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Will you make or lose money

Coming from the UK, we are all inclined to assume that property operates similarly in other countries while it does not.

Letting property

We may assume we will be able to let holiday property, while in parts of Florida there are large zoned areas where you can and other areas where you cannot. In parts of France, there are restrictions to protect the local holiday industry, and other countries and regions within may have their own set of rules.

If we are allowed to let out the property, is it in an area that people will want to go, be able to get to, and of the standard they will expect.

Given that we are not on site, we have to get someone to look after the property, change linen, clean, and do a whole raft of other tasks from maintaining the grounds and cleaning a pool to frequent repairs. If using an agency to find tenants we can expect to pay a large percentage for this, and in one case of a Florida property producing approaching $80,000 in rent over a period the owner ended up with less than $4,000. The same investments in another area of the USA would buy a small apartment block and produce many times the return, but is not generally promoted, these opportunities you have to go and find or find someone to find them for you.

If marketing the property ourselves we will have advertising expenditure, promotional literature and time to handle, with enquiries to cope with. 

If you decide instead of letting as a holiday let to let to locals on a long let or contract let to companies, then you will need to know what costs you are responsible for, local laws and practices and will still most likely need a local manager. 

Very many people who buy holiday property for their own use with the intention to let out spare time, in fact never do. Once they have personalized it, have their own property in it and enjoy their second home, they just don't want strangers sleeping in their bed, drunks being sick in their bathroom , or the agro and cost of letting. They are also concerned that in many places there is only a limited high season, that makes it worthwhile and this is also the time that they want to use it themselves. They instead decide to treat it like a caravan, yacht or other luxury purchase and to enjoy it themselves without sharing it with others.

But prices always go up

In most parts of the UK, most of the time prices go up, but in many other countries, in many areas this will not be the case, or where they do, it will take many years to recover the cost of the original purchase.

Property near the coast, and many holiday properties deteriorate far faster than inland properties that are lived in. Where there is no shortage of land, it is often cheaper to build a new home than renovate an old one. In addition an old house may be viewed like an old car, dated, not as good as the latest and depreciating in value. 

In many countries the cost of buying including fees, and taxes to the buyer can reach 20%, and the agents who are selling property may want 15%, so you can see if you were to buy a house one day and sell it the next you stand to loose 35%. It then deteriorates in value, and it takes some time before prices increase sufficiently to cover the losses.

In the UK, most of the property increase is in the value of the land, in effect its shortage that pushes up prices. In many other countries there is no shortage and there is a vast amount of land available that can be built on. So in the UK the same property might be worth 80,000, 150,000 or even several million, depending upon its location, and the demand in that location. The actual cost of creating a property of that size if you had a building plot might be 50,000.  In another country labour may be cheaper and you may be able to build it for 30,000. It follows that while the land is plentiful and labour does not increase drastically new houses can still be built to meet any demand for 30,000, and old properties will be worth less, maybe 20,000. Property cost will only increase if land becomes scarce, the demand is greater than can be catered for, or labour costs go up.

Land in many countries is cheap, and where planning is easy to get or there are more building plots than those wanting to build, the value of the land is low. In some countries, the USA is a good example, local records exist in most areas that show the valuation of the land and house separately. In Britain house prices go up rapidly due to demand, and this driven by a shortage, due to restricted plots, availability, difficulty in getting planning approval and cost in obtaining them, this therefore accounts for much of the increase in prices, but in many places around the world this part of the equation is fixed in value over time, or may be related to the cost of clearing and adding feeder roads, services etc so go up in line with costs.

In some countries and regions, there will be a net shift of population out of the area, or at least a desire to move to another area or country, perhaps for work, or for stability. In these cases the amount of surplus and semi derelict property will increase and prices will collapse. It follows therefore that a lot of 'bargains' will be available, for those who compare prices with those within the UK.

Rises in price in many places are therefore inflation linked, as opposed to being demand linked as in the UK. Prices over time will increase, in that it will eventually in many years cost 60,000 to build the example property above and then perhaps the second hand one may be worth 40,000, 10,000 more than initially.

