The idea of buying property overseas often attracts real estate investors who want to diversify and earn returns in a different market. But investing in foreign property is complex, and investors should understand associated costs, risks and taxation regulations.
This article discusses how to successfully invest in overseas property, including evaluating the second home market, researching properties, and understanding the tax implications. We’ll also provide helpful tips to consider before taking the plunge into overseas investment or owning a holiday home overseas.
About Successful Overseas Property Investment
Reasons to Buy Investment Property Abroad
Diversification: Investors know that diversification is the key to a successful property portfolio. As well as raising in value over time and providing alternative income, diversification keeps your portfolio going when circumstances out of your control, like the economy or politics, take a nose dive.
Lower Selling Prices: For people from the UK, European countries or America, the lower sales price overseas is a great lure.
Tourism Markets: For wannabe landlords looking at the tourism rental market, places like Spain, Portugal, France and Turkey are ideal. Their tourism industries that host millions of international visitors annually give the perfect base to market to. They also make excellent places to own a holiday home.
Residency Perks and Tax Advantages: Alongside extra income, many countries like Portugal or Turkey offer golden visa and second passport programs, where property buyers receive residency rights to live, work and study in return for property investment. Likewise, sometimes there are advantages to the tax aspect.
Lifestyle, Weather and Vacations: Of course, putting the investment property aspect aside, there is the lure of a foreign lifestyle. For example, many UK foreigners own a second home in countries with hot weather like Spain, Portugal and Turkey. As well as lower living costs, they enjoy the weather and culture.
Downsides and Risk of an Overseas Property Purchase
Different Market Procedures: Property ownership laws, buying processes and legal rights differ. Going into an overseas market for the first time is daunting if you are not fully informed or unsure of the process, and likewise if you plan to sell.
Currency Exchange: When buying property abroad, fluctuations in exchange rates significantly impact the sales price, financing and running fees. For this reason, employ a currency specialist.
Language Barriers: Buying property where the language and culture differences impact heavily adds another risk factor and complicity to the buying process.
Maintenance: If you don’t plan to be there full-time, you must employ a management or key holding company.
Tax Implications: Owning property abroad also involves brushing up on local taxes, where you reside and where you plan to buy.
Questions to Ask Before Making an Investment Decision
What is included? So, for resale homes, make an exact itinerary of what furniture and fixtures. For new build or off-plan homes, check for additional items like kitchen cabinets, white goods, bathroom fixtures, air conditioning units, built-in wardrobes etc.
Gated Community Management: How are communal areas like swimming pools and gardens managed for apartments or villas in gated communities? How are finances managed? For example, in Turkey, this all comes under Turkish condominium law. On our viewing trips, we cover condominium laws specific to where you are looking at.
Rental Laws: To make rental income, what are the laws regarding short- and long-term tenants? Also, what are the taxations and processes for declaring rental income where the property is located?
Buying Costs and Annual Running Costs: Savvy property investors always have an exact picture of finances. So, when purchasing property abroad, in addition to the buying price, know the lawyer’s fee, taxes, agent fees, notary, translation and annual running costs.
Property Management: If you are not moving overseas, think about key and property management. Regular checks should be done for leaks or structural damage. When renting the property, someone must arrange keys, cleaning etc.
What is the 2% rule for a Rental Investment Property?
The 2% rule evaluates rental property versus profit. The rule says the monthly rent should be at least 2% of the purchase price. For example, if buying a property worth 200,000, the monthly income should be 2% of this. If the monthly rent is less than 2%, check calculations to ensure enough income to cover expenses and mortgage repayments.
The rule is a rough guideline to target higher rental yields. Still, property investors must also consider local housing markets, the surrounding area, property conditions, local amenities and facilities, rental market conditions and expected money yields.
Paying Taxes When Investing in Overseas Property
Yes, you will need to pay tax on overseas property. The factors determining how much tax, are where the property is located, your residency status in the country where you own the property, and the tax laws of your home country. For rental income tax, many countries have agreements to prevent double taxation. But research and professional advice are needed when investing abroad. When you buy a property through us, we assist with this information, so you are always in the know.
Capital Gains Tax Obligations and Capital Growth
Once again, this differs by country and must be investigated but remember, they are rough guidelines only. We all saw how the COVID pandemic affected capital growth. Legal laws can also change. For example, in Turkey, you only pay capital gains tax if you have owned the property for less than five years. But these laws can change at any time.
Which Country is Best for Overseas Investment Property?
While looking at countries in terms of money and secure investments is good, this isn’t the only purchase factor to consider. Regional markets perform differently, to what is the national average. So while one town is ripe for value and investments, the neighbouring village might be a destination to avoid since there are many regional factors to consider for investment buying.
Additionally, your status also makes a difference. For example, buying in other countries which is 14 hours away by flight or that don’t operate a winter schedule is making the hard investment work. Regarding investment, Americans tend to purchase from their corner of the world, Europeans and Asians.
Remember, investment factors change constantly due to events out of your control. So while a country might be a surefire bet one year, events in the following year can tank the ranking. In our portfolio, countries that garner attention include
Spain: In recent years, the Spanish property market has been one of Europe’s fastest growing. The cost of living in Spain is relatively low compared to other Western European countries, making it an attractive option for retirees and families. As a result, many foreigners buy rather than rent. Spain has a high proportion of homeownership, and large ex-pat communities mean that a large proportion of real estate is already foreign-owned.
Dubai: For investors looking at foreign real estate, Dubai has risen in the ranks in the last five years. Although it is a business hotspot for many international companies, their property and retirement programs have paid off as more foreigners look to spend their money there. Aside from the architecture and luxurious lifestyle, investors get value while ticking all the boxes.
Portugal: Portugal is an upmarket tourist destination but Portugal’s real estate is also in high demand and offers a vast range of properties in this famous European country. Lisbon is a prime location in Portugal, as it is in any capital city; it is also a hot spot for weekend sightseers who enjoy a few days away exploring European capitals. Often we see tourists investing in Portugal for a holiday home, permanent residence or for investment.
North Cyprus: The island of Cyprus is a beautiful place to live and work, with its warm climate, stunning beaches and picturesque countryside. It’s also an excellent location for business as it has good infrastructure, low tax rates and a stable economy. The country divides into the Turkish Cypriot north and the Greek Cypriot south. Both sides have their governments and parliament but unit under one flag.
Summary – Is Overseas Property a Good Investment?
Yes, investing in overseas property is good if you take your time and do your research. As a property agent, we advise all our clients to look at a home abroad as a mid to long-term investment. Call us today to discuss overseas property investment further with a UK agent. Additionally, you can start your property search now by browsing through our properties worldwide. Each listing contains everything to know, including price, location, home features and contact details to find out more or arrange viewings for overseas property investment.