Your number 1 partner when buying property abroad
Why Invest in Overseas Property?
Where you invest your hard earned money will be determined
by your objectives and strategies, your tolerance to risk and the desirability
of your chosen market.
Overseas markets at different stages of the market cycle can deliver better
returns than those predicted in the UK. Demand, opportunities and potential
for profit are abundant
The main factors to consider when making your investment are:
* Affordability
* Financial Gain
* Opportunity
* Economic growth
* Climate
* Infrastructure
Property Market Cycle
The property market cycle has 6 phases, and an approximate 10 year cycle,
Peak, Recession, Bottom, Recovery, Expansion, and Contraction.
After a recession all markets bottom out. When this happens clued up investors
buy in the knowledge that there is only one way out and that is recovery.
This is the cyclical nature of the property market and this is where Substitution
comes in to play. The UK property Market hit recession in the early 90´s
and completely bottomed out in 1995. After a period of recovery and expansion
the UK Market saw its Peak in 2004. As the UK market was hitting its peak,
knowledgeable investors were looking at new markets which were at a different
stage of the property market cycle.
Successful Investing
What are the concepts to successful investing?
There are many concepts to investing in property that must be understood
before you can increase your success
Opportunity Costs - the true cost of what you have given up to
achieve your chosen objective.
Return on Investment (ROI) – total profit expressed as
% of amount of cash originally invested.
OPM (Other people´s money) or Gearing – borrowing funds
to increase buying power
LTV (Loan to value) – ratio of loan (mortgage) expressed
as a % of the value of property when mortgage kicks in.
Opportunity Costs
The real cost to an investor is the cost of what he has to forego in order
to have an alternative. In this instance the ROI will be the deciding
factor as to whether the opportunity is good or not.
Return on investment
In simple terms ROI is calculated by the following formula:
Profit/Cash Invested x 100
The important thing to remember when working out true ROI is to take into
account all COSTS as well:
Example:
John bought a property in Spain in 2002 for 120K€ borrowing 70% of the
purchase price from the bank. He sold it in 2006 for 250K€. The buying
costs in Spain are around 10%
His personal investment was 36K€ and he borrowed 84K€. His buying costs
at the time were 12K€ and his profit is 250K€ -120K€ = 130K€ less his
buying costs meaning true profit is 118K€
Therefore his ROI is profit (118K) / Cash invested (36K) x 100 = 327%
ROI
Considerations
Political / Economic risks
Is there political stability?
How stable is the local economy?
Financial Risks
Are non resident mortgages available?
What are the interest rates on borrowing?
Are there currency risks?
What are the buying / transaction costs?
What taxes are payable? Is there a double taxation treaty with your country
of residence?
What is your break even point? (ie at what rate does your revenue match
your costs)
Environmental / Geographical Risks
Climate changes.
Building restrictions and regulations
Hurricane / Earthquakes
Surrounding land usage
Market / Liquidity risks
How stable is the property market. (Cycle stage)
Will other markets have an effect on your chosen market?
How strong is the resale market (Exit Strategy). Will demand be as high
as supply?
Is there likely to be over supply of properties after time?
Will there be a strong rental market?
Where is the origination of the demand for rental? Foreigners or Locals?
Legal Risks
Can you use an independent lawyer that speaks your language?
Is the purchase contract fair to all parties?
Is the purchase contract re-assignable allowing a “buy to flip” strategy?
What protection is available to the foreign investor? Are their bank guarantees
or construction insurance
What title guarantees are there?
Investment Strategies
Most investment strategies can be catagorised into either
Short Term 2 years or less
Mid Term 2-5 Years
Long Term 5 years +
Most investors will have an idea what they want to get out of their
purchase. Generally investment strategies can be broken down to the following:
Permanent Living Long Term
Holiday Home purchase Mid/ long Term
Buy to Let (Rental potential) Mid / long Term
Buy to Flip (to cash in on capital growth and sell on usually before completion)
Short Term
Investors need to look at the following:
Purchase Price, Payment plans and affordability
LTV % (Loan to Value percentage on a mortgage)
Rental Potential and approx Yield
Capital Growth
Overall ROI (return on Investment)
Contractual Obligations and redemption penalties.
What are the deciding factors?
Purchasing Costs (tax, legal fees, currency exchange)
Yield v repayments
Capital gains tax
Redemption penalties and contractual obligations
Exit Strategy (ie resale market)
What affects the sell on market?
Economy is the main factor when considering the resale market. Ask the
question as to who is going buy and when!!!
Who is going to rent and why?
Due Diligence
Overseas Property Hotspots has undertaken basic due diligence on all our
promoted projects, where we check for the following:
Bank Guarantees
Building Licenses
Land title confirmation
Re-assignable contracts (allowing a “buy to flip” investment strategy)
Fund security
Build Quality Guarantees
Every investor is advised, however, to carry out their own due diligence
procedures prior to making any investment. We recommend this is done by
using an independent and fully qualified lawyer for your chosen country.
Buying Off Plan
We specialize in off-plan investment opportunities in many locations all
over the globe. Off-plan property is beneficial to our members because:
Off-plan investments can offer purchasers the ability to achieve returns
of between 10-100% in just 24 months.
In many locations, your generated profit can be free from capital gains
tax if sold prior to completion.
If you keep the property for the purpose of obtaining rental income, excellent
yields can be achieved. Meanwhile investors can enjoy a beautiful holiday
home while the property is unoccupied and watch its value increase at
a steady pace. Guaranteed rental agreements can also provide very lucrative
and avoid the need to find tenants for periods of up to 5 years.
For more detailed information on off-plan implications please speak to
one of our advisors
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