Which Country?

Hi

I'm looking to purchase properties overseas, and need advice as to which country/countries would best fit my criteria:

- I would like to gear the finance so that I use the minimum of my own capital, preferably borrowing using the lowest interest rate possible, whether that be from a lender in the UK or in the country of purchase

- I don't wish to purchase off-plan. I want something that is ready to roll straight away

- I wish to let to locals where possible not holiday lets (because I want to input minimum time), emulating the buy-to-let model that so many followed in the UK in the late 90s and early 2000s.

In other words I am looking for a market that is possibly under-valued where the rent-to-value ratio is high. The monthly income must more than cover all the monthly expenses (including mortgage repayments, management fees, my expenses etc.)

This is more important to me than the potential for capital growth. If the value rises, great, but the priority is that the income must always be higher than the outgoings.

I really would appreciate some suggestions. I've been studying investment models for a couple of years, but I've never yet taken the plunge. I should have about £100K to invest in the Spring/Summer.

I look forward to hearing from anyone who has anything to say (even if you think attaining my criteria might be ambitious).

Thanks
rjbevan

 

That's quite a demanding set of criteria. As a rule, interest rates are lower in established markets where mortgages have been available for some time. However, being maturer these markets have lower rental returns and the prospects for capital appreciation perhaps aren't as good as for emerging markets.

I feel you will have to move to riskier markets and mortgage here in the UK to meet your criteria. Places like Thailand, Goa and Sri Lanka offer good returns for tourist accommodation. I imagine the same will apply for the poorer accommodation the local work force live in.

 

Thanks Soupdragon

What sort of prices are we talking about in these places, and what would the monthly rent be?

 

You should be able to get 10% to 15% rental return for tourist accommodation in Thailand, Goa and Sri Lanka (before taking expenses into consideration.) I haven't looked at property that would be for the locals working in the tourist sectors, so I'm only guessing that you would also get good returns from them.

Remember that while rental returns are high and should cover your expenses (assuming you borrow against your property in UK) you are exposed to exchange rate fluctuations. An investment that washes its face today may not tomorrow.

You always need to do thorough research prior to investing and if considering Sri Lanka you should tread very carefully indeed. There is a property tax of 100% that the buyer foots (property advertised at 50k becomes £100k) except on a smattering of tourist developments (we're talking off plan here) where the Government is waiving the tax to encourage investment in these areas. Sri Lanka isn't the most stable of destinations either. The Camel Tigers, and not the Government, run half the country. Add risks such as Tsunami and you can see that Sri Lanka is a high-risk destination. The rewards are potentially very good though. Its a while since I did my research on the place, but I believe prior to the Tsunami two years ago the Government had abolished the 100% purchase tax. The devastation the Tsunami brought forced the Government to look closely at how they could raise the funds they needed to get Sri Lanka back on its feet and the tax was re-introduced. If this were to be waived further down the line then Sri Lanka could become a very interesting proposition.

You asked about costs for buying in these countries. For a 2 room tourist pad (1 bedroom and 1 living room) you are looking at about £25k in Goa and £50k in both Thailand and Sri Lanka. I see Goa as the low risk option of the three.

 

I think perhaps Germany. Ive invested some in Berlin. Nice and safe yet prices fell dramatically in recent times. Now many interntional hedge and investment funds are on a spending spree. Yields are 5 - 5% although I see claims of 10% advertised.
Some people on houserpricecrash.com have bought whole blocks of appartments using German finance.
Its quite a complex place to do business. The rules are many.

Wow, something real strange happened as I was typing the above, my German agent I bought through (a while back) just called! Spooky.


Ive also bought shares in AIM listed companies that themseleves are 85% geared to build up substantial German property portfolios. A good example is dawnayday treveria (treveria.com). Nice and simple.

Id consider Poland and the Baltic tigers, but its going to be a case of having to establish good contacts to ensure the exercise is as hassle free as possible.

Fadesa are a large Spannish developer. They are building in Poland and Hungary. A nice safe bet and some of thier property seems to be well located.
Some of us know Fadesa through our investments into Moroccan property btw.

 

I'm not sure there are any countries that fully meet the desired criteria laid out in the original post, but I'll continue to follow this thread to see if any come closer than those already mentioned.

