Looking for a holiday home or a better return on your investments? Buying an overseas property could be your answer, but you need to get it right. Liz Rowlinson, editor of Place in the Sun magazine, explains the dos and the don’ts of buying a property abroad.
15 minutes – that's all it takes to get between Heathrow and central London on our high speed train services. It got us thinking… what else can you do in 15 minutes? This issue: buying a home overseas.
1) Know WHY you are buying
Seems obvious, but so many people get it wrong. Is your main motivation lifestyle, investment, or can a home perform both? Pure investors banish emotion and weigh up the best locations for rental yields, capital appreciation and/or adding value by developing. Dual-season locations usually give the best returns. Think: golf resorts, cities or those with year-round sun like the Canaries, the Caribbean or Florida. They may also be in ‘riskier’ emerging locations where purchase prices are lower. If you are buying for yourself, also plan for the long-term: will you outgrow your home when you have children or reach retirement? Second home owners should think carefully about local tax regimes.
2) A slice or share?
Not everyone wants to return to the same place time after time, and few of us can use a holiday home for much of the year. Second homes have joined the sharing economy and now it’s possible to exchange your home, purchase a share of one, or invest in a portfolio of homes. Shared or fractional ownership schemes come with a management company in place and offer owners a number of weeks usage per year, with options to exchange those weeks. Such schemes (as with French leaseback models) live or die on the quality of the management company, so make sure you do your due diligence and know you have an exit strategy.
3) New or old?
There will always be fans of period charm and of pristine blank canvases. Just remember that the higher running costs of older homes will eat into your return on investment. In some markets – Spain and Florida, for example – a hiatus in construction after the downturn in 2007 has been more recently followed by the construction of higher quality, more energy-efficient homes which will have the edge over older properties in both the rentals and resale markets. Did you know that insurance is markedly cheaper on new homes in Florida? Buying off-plan (during construction) is a way to cherry-pick the best plot on a development and customise the property’s layout.
4) Money matters
Buying costs vary hugely between countries and in recent years some governments have increased purchase taxes for non-residents in times of austerity: in Spain 12-13 per cent in closing costs is fairly typical. Using a currency broker to make the most of exchange rates is a no-brainer, and the strength of Sterling is currently motivating many UK buyers in the eurozone. The availability of overseas mortgages across the Med is still patchy (the major exception: France) with higher loan-to-value ratios than ten years ago. It’s also easy to underestimate ongoing costs (and overestimate rental income) – and beware hefty annual community charges on luxury resorts with extensive facilities.
5) Don't do anything you wouldn't do at home
You can avoid so many problems simply by using an independent lawyer in your property purchase abroad. It may not be common practice in many other markets, but it is crucial to have someone in the process protecting your interests. Due diligence on a property involves your lawyer asking the right questions about building rights and habitation licences, any debts on the home. Likewise, with a building survey – insist on having one done on an older property for peace of mind.
6) Keep on top of tax and legals
Don’t rely on the internet for up to date information on taxation or legislation; in Spain and France there’s been much chopping and changing recently and both have seen reductions in capital gains tax. Just remember that the legality of short-term holiday lets is a grey area that varies between the seven autonomous regions of Spain. Again, ask your lawyer!
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