If you’re a full time investor with a mix of interests, you’ll already be aware just how difficult it is to generate a reasonably well guaranteed rate of return in the current climate.
In the UK, property investing offers little in the way of a reasonable yield as purchase prices (both of domestic and commercial property) remain inflated relative to the rental returns available. Obviously, in a low interest environment, anything approaching a good yield which is reasonably assured is going to be difficult.
Some equities offer reasonable yields, but aren’t without risk, of course. Slightly less risky, but offering lower returns as a result, come corporate bonds, whilst gilts in countries regarded as safe, are only offering crazily low interest rates, which in some cases are actually negative.
But one way investors can continue to get a good return if they’re prepared to work at it and live overseas, is by investing in overseas summer rental properties.
The market in Spain, Italy and France, in particular, remains subdued relative to the UK, but the generally strengthening pound versus the euro means that real prices are falling again for UK buyers. And if you’re prepared to live in a property whilst renting part of it out for the warmer seasons, it’s perfectly possible to generate gross returns over 10% per annum on the purchase price of a property. Of course, this is particularly good when you consider that you’re able to live in the place at the same time.
That said, it’s best not to have to rely 100% on these returns; rather, to view them as a bonus to your other investment activities.
If this is a route you are considering, make sure you keep all overheads to a minimum, including foreign exchange transactions. These days, it’s possible to get very tight margins with all transactions done online with companies which have invested in the requisite technology. The savings, in this way, should be significant.
Investing in property overseas is like jacking up the risks and returns of a domestic property portfolio. It includes all the same challenges are buying at home, such as:
– Choosing an excellent location
– Choosing a property with good condition and a reasonable level of remediatorial works required
– Going through the legal process of buying and selling
– Obtaining a mortgage and providing them with the requisite security and information
Then the fact that the property is based abroad brings new challenges such as:
- A potential language barrier between you and any in-country professional
- A lack of knowledge of local rules and requirements, for everything from planning permission to land access rights.
- Foreign exchange risks on sums of money invested (houses will be typically priced only in the local currency)
- If you invest in a country with instability, the rule of law and your rights to your property are not guaranteed.
Therefore investing overseas is only suitable for investors who have already mastered the domestic challenges, and believe that they are equipped for a higher level.