We’ve all seen the glossy TV and newspaper advertisements… buy a property in London, China or Australia and make a killing! But before you plonk down your hard-earned money, ask yourself these 6 things and find out how to invest wisely:
Should I invest in a house or apartment overseas?
This depends: Do you want to rent out or sell the place? “Generally, apartments provide a more stable and higher rental yield, while landed properties tend to achieve higher capital appreciation,” explains Peter Thng, executive director of Reapfield Property Consultants. In other words, you make more money from selling a house than an apartment.
But always check the tax situation for overseas owners carefully. “Most governments impose steeper tax or sales on overseas sellers,” warns Sean Seah, author of Gone Fishing with Buffett ($23.54, from Books Kinokuniya).
If you rent out your property, “you get lower taxes and a potential monthly income”, explains Sean. But find out the laws of that country first. For example, new legislation requiring UK landlords to check the immigration status of their tenants is expected to become law later this year – landlords who fail to document the immigration statuses of tenants will be fined up to £3,000 ($6,300) and will lose their vital House in Multiple Occupation license. “We strongly encourage landlords to seek advice from a local managing agent or legal professionals before letting out a UK property,” adds Marc von Grundherr, Lettings Director at Benham & Reeves Residential Lettings in London.
What are the best types of locations?
If you’ve already decided what country suits you, now comes your second question: What part of that country do you buy in? “Places with a more depressed economy pose a riskier investment option. You’ll never know when a bad economy will recover, or if other investors are also rushing to buy in that area, creating a localised pricing bubble,” warns Peter.
“A safer bet is to pick areas with increasing or a stable demand for properties,” Sean says. So do your homework- find out information on the people living in that area. For example, if it’s mainly overseas students who may go home for months between semesters, it can leave you with potholes of rental income.”
Look out for growing businesses which support increasing employment rates. Salary trends in the location should be generally up-trending or stable, and not spiking abruptly,” warns Sean. Also check the area’s crime rate and political stability. Good signs to look for are appealing amenities and a good infrastructure like schools or easy access to motorways.
Do your homework: Who lives in that area? Where do they work? How strong is the local economy?
What kind of costs am I looking at?
“It’s essential to do a survey report before purchasing your property. You must determine the renovation costs involved,” says Peter. Major issues to avoid are roofing and foundation problems, including termite issues. “If my upfront renovation costs cause my projected profits to drop below 10%, I’ll reject the property,” Sean says flatly.
Owning a property also involves recurring costs like management fees and insurance. “In some countries, investors also have to pay for regional taxes or school taxes. So always work in a buffer amount,” Sean advises.
Factor in your rental income taxes too. While you don’t have to pay taxes in Singapore on income earned overseas, according to the Inland Revenue Authority of Singapore’s website, you’ll still pay taxes in your country of investment. Always double check with several management agents in that country to be sure.
TIP “Avoid taking on a second mortgage – interest rates affect your returns. Consider co-sharing a property to pay off your investment in full, or borrow conservatively – at maximum take only up to 60% of your investment,” advises Peter.
What sorts of returns can I expect?
A decent net rental yield can be from 4.5% – 10% of your property cost. For instance, if a house costs $50,000 with average yearly expenses of $6,000, you gain a 7.2% yield if you rent it out for $800 a month.
Yearly expenses include local taxes, legal and management fees, building and contents insurance, fire insurance and regular repairs. Landlord’s insurance may also be required – in some countries, your tenant can sue you if they are injured by your property.
You should also take vacancy rates into account – can you cope financially if your place stays empty for a few months? When it comes to estimating your returns, it’s best to play up the costs and downplay rental rates.
TIP Your percentage of rental net returns is up to you, but factor in opportunity cost, since parking your money in your CPF already yields you a 4 % interest rate.
How can I get started?
Once you’ve identified a location and property, your sales agent should also provide after-sale service by linking you up with contractors, specialised property management companies and leasing agents, attorneys, tax accountants and bankers to manage the rent collection and property upkeep.
Ready to buy? You can consider using an escrow company, which charges about 0.2% of your property, to handle the sale – “Never hand a huge amount of cash directly to your agent!” says Sean. However, “your agent is the key person – and can lead you to future good properties”, Sean points out.
“If you’re not able to find quality agents overseas, try researching Singapore-based real estate agents who have been selling properties in that country,” Peter advises.
How hands-on should I be with this investment?
Experts are divided about this point. Some feel it’s best to check out a property in person before buying it, while others feel it isn’t always essential. “You can see the area for yourself, and also establish relationships with the people who will be helping you manage it after your purchase,” says Sean.
Peter disagrees. “An independent surveyor can represent you, and provide a comprehensive report.”
Visiting also depends on how many properties you have – “Whether you visit a place depends a lot on your investment amount,” Sean explains. “Since I happen to have several properties in San Antonio, Texas, I do visit my agent there once a year to maintain our relationship. And I do not hesitate to WhatsApp any of my agents when I have questions.”
By Madeline Lin, Singapore Women’s Weekly, July 2014