Back to overseas buy to let

Investments or quality of life

Over 90% of people who buy a second home or holiday home overseas, do so principally in order to add to their quality of life, rather than as an investment. Many are happy to let it out for some weeks, so as to be able to cover the costs, and in some cases make it pay its full costs, perhaps with the concept one day of at least being able to get your money back should the need arise. 

In many cases the desire is for a warmer climate, perhaps more predictable weather and one has to say it has also in some cases become a status symbol. 

Low cost air fares now available, particularly throughout Europe, often means it is cheaper to fly to your holiday home than take a train to a major city here. Costs are often lower, so overall many times it makes more economic sense than holidaying in Britain. Many training and conference events have known for years that it is cheaper to fly all the participants to Spain, and put them up there than run a comparable event in a hotel within the UK. Travel to the USA is less problematic than budget airlines in Europe, and adds very little as a percentage of travel time, to the time it takes to get to a choice location, and with lower costs for food, hire cars and more, the higher air fares are often recovered even without considering that for some a really good property is available there at a much more reasonable budget than in many other places.

The vast number of property exhibitions, shows and marketing events selling overseas holiday property is principally aimed at the leisure and retirement markets, where price is not as critical and buyers look for hand holding and local management as  a part of the deal, often buying a home being built direct from a developer, with the marketing company taking 25% or more. In many cases, people are being offered a range of developer property, all being marketed and priced in the same way. Some people visit areas and are taken around by English speaking agents, many agents originally from the UK, who expect to sell a house to over 70% of people within 3 days. It is just about impossible by this means to get a comparative view as to price against that available outside of these arrangements, but most people who have also looked around on their own have found comparable property far cheaper. Some development companies now also offer property direct, with a saving of 15%, plus still covering their own marketing costs.

It is only natural that people compare the value of property against what the same property would cost in their home area, so most overseas property appears very good value fore money, however in doing this, as with other areas of the UK, unless they understand the local market it is likely they will not get the best buy, and therefore when they come to sell, not have as good a return as they could. Similarly the higher the price you pay, the lower the percentage return from rental. Take two areas of the USA with good tourism, one area is heavily promoted in the UK with large villas being sold to many people for up to £150,000, while another is not mentioned and where for less that £20,000 you can get a property with the same rental earning potential.

With the UK population now wealthier than previous generations and with a considerable difference between the expensive property in the UK and much of the property abroad, just about everyone can afford an overseas property somewhere if they choose. The lowest priced 3 bedroom detached home in a tourist location in the USA, found by our H3 service in December 2003 was just $3,500 or £2,000.

Going for larger investments in the USA can also be equally interesting, and for under £100,000 you can buy an apartment block with 15 to 20 units. The rental returns from this can often repay the purchase price in just over 2 years, or allowing all running costs with a local manager employed within about 3 years. Prices and availability  of course vary from place to place as does the ease of letting property and rents that can be obtained. However a portfolio of property can be built within the USA very cheaply without using mortgages or with mortgages and rapid paybacks you will see its possible extremely quickly to build large portfolios. While within the UK someone who had 10 'buy to let' properties (10 units) would be within the top 10% of property investors, in the USA, perhaps you would be looking at starting from the same level initial capital and time to have 50 to 80 units, in your own American property company, totally owned by you.

For some, retirement abroad can be attractive in that they can sell their English property, and buy a cheaper one abroad, living well on the surplus, however it has to be said that they could also have done the same thing by moving to a cheaper area of the UK. One study showed that over 55% of retired people in the UK would move to Florida (USA) if they had the chance, but not surprisingly this is not an option yet, but may be one day.  In practice most people want to spend a period each year at their holiday property and the bulk of the time in their existing environment, near relatives, friends etc.

Many will initially look at Spain, property although not as cheap as it was, is still reasonable by UK standards, and the marketing of Spanish properties is particularly well developed. Next in popularity (sales not desire) would be France, followed by Portugal and Italy. For those who want to avoid the language problems, Florida becomes particularly interesting. Some who have started in Europe, and have had problems with culture, language or just got fed up with the hassle, have moved on to Florida, others who have done more research have looked further a field in the USA to find some of the best bargains anywhere.

Where budgets have been more limited, there are many other countries, particularly the countries that came out of what was Yugoslavia and the ex communist block where prices are very low and considerable opportunities exist, as there is  inland in some countries where most people have so far concentrated on the coastal areas for holiday property.

Those perhaps more interested in return, than in using property for their own holidays have looked at other locations. There is no reason why it should not be possible to combine the objectives and get property that will produce the best return and also be in a pleasant area to use for vacations. 

The price difference between areas that are now used for holiday homes in volume and some of the opportunities available are so large that you could buy a number of properties in a less publicized area for the same price as people spend for holiday homes that have been heavily marketed. In addition the areas that have yet to get the same coverage offer far greater probability of the property price multiplying in value.

Probably the one factor that makes some wary is the security issue, how safe is your investment, what is the risk of terrorism, and if you have a problem how will you cope in a foreign system and language. Another article in this series will compare countries from this perspective.

Back to overseas buy to let