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Ben Kingsley

16/09/2016
Blog post by Ben Kingsley

Should You Invest In Property Overseas?

As a Qualified Property Investment Advisor, I often get approached by clients asking me about investing in property overseas. They’ve been on a recent vacation, and they bring back a brochure telling me about this amazing opportunity they’ve got in Bali, Spain, the UK or in America. Ultimately, I try to dig into the main motivation for them to invest in those areas. You know, they may have done some preliminary research and found that the property prices have gone very high very quickly, and one would say that that is a very heated market, and there’s potential risk.

So let’s use Bali as an example. Let’s say and we have seen property price grow. Well, we’ve got political risk, and we’ve also got religious risk in those market. If we see another terrorism attack in those market, what happens to those properties? So we’ve got to make sure that we understand the risk in the marketplace that we are going in.

Let’s take Spain as another example. They’ve got youth unemployment of over 20% in most of the cities. So if we are talking about a villa on the coast and we are expecting that to give us great returns, well, we saw what happened just after the GFC when we saw an oversupply in that particular accommodation, and everyone abandoned their investments and property prices collapsed in those particular market.

The UK is a bit more of a sounder market and has some synergy with the Australian market so one would say getting the pound for an investment property is potentially not a bad idea, especially after the Brexit that has occurred recently. But it all comes down to understanding that particular market and being a subject matter expert. You don’t want to go into this marketplaces if you don’t have the knowledge and understanding of those regulations and the tax implications. There are tax implications both over there and also as you bring your money back through the foreign exchange mechanism back here in Australia. That also brings up the issue of currency risk as well. You potentially have currency risk where if that currency collapses, your investment returns are going to be lower. Now, that currency risk can also work on the up side is if you are buying into that market when the currency is low and that currency is about to improve, that’s also a good thing.

But the biggest challenge I think you are going to have when you decide to invest in overseas property is what happens if something goes wrong?

You know, investing is about solving problems. The bigger the problem that you solve, potentially, the bigger the return. So what I’m really saying is the higher the risk, the higher the return but are you willing to take on all of those risks?

Let’s say we go into the American market. Now the American market doesn’t have any regulation around property management. In fact, a lot of people who owns property in America actually self-managed their property, and they collect their own rent. But let’s say we find a company that says they will do a great job in property management, and they start collecting the rent for you. Let’s say money stop hitting your bank account and all of a sudden the tenants are paying the rent into the property management firm but they’ve done a runner. What do you do next? What happens if something goes wrong? What happens if that property burns down and you are personally liable because your property manager didn’t do the right thing. So all of a sudden, you’ve got this warrant for your arrest overseas, and you may potentially never be able to travel again? Now they are extreme circumstances, but they are all the factors you need to consider when you are looking to invest in overseas property.

And that is why, on the whole, most of the advice work that we do is about investing in Australia. It’s about diversifying your portfolio around the state as opposed to investing internationally to get the returns that you are looking for. We believe that the Australian Property Market has ample opportunity and you can time different markets at the right time to get into those. So it’s a really important question. You got to ask yourself, “Am I a subject matter expert on buying property in that market?” or “If I’m going to use a subject matter expert, what sort of credentials do they have and what sort of protection do I have around them not running off with my money? And are they working in my best interest?” All big and important questions and the tyranny of distance to allow you to solve those problems if something goes wrong is going to be a bigger headache than you want as an investor. Because at the end of the day, investing whether it is property or anything, from a passive point of view is about making the tough decisions, executing on that investment and then hopefully watching your returns come back to you. If you are not doing that and if you have to do more work, well, that’s not a true investment. You’ve basically just created a problem for yourself and so I hope you get the returns that you want at the end of the day. So I will be saying when investing in overseas property, be cautious about what you do and why you are doing it.

Thanks for watching.

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