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Home Real Estate

How To Buy A Rental Property Overseas

Best Places To Buy Real Estate in Portugal

Kathleen Peddicord by Kathleen Peddicord
Mar 08, 2022
in Real Estate
0
Small Paris street with view on the famous Eiffel Tower in Paris, France.

Adobe Stock/Augustin Lazaroiu

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What’s the most important factor when considering a potential rental property purchase overseas?

The pleasure potential for you and your family. You should always buy what and where you want.

You want to balance that objective, though, against what matters most for rentals in your chosen market. This is key to maximizing cash flow.

Property type and size are universally important rental factors. In most markets, a one- or two-bedroom property is more rentable than a three- or four-bedroom place. The incrementally higher rental rates you should be able to charge for a three-bedroom usually don’t compensate for the higher cost of purchasing the larger apartment. While a super-high-end property might suit your personal preferences, a higher-end (read: more expensive) property probably means a lower rental return. To keep your occupancy up, you’ll likely have to compete on price with the general (not high-end) market.

Here are three critical questions to answer when considering any potential purchase of a second-home-cum-vacation rental overseas:

1. Where in your target location do people most want to stay?

In Paris, for example, perhaps the world’s most recession-proof rental market, the traditionally best arrondissements for rental are the 5th and 6th. These are also among the priciest arrondissements. More affordable and also good for rental are the 4th and the 9th arrondissements, meaning an investment in these areas could generate better cash flow.

Take a similar approach when shopping for a rental in any city. Rather than focusing on the heart of the most rentable district, look around the fringes of the main tourist area and work your numbers to determine if the lower acquisition costs could result in a better cash flow, even with slightly lower expectations for rental price and occupancy.

When shopping for a rental in a beach location, the closer to the beach the better for occupancy. However, again, prices will be higher right at the beach so something slightly back with an ocean view might be a better buy.

2. What size rentals are in demand in your target market?

Again, generally speaking, one- and two-bedroom apartments are the rental sweet spot. However, a market can be overrun with rentals of this size, creating opportunities for either smaller (studios, for example) or bigger (three-bedroom) places.

In Medellín, investors are buying two- and three-bedroom apartments, even if that’s more apartment than they need, because the prices are so low it’s hard not to be tempted to buy bigger, and, right now, rental returns for these apartments are high. That said, a one-bedroom apartment in this city could generate the same or better cash flow. Again, it’s a matter of balancing your investment agenda with personal circumstances and preferences.

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3. Is there a high season and what’s the opportunity for occupancy beyond that time?

Also, when considering the rental season, remember your plan (if you have one) for personal use. Would you want to be occupying the place yourself during the season when much of your rental return otherwise might be earned?

Punta del Este, Uruguay, is a good case study in this context. The high season in this coastal resort town is mid-December through February. Over this 10-week window, you can charge outrageous rental rates. In fact, it’s not uncommon to earn as much as 80% or 90% of the annual rental income during this peak-season period alone. The rest of the year, the going rental rates are a fraction of the short-term rents you can ask in January and February.

That’s okay, as you can earn enough during this period to make the investment worthwhile overall. Unless, of course, that’s the time of year you’d want to use the place yourself. In that case, your intended rental investment could default into a holiday home for the family, period.

Lief and I have owned rental properties in more than a half-dozen countries. All of them were rented short term at one point. Some were also long-term rentals, which we’ll discuss in a moment.

The key to success with a rental of any kind but especially with a short-term rental is the rental manager. Unfortunately, Airbnb, Vacation Rentals by Owner (VRBO), Booking.com, and other online marketing outlets for short-term rentals have convinced many people that they can manage their rentals themselves. That’s true, in theory, and I know many people who do manage their own rental properties.

However, if you decide to handle the management role yourself, your rental property is no longer an investment. It’s a job. You should calculate some value for your time spent marketing, checking in guests, overseeing cleaning, maintenance, and repairs, taking inventory of the property’s contents after each booking, and so on. That doesn’t sound like fun to me but can work if you’re living in the country where the rental is located. If you’re not, I recommend against trying to self-manage. Engage local professional help.

The other problem with Airbnb is that it’s made every homeowner in the world believe they can make money renting out a room in their house, an apartment they inherited that they’d otherwise have sold, or their full-time residence when they go on a month’s vacation. As a result, inventory in key short-term rental markets has expanded significantly.

This increases competition for your rental, and it negatively impacts the marketplace. Much of this Airbnb inventory is poor quality and poorly managed, which can and does lead to lower net yields over time for all rentals in that market.

Sincerely,
Kathleen Peddicord signature
Kathleen Peddicord
Founding Publisher, Overseas Opportunity Letter

Tags: 'real estate overseas'buy a rental propertyinvesting in real estaterental homerental property
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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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