From securing a mortgage to finding a reputable agent and factoring in currency concerns, there are a number of factors to consider
How to manage an overseas property investment
Owning a property in a different country to the one you live in may sound glamorous but it can also involve a lot of hard work and worry.
Whether the property is a holiday home, retirement bolthole or pure investment, managing it is not easy if you are thousands of miles away.
You cannot fly over to deal with a dripping tap or a tenant who is slow with the rent, you need local boots on the ground.
British couple Douglas Hassell, 55, and his wife Clare have lived in Dubai for 10 years but like many expats, they ultimately plan to retire in their home country.
The couple, who live in Umm Suqeim and run consultancy company Smart Inolytics, own a six-bedroom family home in the attractive seaside town of Lymington, Hampshire, on the south coast of England.
Mr Hassell says they have renovated their home throughout and are wary of letting others live in it but renting it out seems safer than leaving it empty. “Luckily, the tenants have looked after the property well but we have also taken steps to protect ourselves, by requesting a large deposit and being fussy over issues such as family size and pets, to reduce wear and tear,” he says.
Owners must plan carefully when buying property overseas as mistakes can cost you dear.
According to research by specialist loan packager Thistle Finance and currency specialist Mercury FX, expats can squander more than $50,000 on unnecessary mortgage and currency transfer costs in the first five years after purchasing a buy-to-let property back home.
Too many arrange expat buy-to-let mortgage finance without comparing rates across the entire market and compound the error by racking up punitive transaction costs and exchange rates on international currency transfers, the study found.
Alastair Constance, founder of Mercury FX, says specialist currency firms can spare you from paying pricey transaction fees of up to 4 per cent at high street banks. “For an expat transferring $670,000 in the UK, for example, to purchase a £500,000 buy-to-let,that’s an immediate saving of around $26,850.”
Mark Dyason, managing director at Thistle Finance, says the interest rate differential between the best and worst mortgage deals can add up to another $5,350 a year, totalling $26,750 over five years. “These losses are wholly avoidable and it is vital you do your homework before committing yourself.”
Will McKintosh, head of residential at global real estate specialists JLL, says that while many British expats buy in the UK for their retirement, GCC and Mena nationals are investing as part of a balanced portfolio because the UK is still seen as safe and stable.
As with any investment, the key factor is buying well and new developments offer an advantage in this respect. "They typically require less maintenance than an older property which could also mean lower letting agent and management fees, protecting your yield.”
Some dream of refurbishing an older property to their design and taste but this can be time-consuming and hard to manage from afar, Mr McKintosh adds.
He says you should also avoid over-leveraging and ensure the rental income can comfortably service the debt. "You do not want to have to cover a rental shortfall out of your monthly salary, especially as you also have local financial commitments such as a mortgage or rent, school fees and general living costs.”
Richard Bradstock, director and head of the Middle East for property investment company IP Global, says if renting your property consider using a third-party letting and management company to find tenants, chase the rent and maintain the building.
Some major agents, in the UK for example, can charge as much as 15 per cent of the annual rent but Mr Bradstock says most charge around 7 to 8 per cent. “This is reasonable as they are fully responsible for sourcing the right tenants, collecting rent and complying with local laws and liabilities.”
Mr Bradstock also advises owners to make sure they have enough money to cover all of the transactional and operational costs, as these can really add up. “Too many go into big investments with less money than they need. It’s not just the price of the property but legal costs, mortgage fees and transfer taxes, as well as ongoing costs such as local taxes, service charges and ground rents.”
Make sure you understand exactly how much help your letting agent will give you with tenants. “A good agent will find, interview and vet tenants, complete the paperwork and collect the deposit and first month’s rent,” adds Mr Bradstock.
To keep their costs under control, the Hassells hired a trusted local estate agent to manage the property that finds tenants and sources local businesses and tradespeople for maintenance and repairs. "It also visits the property regularly and sends pictures so we can see it is being looked after,” says Mr Hassell.