Ultimately property in most countries mentioned on this and other forums should wash their face if we put enough of a deposit in, its just a case of trying to find the ones where very little money is required from our own pocket where we feel the prospects of capital growth are good.

 

Thanks for the advice. I took a look on some web sites, and I have to say I like the idea of Germany. It seems to show similar characteristics to the British housing market in the mid 1990s when the buy-to-let boom started. From what I have found out, the rule of thumb was that if a property cost 50,000 then the monthly rent should be at least 500 etc, and in that ratio whatever the price.
Germany does seem to be the only place I can find that meets this criteria.
What would happen in terms of taxation on the income? Would I pay it in Germany or the UK? Would I need an accountant in the UK and one in Germany who would need to liaise together? What would the costs be?
I am thinking about buying in cash, and then refinancing afterwards, in order to speed things along and take time to get the best terms. Am I correct in thinking this would be the case? Or should I sort out finance before I go and choose a property? Anybody any experience of Germany?

Thanks
rjbevan

 

I dealt with very helpful German agents. They look after me long after the sale completed. Funnily enough the agents Brother is an Accountant and his office is right opposite the land I bought!

I didnt bother with rent, I went for a capital growth play. I realise this isnt for everyone but my reasons are sound. Well located land in the S East of England became extremely valuable after our recession and despite having not enjoyed any rent owners of such assets made substantial returns often far greater multiples of thier capital outlay than those that outlayed the same sum of built property.
I could list a lot of examples I know of personaly in my area.

I went for land with building permission for commericial and residential property. It is my belief that well located land will become valuable as the German economy turns the corner, and that land with dual useage gives me exposure to 2 different markets. In the German captial land will at some point become in short supply. My gamble is that time will arrive sooner than expected.

So in terms of income Tax I cant help.

Here is a Tax resource for Germany;

Welcome to expattax accountants and tax consultants


I can give you my agents contact details, but Id rather only do so if you become farily definite about Berlin.

BTW the agent showed me some great refurbed appartments due for completion about now I think. They were in a trendy up and comming young area called Freiderickshaine (sp). Reminded me of an immature Camden, and eefinately an area that should do very well out of any economic recovery.

 

Hi Investy,
I am also thinking about land in Berlin but am at very early stages in my research. Can you share any more information on your deal; location, cost borrowing (understand if you are not comfortable in doing so).

From what I have read - it seems that Germany has been in a vacuum from most of W Europe property and now is the time to buy.

Do you have any other links you could share with respect to buying land in Germany.

Thanks
Flex

 

From my limited research of Berlin (mainly reading posts from Investy and others on these forums) I agree that it is undervalued, but would like to point to rents being OK rather than good and the high running costs you will have. There is a lot of red tape involved and the lettings side is very much geared to protecting the renter rather than the owner. If you do go down the route of investing there and employ a management comapny to take care of your investment then it is probably worth adding clause t your contract with them that all correspondance be in British or that an electronic copy is also provided. (Translator in Google may be sufficient for your purposes.) That way you don't have the hassle and cost of arranging transaltions.

 

Thanks for all the advice. I really appreciate it. Is Berlin the best city in terms of rental return on the value? Does anybody know of anywhere where the rental return is better? It's an income I'm looking for, any capital growth would be incidental.

 

In E Germany yields of 8% + were available, however now a more realistic yield is 5 - 6% as a result of a big influx of investors.

Ive looked at just about everwhere on the planet for the fabled yields you mentioned but have found that fundamentaly 5 - 6% applies everywhere.

A freind of mine who like me had invested in Germany and Morocco does achieve 15% but to so do he lets rooms in the UK on a cash basis and has to be hands on 24/7. He also has to shall we say 'skirt' the rules a little.

To be honest Im not sure I would go to all the bother of buying abroad in order to achieve a better yield than the UK offers as other hidden costs such as airline fares and translations will eat into the bottom line.

Even if u do find a high yielding zone you can be sure investors will spot it and the yield will quickly tumble to 5 - 5%.

BTW, shares in UK 'Dawnayday Treveria' which solely invest in German property just paid me a 5% dividend in thier first year trading.


Im now also buying a villa in Morocco on a site tipped to become the next St Tropez. I always holiday in villas and I can tell u well located property commands very very high rentals. Even a basic villa in Menorca or Sardinia (in non chavvy bits) will set u back £1000 per week absolute minimum, although £1500 is more like it.