In addition there will be a number of large jumps in cost in some situations, examples are:-

• Countries in Europe joining the European Union, it may be rising standards of living, more regulation and subsidies that effects the living standards and therefore the cost of building in a country,
• When countries take up the Euro. As with any currency change over, prices of everything just goes up. 
• Prices will also go up when developers and marketing people become involved in a new area, here costs are higher, they want more development profit and there is 25% in marketing costs to reclaim in many cases. 
• Local and national government may also want a share in some form.
• The increase in activity creates a market and interest in selling property, pushing up prices a bit.
• Eventually trading between those who have bought in the country.
• Rumours get around that mad foreigners are prepared to pay a lot for any dump.
• Cheap air fares become available to the area.
• Currencies change and your property is the same value in their currency, but more in ours.

As most of these rises come about only once, you cannot expect the same effects to happen again, so when looking at historic changes in prices you also have to understand why they have occurred. 

Other than this the cost of living will rise, and with it costs, those who are involved will want more profit, have greater overheads, taxation and other costs to cover, so the cost of new property will increase, maybe ahead of inflation.

However if you went on a free or subsidized inspection trip, or bought off plan, on a new Spanish estate, perhaps you were sold the dream home, one of many thousands on a complex at just 80,000, costing the developers 30,000 and providing a lot of profit and employment for many. Unless you sell to another person privately who compares the price with what else they are being offered, you are unlikely to get very much of the investment back unless you hold it for very many years, and maybe not then.

In some places, the USA being a good example it is possible to identify and buy property that has been repossessed by lenders and banks at considerably below market value, or second hand property only a few years old being sold at a considerable discount to the same house being put up now. In cases like this immediate growth is nearly guaranteed, but they take more finding of course. 

As you can see the eventual return is not linked so much to the value of the property but who you are selling it to. Similarly in many places within Europe as soon as a prospective buyer is identified as English or American the price being asked is likely to be greatly increased. With global marketing and varied sales methods many are now earning a very good income by buying cheap, and selling property to people not familiar with the area. 

Any stable English speaking country is preferable, and there are a few that can be considered. In a non English speaking country you are at a great disadvantage in that you neither fully understand what is happening, but are also not in the loop when problems are being overcome. Even having learnt some of the language you are unlikely to be able to follow fully the legal and technical side without a lot of time and expense within the learning curve, and many locals will take advantage of you, claiming to have misunderstood or that you were told of additional expense etc.

Looking at overall risk over the longer term. You are least likely to lose money in the USA  While you are most likely to be putting yourself at risk by buying in Spain or one of the ex communalist or less stable countries. 

Artificial valuations

We all like to feel our property is now worth more, and it is not uncommon for people who have purchased overseas property to assess the value themselves based upon what they see other property advertised for by other Brits, hoping for a sale, or by applying a mark up on the purchase price.  Similarly some may advertise the property at these inflated prices, and some may sell them at these, mostly to people who have not gone and researched the area for themselves or discussed it with a neutral person who has. The problem with valuing a property on this basis, is that while you may be able to sell it for this amount, you are relying on the buyer being ill informed, and often the sale will fall through or difficult to get in the first place. 

Ongoing bills rolling in

Local taxes, service charges, management fees, water, electricity, maintenance....... all continue to regularly notch up more expense. Next to golf course, perhaps there are golf club fees. Part of an apartment complex, then perhaps there is regular or periodic upgrading cost, costs for adding lifts and in some cases all services like heating etc is provided and you have to pay your share, if you are there or not. In some places, if the property is not properly maintained, it can attract fines.

Crime

If you have locked up your property and use it just for holidays will it be secure while you are away from it. Not surprisingly most people selling you property tend to tell you that crime is not a problem in the area.

Mortgage companies reactions

As property ultimately in these cases is not as good a security, mortgage companies will be less inclined to be understanding and foreclose at a far sooner point than they would on UK property. In some countries if local taxes are not paid, the local authorities will take over the property and sell it, sometimes for a tiny fraction of its real value, should this be likely to occur again the mortgage company will reposes to safeguard their investment.