Their agent collects and passes on the rent, after deducting its fee. “Again, we are lucky. Ours only charges 8 per cent of the rent whereas many charge between 12 and 15 per cent.”
Mr Bradstock suggests questioning prospective agents carefully, to make sure they understand the local market, the type of tenant it attracts, and offer all the services you need. "Will it manage all the paperwork, properly reference tenants and comply with relevant legislation? Will it take care of compliance matters and certification? How often does it issue statements, and will it make this information available online? Does it assist with tax matters?”
Also ask how the agent sources tenants. "Will it be pro-active or simply stick the property on its website and a big property portal and hope for the best?”
Toby Johncox, principle representative at property specialist Enness Dubai, says if you are lucky enough to find good tenants, appreciate them. “Look after them and they will look after you. I let a property in the UK and check in with my tenant every couple of months to make sure she’s okay.”
The Hassells have family living in the area their property is located, who can call in on the home if needed, while the builder who renovated the property handles minor maintenance.
The rental income covers their mortgage and they send the surplus to Dubai using low-cost currency transfer service Money Mover. “We originally used our bank but found it expensive. Money Mover was easy to set up and use, it’s fast and efficient, and we get a good rate of exchange,” Mr Hassell says.
Chris Canning, head of private clients at currency service Argentex, warns that currency swings could eat into your profits. “If you make a 3 per cent gain on your property investment and the currency of that country weakens by, say, 4 per cent, you have actually made a loss if repatriate those funds back to the UAE.”
Tax rules are always changing too. Life is certainly harder for buy-to-let landlords in the UK as the government has introduced a stamp duty surcharge for second homeowners and investors, reduced tax allowances and tightened mortgage affordability calculations, Mr Johncox says. “It is now much harder for portfolio landlords to secure buy-to-let borrowing, especially if they are based abroad.”
Even remortgaging is harder, and he recommends getting a broker to find the right mortgage and make a successful application. “They can simplify the process considerably, liaising with lenders on your behalf and scouring the market for the best possible deal."
Hamish Anderson, chief executive of Money Mover, warns that sudden currency swings can cost investors heavily. “As an extreme example, if you sold a UK property just before the Brexit referendum in June 2016 for £250,000 you would have received around Dh1.34m. One month after, you would have got just Dh1.18m, Dh 160,000 less, after sterling lost around 12 per cent of its value. As a result, many UK property investors had to re-think their plans overnight.”
Currency movements are almost impossible to predict so you have to reduce your exposure to risk, which you can do by locking into a favourable exchange rate for up to 12 and in some cases 24 months.
Typically, you pay a small deposit upfront, then arrange a regular transfer every month for a set period. “This gives you absolute certainty over how much you will receive in future, avoiding sleepless nights,” Mr Anderson says.
He also recommends depositing your rent in a bank account in the local currency and using this to pay bills, charges and financing fees to minimise conversion charges. "You can then use a currency service to transfer any residual profit back home periodically. It is better to transfer larger one-off amounts rather than smaller sums, as you should get a better rate on the money.”
Buying or selling a property attract lots of miscellaneous expenses for, say, storage, cleaning, decorating, furnishings and estate agent and legal fees. "Again, group batches of foreign currency invoices together and pay them in one go wherever possible,” Mr Anderson adds.
Once you have the basics under control, you can finally enjoy the glamour and luxury of having a second home in a foreign land. It’s worth it, in the end.
What to expect from a good agent
Lukman Hajje, chief commercial officer of Propertyfinder Group, says a reputable agent will handle every stage of your rental and keep you informed. They should:
• Offer advice on the optimal rental price point, and lease terms
• Advertise for tenants on leading portals
• Conduct inspections with potential tenants
• Collect and vet tenancy applications and negotiate lease terms with tenants
• Request and check tenant references, collect upfront and ongoing rental payments, and a security deposit
• Complete lease agreements and register your lease with the relevant government department
• Coordinate ongoing maintenance, handle tenant issues and deal with potential disputes
• Conduct regularly scheduled property inspections and produce a damage report at end of the tenancy agreement