2 bed Appartment built right into islands within the golf are typically £100000 but keep in mind is likely to be one of the best resorts anywhere in the Med, so I think prices will rocket, in fact I cant see people wanting to sell so supply will be very restricted.
Mortgages are comming on stream. Big British prescence so on - going management a lot simpler than in say Germany.

I expect this new site in Morocco to be year round as it has Olympic sized sports complex, the biggest marina in the Med and three 18 hole golf courses all in the one complex plus shopping centres etc etc.

The developer has declined a rental guarantee of 6% as they think they will be able to secure 8% yield. They are in negotiations with James Villas as well as others.

Ive no idea what the rent will be but the Government predict 500000 visitors per year by 2012, yet there are only 3000 private properties and no more building allowed for 15 years. Income tax doesnt apply for first 5 years. Multiple on site rental agents.

Some property here is almost completed (Fadesa built).

I like the fact you pay 40% now and the balance in 2 - 3 years time as your relatively low capital input is exposed to capital growth based on the full value now.

Im thinking the yield could be pretty hefty, but as ever no guarantees.

 

Thanks Investy

My concern about holiday lets is that I picture myself on the end of a telephone line with a diary filling in bookings etc. Are there companies in places like Morocco that will take the whole thing off your hands; ie market the place, take the bookings, clean it etc? How well do they keep places full throughout the year and so on?

rjbevan

 

Your concern is well founded and noe far to many investors overlook. Its all very well seeking out bargain property on small one off developments in Morocco but the rental and management side of things could be challenging.

Thats why I want for the Governments Plan Azure showcase development at Saidia. Such a vast prestigiuos development will attract larger more professional letting aganets and dont forget there will be several on the one site, so competition to produce results will be robust.

Legnth of season IMO will surpass most if not all other European / Med destinations. Golfers who make up a significant market sector will love the fact they can fall out of thier appartment right onto the fairways and have a choice of three 18 hole superior courses in one site on a beach - almost unheard of.

 

Morocco

I have been reading these threads for a while as I am researching where to buy property. I am really interested by your comments (Investy) on Morocco. Can you tell me which resort/marina you are talking about please?

 

Property Chimp Im investing in 2 Plan Azure sites, the first is Saidia, the second is Port Lixus.

Plan Azure simply refers to the Government planned sites, which the King is heavily involved in. There are 6 Plan Azure sites.

As always I like the opportunity emmerging markets offer however I seek to minimise risk. Buying Plan Azure ensures risk is an absolute minimum.

The first site I bought in - Saidia is truly something completely out of the ordinary. In the Mail on Sunday it was reported 240 properties here were sold to Premiership footballers including the Neville Bros and J Terry. Property ranges from £80000 and up but please please understand this is not like buying into a non Plan Azure site - you get waht you pay for.

Im an convinced these sites will become very hot property with waiting lists whereas the non Plan Azure stuff will largely be all much of a muchness as they dont have Royal / Government involvement to the same degree.

 

Hi Investy

Are you buying these villas off-plan or are there places to buy that are already built and ready to let?

rjbevan

 

One is an off - plan villa, the other a hotel suite in a 5 star complex - again off - plan.

Why I prefer offplan:

The beauty of offplan is I only part with relatively small amounts of capital and then enjoy 3 years capital growth based on the full property value. So say Ive put £30000, that means Ive lost interest on £30000 at the cost of c£1000 per year (net of Tax), however I expect the value of the villa (which I paid £170000 for) to double by the time its built.

The hotel suite is only £75000, yet front line beach - and I mean right on the ocean with no road or anything in front. Such real estate is highly sougtafter.
For example a smaller studio directly on the ocean in Tenerife on a 5 star golf complex (like the Moroccan one, but the Moroccan one will be more luxurios - Arabs like to outdo everyone else), will cost you 3 plus times that sum, and when u think Morocco is 1 hour closer and far far better beaches.....

The initial deposit on the hotel is 1000 euros. 20% (ie £14000) will be due in a few months time, then another £14000 next year.

I can sit back and enjoy 3 years growth until the place is built yet my input is costing me very little (actually nothing if I fund with 0% credit cards!!!!!)

 

Could anyone give me some general info on Germany and investment options?

 

Also, what countries/regions are germans mostly interested in to invest abroad?