> Beware the Perils of Investing Overseas
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: THE PERILS OF INVESTING OVERSEAS!
What the glossy sales brochure doesn’t tell you
and what the developer hopes you won’t find out…
A true account of the perils and pitfalls that one of
our readers encountered when buying investment properties
overseas and how you can avoid falling into the same
name it and it’s probably happened to me in the
past 6 years. I’ve been there, seen it and got
several blood-stained T-shirts in the process. At times
it’s been a nightmare. And I’m sure I’m
not the only investor who’s lost a lot of money
and sleep over the past few years.
the UK property market still being strangled by the
banks and with the uncertainty at home after the Government’s
proposed spending cuts, many investors are looking overseas
for higher returns. With it comes higher risk. Get it
right and you can set yourself up for life by investing
overseas. Get it wrong and you could lose everything.
Florida, Portugal, Cyprus, Bulgaria, Rumania, Cape Verde
and now even places like Brazil have all been tipped
as THE next property hotspot and THE place to invest.
So just how do you penetrate through the lure of glossy
brochures to find your ideal investment property in
the perfect overseas location?
are my top 10 tips for investing overseas, based on
my own true-life experiences.
1) Never trust anything the developer or their agent
tells you is true
fatal, this is the most common mistake. It’s easily
done because, like me, you usually receive the information
in good faith from someone you know, such as your financial
adviser. The trouble is that they are often relying
on information from the developer which can be totally
misleading. For example, “prices are expected
to increase by at least 20% per annum for the next 5
years”. That’s nothing more than pure speculation.
Never, never rely on such information. I always carry
out my own due diligence and I strongly recommend you
do the same. Be prepared to walk away from the deal
if you’re not entirely happy with what you find.
2) Check out the fundamentals first
this covers a multitude of sins, but here are some of
the main points to check… Does your property have
clean title? If it’s new-build, does planning
permission actually exist for your property? Is there
any likelihood that the land could be snatched back,
as happened in the region around Valencia in Spain just
a few years ago. What is the track record of the developer?
Get a list of other properties and/or leisure complexes
built by the same developer within the last 5 years.
Check these out thoroughly and, as always, be prepared
to walk away from the deal if this information is not
forthcoming. In which phase of the development is your
property being built? What impact will further building
work have on your ability to rent your property out?
If the communal facilities are not being built until
the final phase, what impact will that have in the meantime?
It’s surprising how many developers never actually
get round to building the communal facilities, so don’t
rely on them for renting your property out. Ideally,
they should be included in the early phases of the development.
You need to be able to rent your property out from the
day you buy it, not from when all the building work
in the final phases of the development has been completed.
Check that your guests will have the right to use the
swimming pool if one is being built. I incorrectly assumed
this was the case when I bought a property in Los Alcazares,
only to find that guests staying in my property did
not have any right to use the “communal”
pool. This has made my property a lot harder to rent
out than other identical properties on the same development.
Fly before you buy. If you physically can’t do
so, then insist on speaking to someone who’s actually
been there themselves. What’s the location really
like? Is it noisy? How close is it to the nearest beach?
What are the neighbours like? Is it in a residential
area or in a leisure complex? How easy is parking? How
far is it from the nearest international airport? What
are the local facilities like? I wish I had done this
5 years ago when I bought a property in Murcia, Spain
via Inside Track. I relied (to my cost) on the information
contained in Inside Track’s glossy brochure. The
“resort” turned out to be a residential
complex 30 minutes from the nearest beach with no communal
facilities at all and occupied mainly by migrant workers
from South America. Not exactly the ideal location for
renting out to UK holidaymakers! If only I had jumped
on an Easyjet flight and taken the time to visit the
site, I would have realised that what I was buying was
far removed from Inside Track’s “artist’s
impression”. Many thanks, Inside Track.
3) Have at least 2 exit strategies for each investment
absolute essential, especially if you are buying off-plan.
What do I mean by this? Let me give you a few example
exit strategies :
ASSIGN the contract to another buyer
prior to completion. This is a short-term exit strategy
and can work well if you are buying off-plan with
over 3 years to completion and if your purchase price
is at a significant discount to open market value.
You need to be sure that you are buying at a true
discount to open market value and that the contract
clearly states that it is fully assignable.
RENT the property out following completion.
Follow the tips in the rest of this article to establish
whether this is a viable option.
