There’s no single secret to making money from a rental property overseas.
Instead, four factors need to come together to ensure that:
- Healthy, regular payments show up in your bank account…
- And you don’t lose your mind.
Today, we’re going to take a look at these four secrets.
(By way of full disclosure, I’ve swiped these straight from some of the experts who presented at last week’s Global Property Summit in Panama City.)
Secret #1: Engage The Right Property Manager
Unless you’re living near your investment property or have personal experience in property management (and don’t mind your time being taken up with administration and tenant issues), it’s highly advisable to employ the services of a professional property management company.
Services differ greatly depending on the company and the market.
Sometimes, you’ll have one company to take care of advertising your property and managing bookings, while another will be charged with maintenance, repairs, and paying the bills for you.
The Holy Grail is a one-stop shop that does everything from changing the light bulbs to offering airport transfers to your clients (we know one rental management group offering this level of service in Medellín, Colombia, for example).
Be sure you understand what services are offered as you weigh up the costs.
The cost of property management varies by market and also by rental type. As a guideline, look for agency commissions that fall in or around these rates:
- For furnished long-term rentals: 10% (or one month’s rent)
- For short-term rentals: 20% to 25%
Be wary of agencies quoting below these prices—they usually provide a minimal service… or go out of business.
Secret #2: Know The Market
Before you buy your property, it can be helpful to speak with property managers in the area to help identify which neighborhoods receive the highest occupancy. Ideally, you’re looking for 70% to 80%.
If possible, spend time in the area. Walk around to see who is renting… and what they’re renting.
When Lief and Kathleen were buying their first rental apartment in Paris, for example, years ago, they discovered that most investors in this city were buying studios. With fewer one- and two-bedroom properties in the rental pool, their two-bedroom apartment had less competition.
Think about what you can you do to stand above the rest.
Secret #3: Don’t Underestimate Location
Pay attention to the areas that are most appealing to tourists… but don’t ignore those up-and-coming areas that are within reach of amenities. A lower entry price in an area of strong rental opportunity can result in a greater ROI.
For short-term rentals, walkability is vital. Foreign visitors to big cities typically don’t want to drive. They want to stroll to shops, cafés, and restaurants. In major cities, proximity to public transport (especially a metro or tram line) is an advantage.
Ultimately remember that, in this digital age, no matter how attractive your property is inside, you can’t hide a poor location. If you’re far from amenities, some disgruntled visitor (or many disgruntled visitors) will call you out on TripAdvisor.
Secret #4: Don’t Overspend On Your Asset
This one can be a challenge. Many first-time overseas buyers try to put their own stamp on a place—especially if they’re planning on spending some time in the property themselves.
Don’t overspend on things like furniture—unless you are targeting the luxury market, for example, and believe you will be able to charge higher rents to justify the added cost.
Generally speaking, though, you want to skip the antique shops and go with IKEA or similar.
Above all, what you want is a tasteful, uncluttered look that photographs well.
Which leads to one final important tip:
Hire a professional photographer to take shots of your place when it’s ready to rent. A little investment here can pay off in spades.