One of the single things that hurts new investors the most, and often financially nails them, is investing overseas.
It’s NOT that property in any other country doesn’t work for investment [though it really doesn’t work in many countries where ownership is less common], it’s the lack of local knowledge, the legal system, lack of control, Lack of transparency, lack of contacts, and so on. [But we can all be an expert or just as good, in our own area]
You see, this can be a real minefield. There are so many companies offering dreams and it can all get VERY tempting. The marketing, the sun, the seascapes, the white flowing clothes on the beach and the dreamy lifestyle pictures all makes us think about being somewhere hot and idyllic..
There are also many real horror stories and even criminal investigations on selling, buying and owning overseas property. This should be a sign.
How good a parent could one be if they raised their child remotely? It is the same in property.
How many serious horror stories or criminal investigations from the SFO do you see on people selling or owning local property? Little to none I believe. Certainly nowhere near as much, because everything is far more transparent when it is local. Comparables are easier to find and more provable. And no celebrity is ever going to endorse some of the ‘minging’ looking sheds we buy locally in Peterborough
The main reasons people get into overseas property are –
- They perceive that they can mix an investment with a holiday home [emotional decision]
- They can transfer their pension [lazy and emotional decision]
- They perceive the discounts to be bigger [lack of experience]
- They believe it is the next ‘hot-spot’ [lack of experience]
- They believe they can do it ‘hands off’ [lack of experience/emotional]
1. You can’t mix personal and investment. It either works as an investment, or it is for personal use. I [Rob] buy watches for investment, and in the early days used to buy the watches I loved the look of. They did NOT go up in value. The ones that go up in value do so for sound fundamental reasons such as scarcity of availability, heritage and provenance, demand vs. supply. Some of them look awful. Kinda the same with houses again.
Art is very similar. Buy what you love to put up in your living room, invest on principles [which are rarely to do with aesthetics or emotions].
2. Transferring a pension is a lazy, ‘lack of due diligence’ way of investing. Because there are limitations on where you can transfer your pension, there are limitations on your ability to invest. I’ve seen people act the same way with remortgaged capital. If they haven’t EARNED the cash, and paid tax on the cash, they handle it far more flippantly – this is a MISTAKE. Wherever the cash comes from, and however easy or hard it was to obtain, it should be treated in the same way – invest on proven principles, not punts.
3. Sure, you might be able to get 70% discounts from peak in Florida, but on what comparable, under what experience? I could buy a Ferrari for £10 grand less than it is worth, but until you’ve owned one you’ll never truly appreciate how much they cost to run. Just because I bought it cheaper doesn’t mean it’s a good investment because the clutch will still burn out every year, it will spend 3 months in the garage, and cost that £10 grand in the first year in maintenance.
Most people think the be all and end all of successful property investing is discounts. It is NOT. The be all and end all is successful management, tenanting, and real net returns (which are more linked to management and tenanting than they are perceived discounts off made up valuations).
4. Hot spot chasing is just the same as Magpie’s chasing shiny objects. It is HARDER in the outset to master a local area and gain enough knowledge to reduce your risks than it is to take someone’s word for something, endorsed by a celeb. But in the long run, it is obvious what will become harder. Go for what is harder in the short term, it will be far easier in the long run. For example, it is far easier for someone selling deals to call up a developer and get an agreed deal on 20 new build flats, and then sell them to ‘investors.’ It is far harder to master the values, build great relationships with agents, find the local hot-spot micro goldmines, say no to more deals than you say yes too, test letting agents and refurb teams often, research sold comps. But in the long run, the latter wins every time.
(By the way I don’t say this out of bias. We bought 5 or 6 overseas, off plan new build properties in 2005 when we started, when we were green but keen – naive). We learned the hard way. We learned the expensive way]. I am biased towards what works, not what I can show off to my mates down the Golf Club. If we get the chance to meet for a drink, or if You attend one of our event, I’ll tell you the 10’s of things that went wrong one after another after another that would NEVER happen locally.
5. Hands off investing should be done with diligence. You should expect lower returns than if you became an expert yourself, and weigh up the cost of not doing either. Again, it’s not that the concept doesn’t work, it’s just assessing the amount of variables. I own a Hands off investing company, and would transparently say if they are not investing locally where they can to their best ability control the multitude of variations, then YOU are responsible for assessing the values, tenant demand etc. Hands off overseas ‘investing’ in my humble experience of watching this happen for 7 years, is a double recipe for lack of control, massive voids, legal traps, huge issues gaining finance, and so on. And a whole load more variables you’d NEVER be able to predict.
In the UK we are relatively protected by a [relatively] sophisticated legal system. In many overseas countries you just don’t have that protection, with more builds just stopping, money going missing, banks u-turning and so far more commonplace in less developed economies.
Master your local area. It takes far less time than mastering the UK or the world. There are mini goldmines everywhere all over the UK, and the more local your properties to you, the more control and the less external variables can go wrong.
Increasing knowledge is the best way to reduce risk.