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Making Money From Overseas Property

Making Money From Overseas Property

We all work hard for out money., But few of us really make our money work hard for us. Most of us leave whatever income is left after our mortgage lenders, utility providers and all other debtors have had their way in a current account where it languishes doing pretty much nothing. Although many of us have some sort of savings account, not that many of us play smart when it comes to the saving game. We either don’t pay into them consistently, dip into them a little too often or simply stick with the same high street savings accounts we’ve had for years. The trouble is that with an average APY of around 0.06%, most of us are unlikely to grow our money in any meaningful way by relying on these anemic accounts. Although switching to an online lender (who will have fewer overhead costs and therefore be able to give you a better rate) may gain a healthier yield, savings alone are unlikely to grow your money enough to make a difference in the capricious economy of the early 21st century.

Savings certainly have their place. They’re very low risk, potentially easy to manage and represent a safe way to protect your nest egg, but they are not the be all and end all. For those of us who are serious about making our money work for us, it can be difficult to choose which is the right place to invest our hard earned cash. Stocks and shares are something of a lottery and dependent upon the whims of an unknowable market and inside occurences to which investors are rarely privy. Many new investors find Forex a somewhat more welcoming investment prospect but it is, nonetheless, not without risk. The values of currencies are tied to the fluctuating fortunes of countries just as the value of stocks and shares are determined by the fortunes of their respective companies. Very often, we don’t learn about the fortunes of either countries nor companies until it’s too late. Precious metals are often used to round out a diverse investment portfolio, but they should certainly not represent the entirety of it. So, where does the savvy investor turn? Well, despite fluctuations in the market that led to the financial collapse of 2007-2008, property is still the shrewdest place to put your money. But while the idea of being a landlord is appealing to many, we have a tendency to over simplify and romanticize this notion.

The myth of passive income

Be wary of anyone who tells you that being a landlord represents a stable stream of passive income. A good landlord cannot afford to be passive in any way when it comes to protecting their investment. They are responsible for maintaining the property and making sure that it is safe and habitable and that your tenants are treating the property with respect while living up to their responsibilities under the tenancy agreement. While you may want to use a property management service to handle the logistics of this, be advised that they will shave a substantial amount off your profit margin. You can expect your property manager to take 8-12% off your monthly rental income, so it’s important that you make them work for it. Being a landlord is a business and it needs to be treated as one. You need to be actively involved in it and dedicate time to maintaining it every day, even if you use a property management company to look after the day to day stuff. While investing in any property is a smart investment, here we’re going to look specifically at the benefits of investing in overseas properties.

Why invest overseas?

On the face of it, it might seem smarter to invest in a domestic property. You’d be closer to it, you’d have more opportunity to physically be there, you will have a better understanding of the area and you will be able to get on site and assess the damage for yourself should something go wrong. It could potentially be harder to meet the various duties and responsibilities required of you as a landlord when you live in another country and it will be incumbent upon you to learn the particular laws and taxes pertaining to property ownership in the country where you choose to invest.

Remember, this is work, not a free ride!

The good news is that in an age of ubiquitous digital connectivity, while getting on-site may be difficult, you are able to stay in constant touch with your tenants and whichever estate management company you choose to use. Overseas properties, especially when buying in places like Asia tend to offer much better value for money than their domestic counterparts. Just look at some of these wonderful properties in Indonesia; Overseas properties also have potential for greater capital growth and higher rental yields than domestic properties. Plus, you will have a gorgeous vacation home to come to for a few weeks out of every year. Of course, this doesn’t mean that every overseas property is automatically a slam dunk. It’s crucial that you make prudent choices on where you invest and box clever when it comes to choosing, buying and maintaining the property. Remember that value is built into a property not when it is sold but when it is bought!

The best places to invest

While the question of where is “best” to invest will be somewhat subjective and will depend on your knowledge of the area, its culture and its property market, there are some areas which are safer bets than others. Here are some areas well worth a look when it comes to purchasing an overseas property;

    • Jarakarta, Indonesia- Indonesia is on the up and while smaller nations like Thailand and Singapore tend to see more tourism, Indonesia’s tourism market (outside of the ever popular Bali) is on the rise. It’s southeast Asia’s largest and most populous country and primed for huge economic growth.
    • Medellin, Colombia- Despite being a beautiful and industrious city, Medellin is mired by its past associations with the now deceased Pablo Escobar. Since the drug lord’s death, however, the city has seen a huge influx of investment with property prices rising steadily. While you can still get a decent 2 bed apartment for less than $100,000 this is likely to change in the near future and now might be the best time to get in on the ground floor before the profitability window closes.
    • Abruzzo, Italy- A gorgeous and picturesque town popular with tourists and retirees alike. Yet, despite enormous demand for property, Italy has always been one of the best buys in Europe. In Abruzzo, you can expect to find a decent fixer upper for less than $45,000.
    • Puerto Vallarta, Mexico- If you’ve always dreamed of a beachfront property in Southern California but consider the SoCal price tag to be a pipe dream, you may have better luck with Puerto Vallarta. The area is known for high rental yields and year round demand.
    • Another place to consider is Playa Hermosa in Costa Rica.

But even if you are lucky enough to spot a bargain property in one of these areas, think carefully before you pull the trigger on an offer. If you’re going to make serious money from this investment you need to think long and hard about…

The location / cost ratio

Needless to say, location is extremely important, but it can easily lure you into a money pit. You must carefully weigh up the inherent benefits of the location with the overhead costs. If you won’t be able to cover the cost of your investment straight away in rental income minus property managers’ fees you could find yourself shovelling money into the property for months while hoping for an opportunity to hike the rent. Look for properties below the median line as these will offer greater opportunities for value appreciation as well as greater selling power.

It’s a matter of taste

The style of the property is also an important consideration, especially if you will be letting the property out rather than flipping it. As you will likely have a high turnover of tenants if you’re looking at a tourist friendly location your property will need a broad appeal. That means that what may be perfect for your particular tastes may be anathema to your chosen rental market. Look for properties which are better suited to transient rentals than long term living.

Size is important… But not on the way that you might think

When you’re looking for a property to live in yourself, you likely want as much square footage of property as your budget will allow. In the rental market, however, bigger is not always better. Even if you’re able to score an enormous beach front duplex at a reasonable price, tenants are unlikely to want to pay over the odds for space that they will not use and as such will pass by your property in favor of something more modest.

Box clever, however, and your property could be so successful that it brings in a reliable stream of revenue year on year and may even enable you to start to build your own portfolio.

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