Buying property overseas is a great way to reliably increase profits over the long term.
It diversifies your portfolio and lowers your investment risk. It can offer a reliable Plan B, too.
But not all types of overseas property are created equal. Some are investment disasters waiting to happen.
Here are 11 types of property you should never buy overseas…
1. Timeshare Or Fractional Ownership
While timeshares aren’t exactly scams, they are one of the worst overseas property investment types out there.
Their reputation is so bad that about a decade ago, the timeshare industry rebranded itself as “fractional ownership,” but the situation remains the same.
The sales pitch is: You buy a share in a property, which entitles you to use that property for a set period of time every year.
It can seem like an appealing idea at first. However, there are many problems involved in these deals:
- If you buy two weeks’ use of the property (1/26th of the annual use of the property) you will pay much more than 1/26th of the value of the property. The timeshare developer keeps the extra money.
- You can’t stay in your property for free because there are usually exorbitant “cleaning and maintenance fees” to be paid every year. (The timeshare manager keeps most of these.) These fees are often nearly as much as it would cost you to rent the timeshare for the two weeks if you didn’t own it.
- You are committed to using the same property at the same time every year, unless you can find someone else with a timeshare in a place you like with whom you can swap your occupancy time.
Timeshares are a lose-lose scenario.
Instead of buying a timeshare, find a property where the down payment costs the same as your timeshare, get bank financing, and find a good management company to rent out the property when you’re not using it.
This way, you’ll own the property outright someday. This makes it a real investment.
2. Short-Term Rental Investments In Cities With Short-Term Rental Restrictions
Angry investors contact me to complain that the short-term rental property they bought in a popular city center location can’t be legally rented out on Airbnb.
The realtor who sold them the property told them tourists would pay thousands of dollars per week to stay there, and this justified the above-market value they paid for the property…
But they later find out that the city council has banned short-term tourist rentals because it displaces locals.
There’s an easy way to avoid losing tens of thousands of dollars on these investments… Simply Google “Is short-term renting legal in [CITY NAME]?” Or get a local lawyer to give you a professional opinion.
3. Indigenous Land
It happens in Belize, Panama, the United States, and all over the world.
No matter what the person says, and it makes no difference if he is the mayor of the village, headman of the group, or chief of the tribe… they usually cannot sell you land that belongs to the community. It’s not theirs to sell.
Never buy tribal or indigenous community land.
4. Bad Title
It astounds me that people hand over money for a property without having a competent person or lawyer conduct a title search.
This is the most basic step when buying property anywhere. You need to know if the person you are paying actually owns the property and can legally sell it.
Even worse is proceeding with a purchase when you know there are issues with the title. There are many forms of title defects, some of which mean you don’t actually own the property you pay for, and some mean you can’t resell it.
Never buy property with any form of title defect or impediment to future resale, and don’t believe anyone who says you can fix the title defects after purchase. If that was possible, the seller would have done it already and charged you more.
5. Zero-Income Properties
Cash flow is king.
I know some very rich people who are happy to buy properties that they can’t or don’t intend to rent out or use personally. They are content to hope that capital appreciation will give them a return one day, or they just don’t care about the investment return.
It works similarly with land-banking. Unless you are getting the land really cheap, this is a risky move. There is no guarantee that a property will do much more than keep up with inflation in the long term.
If you are making an investment in real estate, ensure it can generate at least some cash flow to cover the cost of its upkeep.
Don’t buy zero-income properties unless you are comfortable with not seeing a return for years or decades.
6. Long-Term Developments
I’ve seen it happen… An investor comes to a new country and after checking out the local market decides that more money could be made by buying land and becoming a property developer themselves.
Even though they have never developed condos or townhouses back home, margarita madness sets in, and they decide they can navigate the local laws, handle foreign builders, and outcompete local developers who have decades of insider knowledge on the market.
It almost never ends well.
It can be difficult enough to manage the construction of one house abroad, even if you find a reliable builder and supervising engineer.
Unless you have a lot of construction experience and money and can afford to devote years to the project, be careful about jumping into property developing abroad.
7. Off-Plan Property From New Developers
Never buy an off-plan property from a developer with no proven track record.
I lost money on a deal like this early in my career. I was lucky to just lose some of my investment… it could have been worse.
Buying off-plan can be a great way of getting up to a 30% discount or more on prices or locking in potential short-term capital appreciation without having to hand over the full purchase price for a property.
However, investing in unfinished or pre-construction projects involves risk. Developers can go bust, real estate markets can collapse, or delays can make your ROI marginal or non-existent.
Executing a real estate development requires specialist knowledge and skills. If you give your money to an unproven developer, the chances of disaster are higher.
8. Lease Property
Avoid buying a building if you can’t actually own the land it sits on. Properties on land held under long-term leases, not title, are common overseas.
There might be 50 years left on a lease, but every year, the value of the lease reduces, and eventually the lease will expire and the owner of the property will take it back.
Sometimes you find houses that sit on leased property with hundreds of years left on the lease. This could work as an investment, but full title is always better.
9. Over-Personalising Your Property
This is a mistake you can make after buying your property. The more you decorate your property in your personal style, the smaller the re-buyer market is.
If you buy an overseas property and intend to live in it forever, you can have black walls and gilded accents in your home. If you are buying a property for investment, keep the style somewhat bland so that it can appeal to the broadest range of future buyers.
You might love the idea of black tiles in bathrooms or neon paint in your kitchen, but 90% of future buyers won’t.
A new buyer might not be able to see past these features, and first impressions are vital in the real estate game.
10. Property With Structural Issues
Always get a surveyor or engineer to inspect any second-hand property that you are considering buying.
A few cracks in the walls might be nothing more than a bad plaster job, or they might mean the foundations are cracked, the building is subsiding, or the walls are going to fall down.
A leak might mean you need a few new tiles, or it could mean you need an entirely new roof, which could cost you thousands.
Most banks won’t finance or refinance properties with structural issues.
11. Property Within National Parks
It’s sometimes possible to buy land inside national parks. I know people in Belize who have done this. It’s romantic to think you can live inside a nature reserve in total seclusion.
Sometimes this can work out fine, but often there are restrictions on what you can build, or there can be major environmental requirements as to how you deal with waste water.
Having to install expensive reed beds or bio-digestors to handle your waste water can be prohibitively expensive, and you might have to submit annual water quality reports or even pay for government inspectors to ensure you’re not polluting the habitat.
Get proper legal advice from lawyers with experience in this area before buying property inside a nature reserve.
Con Murphy
Editor, Overseas Property Alert
