5 Keys To Success With A Rental Property Overseas
A rental property overseas is one of the best types of real estate investments you can make today. Every diversified property portfolio should have some money in foreign rental properties. Retirees and expats should be looking at this kind of purchase, as well, as a rental property can double as a retirement or second home in the overseas destination where you want to spend time. Rental income can cover carrying costs, sometimes even a mortgage, meaning your escape hatch overseas can come at low or even no cost.
What kinds of returns can you expect? Some claims may sound exaggerated.
In fact, however, good returns are achievable in quite a few markets. But the truth is that they don’t come easily. To make a respectable rental return, you’ll need more than your checkbook and wishing it so.
I own three rental properties overseas. In my experience managing them, I’ve found a few critical factors that make the difference between good returns and weak or nonexistent ones.
I’ll speak to these in a minute. First, let’s take a look at why you should consider operating a rental in a foreign country.
Benefits Of Managing A Rental Abroad
Here are four things that I find to be key advantages.
1. Your property abroad is a hard asset. Less than 10% of the money that exists is physical currency. The rest of the money supply is just a concept—an idea—with no intrinsic value. It can disappear or diminish in value, and you’ve got nothing to show for it. On the other hand, hard assets always have intrinsic value, so they are a safer long-term store of wealth.
2. Income-producing properties are today’s most reliable performers. There are impressive short-term gains to be made when buying and selling if you’re in the right place at the right time, and, overall, income-producing properties are now outperforming other real estate plays, especially when you consider that the income property is also usually gaining in value in addition to producing an income.
3. An overseas rental property also gives you an international footprint. This provides you with another level of portfolio diversity and possibly currency diversity. Often, it can provide you with residency in the country where it’s located.
4. It’s a lot more fun that Fidelity. Granted, you can buy dividend stocks or mutual funds to generate income and manage them from your computer at home. But, in my experience, managing a property abroad not only produces a better return than I’m getting from paper financial assets, but it also provides a great travel and cultural experience.
After all, managing a property abroad is more than investing… it’s a lifestyle. And it’s one you’ll never find from your desk at home.
These Critical Factors Will Increase Your Return
Following are the variables I’ve found to be important to maximizing returns:
1. Know your client. In my experience, rentals that target a specific clientele will outperform those that don’t.
My favorite rental client is a long-term business traveler or executive, which brings two criteria to the forefront. First, you need a property where business travelers want to be, in a city’s business or commercial center. And you have to outfit it for the business traveler, with quality finishings and services, like a good desk and workspace, a good printer, and fast Internet.
Other types of rentals you might consider are vacation rentals or long-term, unfurnished rentals. I have a friend who does well with vacation rentals in Puerto Vallarta, Mexico, and Coronado, Panama. Another friend is making good returns on unfurnished rentals in Cuenca, Ecuador. Each market has its own niche.
2. Pick the right location. We’ve all heard the old real estate adage saying that the three most important things when buying a property are location, location, location. But it’s 100% true; if you botch this one, nothing else matters.
The right location depends on knowing your client, but, once you know where the client wants to be, the location’s fine points make or break you.
I have a rental apartment in Medellín that’s located about a four-minute walk from the sought-after Parque Lleras and a two-minute walk from the sought-after Golden Mile. It’s walkable to everything, from the supermarket, to dozens of restaurants, to the gym. My occupancy is close to 100% even though the apartment is much larger than the ideal rental and the building has few amenities. The location trumps everything.
3. Don’t buy more property than you need. It’s easy to confuse the ideal second home with the ideal rental property. And the first way this manifests itself is when you buy too large.
The smallest rental is the best rental, if it meets your clients’ needs. It keeps your purchase outlay low and thus increases your return.
4. Find a good property manager. I like to say that a good property manager makes the difference between a hassle-free income and a stressful nightmare.
In fact, even with the best of properties, your property manager can make the difference between a good performer and a dog.
I’ve written in the past on finding a good property manager. Follow the link to learn more about finding a good property manager for your overseas rental.
5. Be exacting with the furnishings and photos. The manager who operates two of my properties pointed out something that I should have known all along: No matter how awesome your property is, it’s no better than how it looks on the manager’s website.
That’s because almost 100% of the clients choose a property based on the website photos. If your pictures don’t sell the property, it doesn’t get booked.
I recommend furnishing a rental with quality furniture that conveys an uncrowded, neat, spacious, and up-to-date look. Don’t go overboard hanging things on the walls and forget the knick-knacks and other clutter.
Again, though, tailor your furnishings to your target client.
Once that’s done, have the property professionally photographed, preferably by someone who has experience with real estate photography. I was skeptical of this step at first, believing that my photos were pretty good. But I became a believer when I saw the pro’s photos.
Give Yourself Every Possible Advantage When Setting Up Your Rental
Even in a good market, good returns are not a given. The people who get the best returns are those who go that extra mile to give themselves an advantage over the next guy.
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