When the housing market in Australia seems impossible to break into, many would-be property investors are looking farther afield. But before jumping into an international property purchase, it’s wise to get some overseas property investment advice.
Owning and renting out a property overseas can seem like a fast track to easy cash, especially when the exchange rate is in your favour. People purchase overseas properties for a number of reasons: a more diversified portfolio, an opportunity to get into an emerging market, or simply to have a holiday home in a country they love to visit.
Thinking about investing in overseas property? Here are some tips.
Overseas Property Investment Advice: What You Need to Know
Do your research
There are so many variables to consider when investing overseas: tax laws, currency exchange rates, rental return, and market value, just to name a few. There’s an element of risk with most investments, but you can mitigate that risk somewhat by doing your research.
Read up on the country you’re thinking of investing in to get a handle on its economy, politics, and property trends. If the country has a volatile political situation, investing may not be a wise move.
You may uncover some info that either reinforces your decision or changes your mind.
Identify your goals
Do you want a property that is solely for investment purposes, with long-term tenants, or do you want a holiday home that you can visit for personal use throughout the year? The answer to this question will help narrow your focus when shopping for an overseas investment.
If you’re using the property yourself, it will have some tax implications in Australia, and possibly overseas as well. If your aim is to rent it out long-term, you’ll want to have a strong understanding of the rental market.
Assemble a team on the ground
When you can’t be there to look after your house, you’ll need someone who is. It’s worth paying a team of professionals to help facilitate your purchase and management of an overseas property. Start with a buyer’s agent in the country, who can give you specific advice on the market and help you with the purchase.
Then consider a property manager to advertise for tenants, vet applicants, and manage the rental in person. Finally, you can benefit from having a local accountant who can help you comply with any tax laws in the country.
Do the maths
Get a firm idea of the costs involved before you sign any contracts. Each country will have its own property laws and requirements, some of which are very different from Australia’s. Do the legwork now and avoid getting hit with hefty unexpected costs down the track.
Know the tax code at home and abroad
Taxes are one of the most complicated parts of buying an overseas investment property. Not only do you need to comply with Australia’s tax laws by reporting any income you receive from the property, you’ll need to comply with the ones in the country where your property is based.
You may find that you owe tax to both Australia and the overseas country, though in many cases you can avoid double taxation through Australia’s foreign income tax offset (FITO) system. Tax deductions may also differ between countries, which is something your local accountant can help with.
Be smart about foreign exchange
Your bank isn’t always the cheapest way to send money overseas, especially when you’re sending large quantities. Compare foreign currency transfer services to find out how you can get the most value for money. Weigh up the fees, rates, and transfer times to get a good idea of who has the best deal.
Australia doesn’t impose limits on the amount of funds you can transfer out of the country, but other countries may have rules about how much money you can bring in. Be aware of these restrictions before making a purchase or sending money.
Get advice from those in the know
Some of the best overseas property investment advice comes from locals in the country where you want to buy. Use your network of contacts to see if you can talk to someone who lives where you’re looking, because he or she may be able to give you some useful advice.
It’s hard to get a strong sense of a property market when you’re not in-country, and especially if you’re not familiar with the country. Talking to someone you can trust may provide you with valuable insights.
What happens when you want to sell?
As part of your initial research, consider how easy it will be to sell the property if you need to. Even if you get a great deal on an incredible home, it can still be difficult to sell, leaving you high and dry if you need the funds.
Be aware that you may also need to pay capital gains tax to Australia on any profit you make from an overseas property sale. The same rules generally apply to an overseas property as they do to a property in Australia.
Look at lenders abroad
Finally, be aware that you may need to get a loan from an overseas lender. Australian lenders are understandably wary of giving loans to borrowers for international purchases, as there is an elevated risk.
It may help to look at lenders with a strong international presence, such as HSBC or Citibank. However, speaking to locals in the country or your on-the-ground team may also give you some good ideas.
Investing in overseas property can be challenging, but it can also be a rewarding way to diversify your investments and build a new income stream. Remember to do your research and talk to those in the know before you sign any contracts!