All You Need To Know About Managing Rental Property Abroad
Owning an overseas rental property is a fun way to invest and diversify. I’ll admit that I enjoy investing via an online broker from the comfort of my home office. But it can’t compare to the time I spend on the beaches of Northeast Brazil… the chic cafés of Medellín… or the Old-World charm of downtown Montevideo I get to experience while managing rental properties. Owning an overseas rental not only provides an income, but it opens up a whole new and exciting lifestyle.
The first order of business will be to find a country and a city in which to buy your rental property. For me, this is easy. I simply think of where in the world I’d most enjoy spending time and then look for rental markets that are worthy of investment.
On the surface this may seem like the approach of a non-serious investor, but it has its advantages. Remember that you’ll be spending a good bit of time where your rental is located… first to shop for it, then to buy it, and now and then to check in or maintain it. All of this activity may as well be in a place you enjoy spending time. Also, owning a rental in one of your favorite places will give you the option of staying there on vacation now and then or possibly using it for a future retirement home.
And finally, if you buy in a place where you love to spend time, it serves as the ultimate backstop. That is, if all of your rental projections fail to materialize, you’ll still own a property in a place where you want to be.
Of course, you can manage a rental anywhere, whether it’s a place that you personally like or not (this actually may be a more common practice). In some cases the best rental markets will not be places where you want to spend time, depending on your personal preferences. I use Cancún for example: You can do well with a quality rental unit there, but it’s not a place that I particularly enjoy.
Next, consider who you are targeting for your rental property. You can only find the best property when you know who the potential client is. Vacationers don’t often want the same properties, areas, or amenities as business travelers do, for example. And expats exploring potential overseas havens may want something altogether different.
Within a given overall market, some areas will stand out for certain types of clients. In Medellín, for example, the city center would be good for business travelers but will get few expats, online workers, or vacationers. El Poblado, on the other hand, also draws business travelers but is at the same time attractive to the other groups… it’s an easy choice.
In the Caribbean city of Santa Marta, Colombia, the Centro and El Rodadero sectors are attractive to the foreign market since there’s a lot to do, and you can walk to everything without a car. The high-end Bello Horizonte and Pozos Colorados sectors are more remote and quiet and will appeal more to a well-off Colombian family who is looking for peace and quiet… and who will have brought their car.
Prior to buying a rental property in Medellín, I stopped in to see the city’s top rental property manager and asked him where his biggest demand for rentals was. He pointed to an area on the map and said “everyone’s first choice is here.” So that’s where I centered my search and also where I bought my unit.
Choose the sector or neighborhood that appeals to the broadest market while remaining specialized enough to offer good returns.
And, don’t buy any more property than you need.
I’m often tempted by large, spacious units, but I have to remind myself that a renter won’t usually pay for any more space than he or she needs.
In many markets the ideal rental is a two-bedroom, two-bath unit around 90 or so square meters (968 square feet). It hits a broad spectrum of potential renters without spending money on a lot of extra space.
But that’s not always the case. On the Brazilian island of Itamaracá, for example, most rentals are to Brazilians who intend to use the property with their extended families, so three- and even four-bedroom units perform well in this beachfront environment.
Often a one-bedroom unit will out-perform them all on a cost-per-square-meter basis, especially if you’re targeting business travelers… but I usually avoid these, personally. The numbers work well while renting, but one-bedroom units can be harder to sell. So I’ll usually give up a few dollars in the dollar-per-square-meter equation to broaden my eventual resale market to include families, retirees, and vacationers who generally prefer two bedrooms.
Critical to operating a rental property abroad is finding a suitable property manager. A good property manager can bring you a high occupancy, provide reliable bill paying, screen your tenants, manage any maintenance, and deliver money to your bank account.
A bad property manager can make each of these things a headache.
My approach is to go with a recommended manager when possible. If you know other owners who have rentals in the same area, seek out their advice. Find out who’s happy with their manager and who’s not.
If, as I did, you consulted with a property manager before buying your property, you may already have a connection in this area.
Try doing a Google search to see which rental agencies come up first—it’s likely that this is the way your prospective tenants will start their own search. If you’re targeting the English-speaking and expat markets in Cuenca, Ecuador, for example, try searching “furnished apartment Cuenca Ecuador”… and you’ll get the top English sites. If you’re targeting the local or Spanish-speaking markets, try “departamentos amoblados Cuenca Ecuador,” to get the top Spanish rental sites. High Google rankings for property managers should place them high on your own list, too.
It will also be worth your while to sit down with any candidates for a talk, prior to signing on with anyone. They can describe their services and answer questions about the market… but you’ll also come away knowing if this is someone you want to work with.
Regardless of whom you pick, make sure that they offer detailed reports, carefully document all expenses, and save receipts. Take a good look at their proposed contract to make sure they’re taking responsibility for the important tasks you need them for, things like collecting the security deposit and rent. They should also be responsible for taking inventory before and after a rental, as well as collecting for any missing items.
Verify that the property manager’s fees are reasonable and competitive by checking with others in the area.
Owning a rental abroad will give you that all-important foothold in another country, with possible inroads to the country’s banking system and even future residency.
In many cases it also allows you to diversify outside the U.S. dollar and gain a stake in another country’s economy.
And of course, it’s also a way to earn a decent return on your investment while internationalizing your life… and opening the door to an exciting lifestyle that will enrich your life for years to come.
Editor’s Note: Your life and your assets, investments, and business activities should be spread among more than one country. This is a simple yet critical fundamental of our age. In fact, the need for diversification is more urgent right now than it has ever been in our lifetimes.