If you’re considering investing in foreign property, there are some important things that you need to understand and consider before you decide whether or not to invest. Read on to find out everything you need to know about investing in foreign property.
The benefits of investing in foreign property
Choosing to invest in international property can provide benefits that aren’t available through investing in property locally. The main benefits are discussed below.
Diversifying your portfolio
Purchasing properties in different countries allows you to diversify. Diversifying your property portfolio across various regions can reduce your investment risk. For example, if property market conditions slump in the local market, they may be more favourable in an international market. Diversification can help to smooth out your investment returns.
Potential access to cheaper properties
Depending on the country where you choose to buy, you may get more “bang for your property buck” than you can get locally. This can be especially true if the exchange rate is favourabe.
A place to stay while travelling
Depending on whether the type of property you buy is a long-term rental or holiday accommodation, it could be possible to stay in your own investment property while travelling. If you enjoy getting away for a beach holiday, an investment property in Queensland Australia could significantly reduce your travel expenses on your next trip!
Your holiday home could be earning you money all year round while providing guaranteed accommodation for your own family whenever you need it.
The risks of investing in foreign property
With benefits come some risks. The risks of investing in foreign property include:
Exposure to different laws
You will likely be exposed to different property laws, tax laws and property market conditions that may not be as favourable.
Exposure to currency fluctuations
If you’re converting your income back into your local currency, fluctuations in exchange rates could affect the rental income that your property generates and its value.
Tips for buying foreign property
1. Research the country’s property market.
This is crucial, especially if you aren’t familiar with it. You need to be able to identify a good investment opportunity in terms of potential rental income and potential capital growth in order to maximise your potential return on investment.
2. Understand how to buy.
The processes, procedures and laws may be different. Ideally, set up a network of professionals in the local market who you can trust to act on your behalf.
3. Understand the total costs.
This can include transfer duty, legal fees associated with your purchase, and ongoing fees such as local government charges, insurance and property manager fees.
4. Understand all the tax implications.
This includes the tax implications in the country where you’re investing, as well as any local implications. There could be implications in both countries.
Using a foreign exchange specialist when buying property overseas
If you are transferring funds for your property purchase, money transfer specialists tend to offer better exchange rates and charge lower international currency transaction fees than banks.
Regardless of where you buy, your foreign property will be a significant investment. You should minimise any foreign currency transaction fees as much as possible by researching your money transfer specialist options.
A money transfer specialist will also be able to advise you on strategies to protect you against exchange rate fluctuations, such as locking in a forward contract.
Make sure you consider all of the benefits and risks of investing in foreign property before you decide whether or not to do it. Whether it’s the right decision for you depends on your individual financial situation and goals.