT.
But the best advice will always come from a specialist tax advisor.
9. How can I avoid the pitfalls of purchasing abroad?
• Make sure you do your research before you buy
• Analyse the prospects of the area, including market demand
• Look at the macro and micro-economic climate
• Verify a developer¡¯s track record by checking out their previous projects and
whether they have come in on time and on budget
• Always appoint an independent lawyer
10. What does H&A do to mitigate the risks of buying in foreign
We believe the best way to mitigate the risks attached to purchasing property is by assessing an investment in three key ways:
i. By researching the macro and micro political and economic picture of the country, and by examining the respective local marketplace to gauge what level of sustainability a market offers and what the exit strategy would be.
ii. By thoroughly vetting the development team, including the lawyers, architects, property managers and rental agents, and appointing independent advisors to check up on the developer¡¯s team.
iii. By comparing developments and working out which ones would be most likely to sell and/ or rent over and above another property in a downturn.