Investing in property overseas might seem like a daunting idea. With a whole world of options, choosing where and what specifically to buy is that much harder.
It doesn’t matter if you are a seasoned investor looking to diversify your portfolio or a first-time buyer shopping for a part-time home or a place to settle abroad for retirement. It’s always good to step back and focus on the basics when deciding on a property to buy anywhere.
Here are five important things to remember when searching for your next overseas property purchase.
1. Determine Your Reasons For Investing In Property Abroad
The foremost step when buying a property abroad is to decide the purpose of it. Ask yourself: Are you buying for investment, for personal use, or for both?
Are you interested in a retirement home? Are you buying solely for cash flow? Do you want a property you can stay in yourself but rent out when you’re not using it?
Choosing a property for personal use can be more straightforward. You only need to think about what you want in a home and where you want to live or spend time. You can decorate it as you please, and the location only needs to suit you.
When buying for investment, you need to consider what a potential renter or resale buyer will want. This decision, too, can be easy because your buying objectives are clear. You want to maximize your return on investment.
Your property search can be much more difficult when buying for profit and personal use. When this is the case, you need to determine a priority. The investment potential and the advantages for personal use can’t be equally important. That will make it almost impossible to decide what to buy.
You’ll have to make compromises. You could buy in a location that wouldn’t be your first choice for a home but that should earn you maximum cash flow when you’re not using it. Or you could buy in an off-the-beaten-path location because that’s where you’d prefer to live, accepting that your ROI will not be as high as it could be elsewhere.
You might be surprised how complicated this aspect of making a property purchase overseas can be, especially if you’re making the decision as a couple.
2. Set Your Criteria For Choosing An Investment Country
Regardless what kind of buyer you are—one shopping for personal use or one looking for straight-up profits—you should filter your purchase options based on a short list of key overriding factors.
First, ensure that the property purchase process is regulated and that the rights of foreign buyers are recognized in the country where you’re considering buying.
Wherever you buy, you’ll need to move money in and out of the country, so, second, confirm that the process for moving funds is reliable and that you will have the unrestricted right to expatriate your funds when you want to.
If you purchase a rental property in another country, I recommend engaging the services of a local property manager.
Still, you’ll want to visit your property from time to time, so choose a place you’ll be able to travel to easily and affordably and where you don’t mind going.
Ideally, a rental property overseas gives you an excuse to visit a place you look forward to, not somewhere you dread.
It should also be a place with good weather. That’ll make it nice for you to visit but also help attract renters and eventual resale buyers.
If you’re looking for a retirement home, be sure you’re shopping someplace where you could obtain residency and access the banking system.
3. Thin Slice The Market
The choice for where to buy property overseas is not only about the country. The city and neighborhood play crucial roles, as well.
If you’re buying for cash flow, the best locations have strong domestic and international tourist interest. The more diversified the potential pool of renters the better. Also pay attention to seasonality. The best buy is in a year-round tourist destination.
Pay attention to how one neighborhood compares with others nearby. If you can identify a purchase in an area that is undervalued relative to surrounding areas, you could position yourself for capital appreciation.
Prioritize accessibility to an international airport and entertainment and convenience options, such as restaurants, bars, supermarkets, theaters, malls, museums, parks, the beach, etc.
Buying sight unseen became more common during the pandemic. Technology today makes it easier than ever to buy in a place where you’ve never been. I don’t recommend it, especially if you’re making a first property buy overseas.
Do your research and make your plan. Then you need to get on a plane.
Stay in the area where you’re considering buying to experience what it would be like to live there. You’d be surprised how many areas look great on paper but fail to pass this test.
I didn’t follow my own advice when purchasing an apartment in Paris years ago. On paper, the place was an ideal rental. However, on Friday and Saturday nights the neighborhood was so popular among tourists that it was impossible to sleep in the bedroom overlooking the street. Every renter complained.
4. Don’t Focus Too Much On Capital Appreciation
Choose the right market and location and capital appreciation can be one of the main benefits of a property investment overseas. However, trying to predict value movement is speculation. And you shouldn’t expect to buy to flip. Transaction costs can be much greater in overseas markets, meaning that buying only to sell can be expensive.
When researching potential investment markets, my golden rule is to look for a rental that will earn you a net yield of 5% to 8%. A property that produces more than 8% net a year is possible, but understand that it won’t likely last. It’s the result of a market distortion. Less than 5% isn’t worth the effort.
A property generating net cash flow of 5% to 8% a year is a solid buy. If it also appreciates in value over time, that’s gravy.
5. Don’t Take Property Title For Granted
When buying property in the United States, you take clear title for granted. Verifying clean history of ownership for any particular property can be tricky some places around the world. Ownership laws vary country to country and even region to region in the same country.
A freehold title is the strongest form of property title and the one you want. It’s the only form of land title that I recommend.
When buying abroad, you should have a comprehensive title review performed. Hire a local attorney experienced in finding liens and making the appropriate judgments based on the local market. They’ll know what problems to look for.
Buying property overseas can be an exciting and rewarding experience. It can lead to opportunities for a complete lifestyle change, new adventures, and profit. By remembering these fundamentals for real estate investment, you’ll reduce your risk and increase your potential for a successful overseas buy.
Until next time,
Kathleen Peddicord
Founding Publisher, Overseas Opportunity Letter
