Investing in property abroad: Pros & Cons
Why invest in property overseas?
Overseas property can be an attractive option for those looking to make an investment and earn higher rental yields than buy-to-let property in the UK.
But not only do you get an investment, you get the additional benefit have owning a holiday home which you can visit when it's not being rented out.
But is investing in property abroad as good as it seems?
Having a holiday home is a dream for many of us, and while it can be a great source of rental income if you let it out, there are many downsides to consider before taking the plunge too.
Here is a list of a few of the pros and cons associated with buying a property abroad:
Pros
- Having a holiday destination booked and ready for use all year round
- Being able to let the property for a significantly higher amount than standard residential lets
- You get to enjoy a location you enjoy It can be a good investment
- You'll be the envy of your friends and family
Cons
- If you have a mortgage on your property abroad as well as in the UK, you'll have two significant debts to manage
- Your rental income may not cover the mortgage payments
- All maintenance costs are your responsibility
- The actual cost and return on an overseas property will be determined and swayed by fluctuations in the exchange rate
- You will feel obliged to holiday in the same place each year
- You will need a management company - or understanding friends - to deal with the property for you
- You would have to choose between a 'ski' let and a 'summer' let in most cases
Where should you invest when buying an overseas property?
As with any investment, the idea is to thinking long term when considering an overseas property for investment.
Some property experts or over eager realtor's may try to sell you on new markets they deem to be investment hotspots and it's likely you might be able to find bargains in countries where prices have fallen. But while, it may cost initially cost more to buy in an already established market, the long term benefit may be worth it.
What to consider when buying a property overseas?
If you're buying a property as an investment to let out when you're not using it then it's important to keep a few things in mind:
Find a property that is in an easily accessible location with good local amenities and in an area popular with tourists.
Make sure to factor in the holiday season in the region — many tourist destinations virtually shut down when it comes to the end of the season. So you may have periods when you're not earning any rent.
Do your research on how much rent other properties that are similar to yours, to get a realistic idea of how much you could earn. If you happen to be buying a property that's already let out regularly, you could ask the current owner about rates and occupancy.
How is overseas rental income taxed?
Tax on overseas properties works the same way it would if you'd bought a holiday home in the UK.
If you have several overseas properties, work out the profits you make from all of them as a whole minus expenses.
If you provide furnished accommodation, you may be able to claim capital allowances for investments against your rental income. Any investments made into your property such as improvements are classed as capital expenditure, which can be offset against your capital gains tax (CGT) bill when you sell the property.
You pay income tax on any profits at your normal rate. When working out the UK tax, you normally use the exchange rate when the rent was due.
How will Brexit affect travel to Europe?
Although Brexit has been in effect since the start of 2021, because travelling has been at a virtual standstill because of the COVID-19 pandemic, we don’t know the true effect Brexit has had on the travel market. This has caused some Brits to be cautious in purchasing holiday homes in the EU.
The potential effects of Brexit could include:
Fewer flights to the UK from small EU airports, changes in flight paths and price rises.
Difficulties securing a mortgage.
Having to pay more taxes.
Fluctuation in the GBP exchange rate.