Can you make money

The answer is yes in many areas, but the secret is, like in the UK, defining a financial model that is relevant to the country, area, type of property, markets etc. What you cannot do is use a UK property model in another country, or use a model or experience from any one place or country in any other location. Neither can you assume that property everywhere will increase in price, or worse still at anything like we have experienced in Britain in recent years. In many cases it is clever buying rather then just buying anything and sitting on it that will pay off.

Similarly with local rentals, one has to take into account the state of demand in the area, rents being got in the area, and local customs and laws. If property is cheap in the area, it may be that there is no market for rentals or that rents being achieved are very low, with low occupancy rates as well. You may also have ongoing costs, again it is important to understand the local market, and to be able to create a model of the situation.

As you are not familiar with the culture, how property is viewed, the cost, how long red tape and construction work may take, costs involved........ you either have to research it all very well, or find a person who has done it and can explain it all to you.

Language is a major problem, even if you are fluent in French for example you will find that the types of French being used in relation to property transfers is different to anything you have experienced before. In some countries local officials, mayors etc have by our standards quite exceptional power, and may expect some reward, or the area to share in profits that you make. In addition decisions on planning and similar matters can take exceptionally long periods. 

In most cases you will need a local bank account, to deal with local income tax or equivalent and have local management or at least someone to keep an eye on the property. If not then you will need the services of a support company that can help you. It is easy to see why so many people therefore are attracted to buying from a developer who offers a package including local services, even if the cost is twice what they could possibly have got a similar property for had they taken the time and trouble to search it out. For those interested in the USA, we can offer a member service to help, identifying your need, researching availability, checking them out and helping you buy, plus the support arrangements to make it all very easy for you to do. Perhaps one day we will be able to launch similar services to get property for you in other countries.

Can you save money

This will depend upon the benefits you can derive, the amount you use it and the cost structure and arrangements that you have.

There could also be other benefits that are hard to cost, for example a writer, author or artist may find inspiration, relationships may be improved, regular spells away may reduce stress allowing you to continue in a job that otherwise you would not wish to, your health may be improved by the climate or other factors, and teenagers may be more inclined to holiday with the family, or children and grandchildren spend holiday time with you. 

There is also the mouse hole principle, where by having a number of smaller homes you are as happy as having one large one, and can flit from time to time from one to another. Therefore a small second home, may make you happy to put up with a small flat or apartment to live in other times, and the sum of running the two may be considerably less than moving to a larger property in your main area. This may also explain why so many more people from towns and cities feel its worth spending both the money and very many hours on flights and transfers, while many people in the country don't have the same motivation.

As a family luxury

If instead of viewing a holiday home as an investment you follow the route most people take of viewing it as a luxury, standard of life improver, or similar then you can compare it instead with the purchase of a car, caravan, motorhome or yacht. Therefore, as long as you are able to fund the purchase in some way from cash or income, are able to pay the costs and able to get to use it often, it may well be a very good buy. Allowing low cost air fares to be converted into long holidays with no hotel or other costs, that you can take when you want.

Under this model, you are expecting it to deteriorate, cost you money to run and not expecting either an income from it, or for it to improve in value. Any residual value in the longer term is then a bonus.

It depends where it is and the arrangements you have, if in reality it presents an economic rather than emotional purchase. With property in Florida for example, you can often afford to stay in a hotel for a month a year in the area,  for the same cost as maintaining a villa there, but having your own place may appeal more. In other areas of the USA where property is often cheaper, you can holiday there far cheaper than even staying in Britain. 

But can you have it both, a sound investment and a lifestyle improvement?

Combining the family luxury with a sound investment  involves selecting a place that both meets your needs for a holiday property and at the same time can be included positively in a business model, plus of course very careful and clever buying. We know it can be done, but to get the best mix you need to avoid the sales people, and either research the situation and options fully yourself or use a property finder who is not trying to hike up the price to help you. We can confidently say our member service can help now if its the USA that is of interest to you now, and we would hope that eventually we will be able to to find members or others who can help to provide the same high grade service for those interested in property in other countries.

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