Buy to let property overseas? David Lawrenson of LettingFocus.com looks at the risks

One of the highlights for property saddoes like me is the London March and September Property Investor and Homebuyers shows run by Homebuyer Events.
The guys behind the London show also ran events in past years in Manchester and Birmingham.
Unfortunately, these events have just become a casualty of the downturn in the property market as vendors seem unable to commit to having a presence at the show.
It’s a shame because whilst the show was usually pretty choc full of stands occupied by over zealous highly commissioned real estate salespeople, the organisers were always keen to also give a big platform to old wise independent voices – the likes of me and Richard Bowser (of Property Investor News) among a few others.
The fact they did this was pretty unique amongst property shows and I know we’ll all miss the show and I hope the guys from Homebuyers bounce back soon.

RISKS OF OVERSEAS PROPERTY INVESTMENT
In recent years, many exhibitors at the various property shows were busily promoting buy to let overseas. (I’m talking here about properties to be let to long term tenants here, not holiday lets, which is another story for another time.)
Now, I have always been very sceptical of the wisdom of buy to let overseas because I think the added risks usually don’t justify the possible gains.
The risks are many. They include currency risks, the hassle of trying to understand a different legal process - whether that is to do with getting a good legal title on a property or simply trying to understand the legal aspects of foreign letting arrangements.
To that you can add poor quality and expensive estate and letting agents, strange new taxes that the vendor or promoter “forgot” to tell you about, the difficulty of ultimately selling easily in what are often, thin and immature property markets, high exit costs, property insurance issues and a different and complex tax environment - especially as regards capital gains and inheritance taxes.
But most of all – and this is why all the big successful landlords here that I know don’t “do overseas” – is the impossibility of controlling something that is far away. What do you do if the agent says you need a new boiler? (On which topic see yesterday’s blog.)

FOREIGN GAINS
Over the years, I have seen lots of vendors trumpeting the gains of whatever foreign buy to let ghetto they are selling.
Often these are currency gains only. All too often the underlying investments have not done too well, especially in the big buy to let ghettos overseas – think about the oversupply of flats on a Manchester and Leeds scale - and then double it.
Sure, some investors have done well - especially those investing in Euro linked areas. But I think if you want to speculate on currency then you should become a currency dealer instead.
Also, many countries in Europe are as indebted as we are but I don’t think the markets have realised this yet– and I think when they do the pound could rise against the Euro.
So if you have made money on a buy to let ghetto in Europe, maybe now is the time to sell – whilst there is at least some currency gain to be had.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts. Read More Articles on Property by David Lawrenson.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer and property speaker - and I run the well known property letting and investment blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for a fee to anyone looking to buy property for themselves or to let out. I can help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2009. This blog is updated once a week.
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Overseas property prices. Will they keep going up? Blog by Letting Focus

Are property prices overseas going to keep going up?
According to Michael Ball, who is a professor of property at Reading university and a government adviser the answer is “No”.
He says that prices of homes in many parts of continental Europe have risen too fast driven by speculation and easy mortgage availability.
He also points out that the supply of new flats had been increasing at a very fast rate - leading to oversupply in many areas. This is something that I have long cautioned about at at the speeches I am asked to give at conferences and trade shows around the UK and in Europe.

Overseas Property Investors
Speaking to the Investment Property Forum last week and reported in the Saturday’s FT, Professor Ball also observed that some overseas markets had been driven (mainly) by foreign investors “and now that is beginning to turn."
In his speech he specifically mentioned Estonia, where house prices have dropped by around 10 per cent in a year.
Savills, in another survey, showed how many foreign buyers seem to overestimate the rental returns avilable through letting.
At my public speaking events on property at lettingfocus.com and at this blog, we have always questioned whether people locally in many markets can afford to pay the rents required to give investors a decent return - given how low local salaries still are.

Big Mortgage Shock Coming for UK's Overseas Property Buyers
Also, many British and Irish borrowers are likely to come in for a big shock when their mortgage payments are reviewed following the recent credit crunch.
My advice is to only deal with a home operator who has a track record of making investments overseas – and one who has an open forum - where you can read how past investors got on with that company before.
There are a few companies around like this. And then, always, always do your own research.

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Buy to Let Overseas - Things to Consider by LettingFocus.com

Buy to let abroad is exciting and people have made a lot of money but there are many who have been disappointed too.
In my consultancy, I have come across a few people who have bought to let abroad but who seem to have left their brains on the plane and forgotten the basics.
One of the most basic things is whether the property you are buying is good value and can you get a good return on it?
Lots of property abroad is cheap relative to the UK but that does not mean it is good value.
It is only good value if you can get let it out easily at a decent rent that is not too far your total running costs and if, when the time comes, you can find someone to sell it on to quickly and easily.
Many places I have seen look great in a brochure or at an exhibition but if most locals cannot afford the rent on it, then it’s going to be a loser.

Supply Side of Overseas Buy to Let

Always consider the supply side. If there are thousands of units going up just like yours and all being bought by investors then potential tenants will probably be able to play one landlord off against another and drive hard bargains on rents.
Also, tenants may have more rights than in the UK, and in some countries you may not even be allowed to let out.
If you buy a holiday let, holidaymakers will only want to rent it if it is close to the beach. If not, it does not matter how great it looks in a brochure.
And people will have to find you -after all they could just look at Expedia or Thomas Cook so advertising fees and web hosting fees are another headache on holiday lets.

Exit Strategy on Overseas Property

Re-sale markets abroad are usually “thinner” than in the UK which means that it is hard to find out what a property is really worth.
So, I’d advise people to look very carefully at promoter’s claims for past capital growth. Sure, you might get such and such a price eventually, but it’s often not like the UK, where you can have the property sold within 3 months of sticking on a for sale sign. In another country you may be waiting months to find a single buyer who will be in a strong position to force down your asking price.
Finally, costs for buying and selling abroad are usually higher than in the UK – and so are letting agency fees too.
Find out if you can talk to other property investors who have already invested with that developer or promoter.

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