Investing in property can be lucrative if you do it right. What investors should be concerned about is making those critical mistakes that can do in their portfolios and eventually shred their investment strategies entirely. Obviously, concerns are greater in the realm of foreign property investment.
Investing in property here at home is relatively straightforward and easy to learn. There are enough opportunities to make it worthwhile as well. But once you start looking overseas, you also start getting into things that may not be so easy to navigate. It takes a lot of experience, a willingness to learn, and help from nationals to succeed in foreign property investing.
Are you considering foreign property investments? If so, be diligent to avoid these six critical mistakes:
1. Failing to Research Markets
During the previous decade, London was one of the hottest markets in the world for purchasing property. Investors from all over the world – and Asia in particular – were pumping billions into the London market and driving prices up accordingly. In the meantime, there were other markets where property was plunging.
It is absolutely essential to research potential markets before spending a pound. Investors need to know where property is lucrative and where it is a money pit. Simply purchasing property in a country because you like the weather or the culture is a good way to go broke.
2. Failing to Research Tax Environments
Second in importance only to market strength is local taxing environments. Remember all of those investors pumping billions into London real estate? Our government finally got wise to the problem and began assessing taxes designed to discourage foreign investors. Other countries do the same thing. Before you invest overseas, it is critical that you understand all of the tax implications. You need to know about income taxes, capital gains, mortgage interest, inheritance taxes, and so on.
3. Failing to Research Potential Partners
Some foreign property investors prefer to invest through a fund or partnership rather than going it alone. If that's your mindset, do not make the mistake of signing on with just any group without checking them out first. Trust us when we say there is no shortage of property scams out there. They are easy to pull off because foreigners are not familiar with the property they are ostensibly investing in. Don't be an easy victim. If you are planning to invest in a fund or partnership, get all the details first. Then run the information by an expert who can warn you of any red flags.
4. Managing Property Long-Distance
Assuming you're investing in foreign rental property, don't forget that there will be maintenance and management involved. Someone has to collect rental payments and screen potential renters. Someone has to arrange for maintenance and repairs when needed. Someone has to keep an eye on the property to make sure it is not being damaged. All of these things are terribly difficult if you are thousands of miles away.
Hiring a property manager may cut into profits, but it is well worth it when you consider how much you could lose by trying to manage property yourself at a distance. Don't make the mistake of being an absentee landlord. Spend the extra money and hire a qualified property manager.
5. Operating on a 'Get Rich Quick' Strategy
The biggest mistake new property investors make is operating on a 'get rich quick' strategy. Property is, without a doubt, a long-term asset that takes time to develop. If you are not willing to hold onto foreign property for at least 5 to 10 years, do not bother investing. The chances of you making a good profit by buying and flipping are slim. Only a few people ever succeed flipping houses domestically, let alone in foreign markets.
6. 'Falling in Love' with a Property
Property investing is a business. As such, every property you consider buying must be evaluated purely from a profit/loss standpoint. Don't ever purchase a foreign property because you like the view. Don't purchase property because you appreciate the quaintness of the town where it's located, or because the neighbours are especially friendly. All of your purchases should be directed by whether you can make a reasonable ROI. If you allow yourself to get emotionally involved, you may end up making decisions that destroy your portfolio.
Investing in foreign property represents an opportunity for you to earn good returns by taking advantage of lucrative markets. But because foreign property exists at a distance, there are a lot of things to be concerned about before you invest your first pound.
If you can avoid the mistakes listed above, you will increase your chances of successfully investing. If you succumb to those mistakes, the future may not look so bright.