SELL the property immediately after
completion. Is there sufficient profit in the deal
to allow you to do this? Make sure you include all
the buying and selling costs. How will you sell your
property? Is there a market for it? Who will want
to buy it and why? What is your property’s unique
selling point? Who will sell it for you? What are
must have at least two such strategies for each property
you buy, so that if plan A goes wrong for whatever reason,
then you have plan B to fall back on. And preferably
plan C as well! Look at how options a), b) and c) depend
on you buying a property that will cashflow on completion
and which you are buying at well under true open market
value. I emphasize the word “true” here.
Watch out for unscrupulous developers marking up their
list price by 50,000 Euros and then offering a “special
discount” of 50,000 Euros. This happens all the
time, unfortunately. Your own due diligence is paramount
to establish what similar properties are actually selling
for now. That’s what you should rely on, not what
the developer tells you. Being able to assign the contract
to another buyer is essential in any off-plan investment.
Let’s say that the property is due for completion
in 3 years time. Look what’s happened over the
last 3 years. You really MUST have this get-out clause
in any off-plan investment in case of unforeseen circumstances.
If the seller won’t agree to this clause in the
contract, then walk away.
4) Know what the total purchase price is, including
all the associated completion costs.
headline price is one thing, but it won’t be the
total price you pay. Make sure you know what else to
budget for, such as :
Optional extras, such as external lights, patio paving
duty (or local equivalent). This can be as much as
15% added to the purchase price. You will need to
find this money yourself, as any mortgage will be
based on just the headline price. Mortgage valuation
fee, mortgage arrangement fee, mortgage broker’s
fees including your solicitor’s costs, notary
fees and all legal searches
flights and accommodation costs if you need to attend
the local notary in person to complete the purchase.
Usually your solicitor can sign the paperwork for
you as Power of Attorney, but check first
cost of getting your property ready for renting out
Don’t assume that your property will be
in a fit state to rent out
dear. So you assumed your property would be
ready to rent out the day after you bought it.
Let’s use one of my purchases in Spain
as an example. When the developer “completed”
the property, it was nowhere near ready for
rental. Firstly, the property was filthy. Dust
everywhere. It needed a thorough professional
clean. Next, I had to pay for the water and
electricity to be connected. Then I had to buy
the kitchen white goods (cooker, fridge, freezer,
washing machine, microwave etc). Next there
was air-conditioning to install, which wasn’t
cheap. The trunking had been installed as part
of the construction, but I still had to arrange
to have the air-con units installed and connected.
After that there were all the fixtures and fittings,
including blinds and carpets. On top of that,
I had to buy a full furniture pack (both interior
and exterior), including sun-loungers, barbeque
and right down to kitchen knives and forks.
The final touch was to install satellite TV
and to connect up to local wi-fi. Remember that
if it’s a competitive rental area, air-con
and satellite TV are essential for letting out
to Brits in particular. That was the inside
sorted out. I then had the front and back gardens
to landscape. Oh yes, and because I was buying
in Spain, I found that all the local tradesmen
only spoke Spanish. I didn’t. Fortunately
in this instance the developer was still around
for several months afterwards and attended to
my snagging jobs, such as settlement cracks
and doors that don’t close properly. You
may not be so lucky.
Create a detailed 5 year business plan
each property as a stand-alone business and produce
a 5 year (minimum) detailed business plan. I didn’t
when I started buying overseas, but I most certainly
do now and I have produced a business plan template,
which you are most welcome to have (I can email it to
you). The three most important questions to address
do I have the funds to exchange contracts and complete
the purchase, and
b) am I certain it will cash-flow, and
c) how quickly can I get my deposit money back?
business plan needs to have 2 main elements to it, namely
a) pre-completion and b) post-completion.
Your pre-completion plan must list all the up-front
costs of buying your property and getting it ready
to rent out. You must identify how all these costs
will be financed. Does the property you’re buying
qualify for inclusion in a SIPP? If you’re not
looking to stay in the property yourself, this can
be a great way to put your under-performing pension
funds to better use. This is how I’m funding
my most recent overseas investments. Check this out
with your Financial Adviser.
Your post-completion plan must include a cash-flow
forecast and identify how your property will be managed
on a day-by-day basis.
How will your property be marketed and will you
• Who will check guests in and out?
• Who will wash the bed linen and the towels
(if they’ve not been nicked) in between guests?
• Who will guests call at 2am in the morning
if they’ve locked themselves out? –
yes this really has happened to me!
• Who do guests call if the air-con stops
• Who will clean the leaves out of your swimming
pool and check the pH levels?
