Be in the know when investing in overseas property with these expert tips

Ever fancied investing in a holiday home overseas that you’d rent out to earn income when you, your family or your friends weren’t in residence?

Depending on your choice of location, property, investment strategy and travel schedule, it can provide the best of all worlds – or the worst.

“It can be something that ends up a massive headache if you don’t do enough due diligence, or you can’t debt fund, or you don’t understand the legal system in the country where you’re buying,” said Scott Aggett, founder of expert property negotiators Hello Haus, who’s bought properties in Japan and the UK himself and advised others on purchasing.

“You need to know if you can take full ownership. For instance, in Bali, it’s more leasehold rather than freehold – who’s responsible for what on settlement and likely repair and maintenance costs? It’s great to have a Japanese ski lodge, but the extreme cold in winter and heat in summer can make it expensive to maintain, and demand is likely to be seasonal.”

Property prices rose around the world during COVID and while there are still places where it can be economical to buy, are they your preferred holiday spots?

A recent report from MoneyTransfers.com looked into the cheapest European cities for expats to purchase property in, and found seven of the top 20 are in Romania, and more than half in Eastern Europe.

Topping the list are Bitola, North Macedonia, where the price of a 100-square-metre apartment is just $153,300. Next is Plovdiv, Bulgaria at $214,500, and Chisinau, Moldova at $216,000. But, again, would you really want to spend time there every year?

“I always think buying a holiday home overseas can make sense if it’s all about having great holidays, creating happy memories and having a lot of fun,” said Brett Evans, the Dubai-based managing director of Atlas Wealth Management, which provides tax, financial and investment advice to Australian expats.

“But in terms of an investment, generally a holiday home isn’t a valuable income-earning asset. It can serve to diversify your portfolio but it can be complicated, and expensive, to manage on an ongoing basis. We hear so many horror stories, for example, of managing agents not letting them out, but living in them instead.”

Evans says an overseas property can save you money if you’re planning to spend three to six months there every year, but if it’s going to be more like one to two months, then it can prove a very expensive luxury indulgence.

Ray White chief economist Nerida Conisbee agrees. She says it’s critical to research all the options first with countries like the UK, France, Japan and the US being comparatively easy to buy into, and others like Canada, Bali and Thailand being much more difficult.

It’s important, too, to check the tax implications of owning property abroad, and whether it has to be a cash purchase or with finance from the target country itself.

“There may be restrictions on renting property out, laws may change, there might be different infrastructure planned and you do need someone to manage it,” she said. “Buying overseas can be very worthwhile, but it will always be risky.”