This article was created in partnership with Western Union.
For many global citizens, investing in real estate abroad is a well-trodden path to long-term wealth. It allows you to spread your growing portfolio over different countries and benefit from the economic prosperity happening elsewhere.
If you’re considering such an investment, take a look at the following checklist. It’s designed to help prepare you financially, so you’ll know when it’s time to take the plunge and make your dream purchase.
1. Location and strategy
Regardless of the specific location — whether it’s a holiday destination you’ve fallen in love with or an idea inspired by Western Union’s list of beautiful places with investment potential — real estate investing depends on the local economy.
It’s only wise to do your research and find answers to key, location-specific questions ahead of time. How stable is the current economy? What are the recent trends with property sales and rental prices? How much can you expect in rental income?
Being informed can boost your confidence and help to fine-tune your investment strategy — will you buy and hold for capital gain or renovate to sell for profit? This will affect the type of property you’ll look for.
The International Monetary Fund and World Bank are great resources for economic performance, while the Bank for International Settlements and local regulatory bodies can provide independent information on property market trends.
2. Cash flow and budgeting
Whatever your investment horizon and strategy, a detailed budget is a useful tool to ensure you can take care of mortgage repayments until you’re ready to sell. It can also speed up the process of securing a loan.
Start by evaluating your current cash inflows and outflows. How much money is coming in? What are your fixed and variable expenses? Do you have other commitments, like an existing mortgage, a personal loan or a credit card balance? The goal here is to arrive at a reliable estimate of what’s left over each month to support your overseas property investment.
3. Investment costs
Next, estimate the costs of buying and holding the property. Investing in real estate abroad can involve different costs to buying in your native country; so, it’s important to be prepared.
Initial one-off costs could include your deposit or down payment, loan establishment fees, applicable taxes, mortgage insurance, real estate agents’ fees, connection for utilities, and fees from hiring experts like a lawyer, accountant, surveyor and buyer’s agent. You’ll need to factor in buying costs when establishing how much to borrow.
Ongoing costs could include body corporate fees, landlord and building insurance, maintenance and repairs, mortgage repayments, property management fees, rates and utilities.
4. Financial planning
With most of the hard work done, you can now figure out how comfortable you are financially to make this commitment. What’s the difference between your expected ongoing costs and rental income, on an annual basis? Can you cover this shortfall with your current cash flow? Is there a buffer to get you through periods when your property isn’t rented out?
Don’t forget to consider how your rental income will be taxed when working through these questions. When you feel your cash flow position is strong enough, then it’s time to look for a suitable lender. You may not be able to use an ordinary home loan from your native country for investing in real estate abroad, so be prepared to talk to finance companies in the country you’re buying in. Ask for a pre-approval if you can, so you’ll know how much you can borrow before hunting for the perfect property.
5. Other considerations
With your finances in great shape, you’re almost ready to become an overseas real estate owner. Still, there are a few more things to explore before beginning the adventure.
For starters, you may want to consider leveraging the local knowledge and insight of a buyer’s agent, who can help you find the right property and negotiate a good price on your behalf.
At the same time, look out for foreign currency rules around how much money you can transfer, both in your native country and in the country of your property, so you can plan for any restrictions. You may wish to set up a local bank account to make it easier to pay for taxes and other expenses and then transfer money from your native country when the exchange rate is favourable.
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Lastly, it’s a good idea to familiarize yourself with local tenancy laws, so you understand your rights and obligations as a landlord. Now, you’re ready to dive in and enjoy the benefits of investing in real estate abroad.