7) Understand your cash flow
is an integral part of your business plan, but it’s
so important that I’ve included it as a separate
item. You absolutely must get this right. Remember the
golden rule : CASHFLOW IS KING. Here are some of the
basics to include in your cashflow forecast.
Is your mortgage interest-only or repayment? If you
have done your sums based on an interest-only mortgage,
check how long the interest-only period lasts for
before reverting to repayment. Can you still afford
the repayments at the end of the interest-only period?
Consider seasonality. Completing on your purchase
after the high-season in September is a completely
different ball-game to completing in May, as up to
80% of your total income can come from the peak summer
What are your fixed costs?
• Monthly service charge
• Use of communal facilities charge
• Local council tax
• Sky TV / TV licence
• Buildings insurance
• Letting agent’s fixed costs (key-holding
• Budget on replacing your furniture every
What are your variable costs?
Letting agent commission
• Guest check-in and check-out
• Electric and/or gas (you can expect your
air-con to be left on 24 hours a day!)
• Laundry costs (nb : any towels provided
will be stolen regularly)
• Budget for routine maintenance costs (eg
clearing out the gutters)
8) Assemble your Power Team
you’ve got the keys, you’re on your own.
The vast majority of developers and their agents won’t
want to know. So who are you going to call ? Ghostbusters??
You’ll need :
b) Mortgage broker
c) Developer (for any snagging issues) and their local
d) Accountant (you may need to submit an annual tax
return in the country where you purchased)
e) Local Lettings Agent. This person is absolutely
crucial for the success of your business, so choose
wisely and ask them for references. They will be handling
your money, so make sure you can trust them. Use their
local tradesmen contacts. Will they market your property
for you? If so, how many weeks do they expect to be
able to rent your property out for? Should you go
for weekly lettings or for longer term lets (eg 6
f) Local estate agent (if you intend to resell your
9) Produce a Contingency Plan
thing you can be sure of is that if you’re investing
off-plan then things will definitely NOT go according
to plan. So think of worst-case scenarios and have a
plan for each one, no matter how painful that may be.
What is the likelihood of the developer going bust
and what would you do if they did? Would you lose
your deposit? Where is your deposit held?
• What if you can’t get a mortgage at
• What are your exit strategies (listed in point
3) and when would you invoke each one? For example,
if you can’t make an annual net profit from
lettings income, then sell up.
• What if the completion date over-runs? (NB:
I am investing in the Turks & Caicos Islands and
my properties are 3 years late!) Do you have any recourse
for such eventualities in the purchase contract? If
so, when can you invoke them. Watch out for the developer
to invoke any force majeure clauses in their contract
if they do over-run.
• Who is offering to provide the guaranteed
income (if any)? BEWARE if it’s being offered
by anyone other than the developer. There’s
a high risk that you’ll never see any of it.
This has happened to me 3 times (anyone remember Aramis
Investments)? Aramis Investments offered me a 2 year
guaranteed income through a separate company called
Rental Espagna. When I visited their offices, guess
what, their staff had long since fled. Guaranteed
rental incomes are only as good as the company behind
will exchange rate fluctuations affect me (either positively
10) Remember that you’re NOT investing
in the UK
obvious, but don’t under-estimate this one. There’s
a language barrier, currency fluctuations, National
Insurance (IVA) number, local taxes, local bank account,
local solicitor, having to attend the notary in person,
having to submit an annual tax return.
is one lesson I learned the hard way. When I bought
in Portugal I received a lot of correspondence in Portugese.
Same thing happened in Spain. Not unreasonable, but
I had wrongly assumed that everything would be in English.
Not so. You may need to complete an annual tax return
in each country where you own a property and pay the
appropriate “real estate tax”. I have to
do 4 tax returns every year. UK, Spain, Portugal and
USA. I have an accountant in each country who does it
for me. You’ll need to check this out yourself,
but be aware and ask the question before you buy.
we are. That’s a whistle-stop tour of just some
of the pitfalls I encountered when buying my overseas
properties. I’m sure the list is not exhaustive
and many other overseas investors will have their own
stories to tell. It wasn’t all doom and gloom
and I’ve had a lot of fun as well. I hope it hasn’t
put you off completely, because investing overseas can
be extremely profitable if you know what to look out
for. I just wish I knew then what I know now. Hindsight
is a wonderful thing.
with Martin Roberts (presenter of TV's Homes under
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