Some overseas investment opportunities really are too good to be true, according to one property expert.
Property investment educator Jennie Brown is warning Australian investors to be wary of overseas property companies.
“At the moment, there is a lot of talk about extremely low property prices in places like the United States due to the sub-prime crisis that caused a lot of mortgagee-in-possession sales, and it is understandable that local investors feel they should cash in on these markets, rather than invest locally,” she said.
However, local investors need to be extremely cautious about purchasing overseas property as different laws and “hidden fineprint” could result in huge losses.
“Even if you work with a local professional who knows the laws and market inside out, if you have issues, you are depending on people on the ground to fix the problem for you. This can be stressful given different time zones and the fact you are relying on someone you haven’t formed a relationship with to look after your interests. To go over there and meet with them face-to-face often enough to build up that trust can be impractical and expensive.”
As with all property investments, it comes down to research and due diligence. To fool-proof your foreign property purchase, follow these tips:
1.) Do your homework
There is a lot of information on the Internet and sites such as realestate.com.au list thousands of properties in countries around the world, but there is no substitute for doing your research on the ground. This is a given if you’re planning on moving abroad, but if you’re just looking for an overseas investment property then you’re going to have to factor in the cost of airfare to and from the country you intend to purchase property in.
Of course the same things that you would look for in a property in Australia will also apply overseas. Is there transport? What amenities are close by? How far is the beach?
But you also need to think about how different seasons will affect the property. Do shops close in the off-season? Is the area prone to floods during the rainy season? Will the bugs drive you crazy in spring? To really get a sense of the area talk to the locals and other expats.
If you’re investing, then determining where to buy will also be influenced by the rental market. Finding someone with local knowledge that you can trust is invaluable.
2.) Get an expert
Finding a buyer’s agent with first-hand knowledge of the local property market, connections and established relationships will really help you when it comes to making an informed purchase. Vet the people you will be dealing with in person. If they can see you’re a real person, they’ll be more inclined to treat you fairly. The same can be said for property managers.
When employing a legal expert, try to find a local and international, English-speaking law firm. If you plan on renting a property overseas, you will need to understand your obligations as a landlord.
3.) Get tax facts
As for property investments, any rental income received from a foreign property investment is considered by the ATO as taxable income. It’s important to note that you can also claim deductions for property-related expenses such as mortgage interest and property management fees. If you sell, capital gains tax will apply on any profits.
4.) Figuring out the finance
The process of financing an overseas property can be quite difficult depending on the country.
You basically have two choices: organise finance with an Australian lender or arrange finance with a bank in the country you’re looking to purchase property in.
Many of the larger Australian banks have partners and branches overseas, which can be helpful in completing property transactions and arranging paperwork. It’s important to note though that if you’re arranging a loan with an Australian lender, some will require you to already own property in Australia.
It may actually be easier to deal with a bank in the country you intend to purchase property in.
When arranging finance you have to take into account the exchange rate on currency transfers. Exchange rate fluctuations may result in gains and losses of around 10%. One way to get around this is to deal with a foreign exchange company which can lock in an exchange rate for a small fee.
5.) Buying costs
Legal fees, valuation fees, taxes and insurance vary from country to country, so it’s important to budget accordingly. In Vanuatu for instance, these costs amount to about 10% of the purchase price.
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