Foreign Investment - Taken The Chance?

I

Investmind

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Hi

Im new to this website but have been reading it over the last month or so and find it very helpful in giving views/opinions

So here goes..I bought a place the start of last yr in Ireland (FTB - No SD paid) and it has appreciated 25% since but Id say that will be about it...

Im moving to the Caribbeen for a few yrs at the end of next yr to work and was thinking of:

1. Paying the stamp duty and renting it out or
2. Selling it, take my profit and avoid stamp duty and then get a new mortgage to invest in 2 apartments in either Germany (prob Berlin) or Poland - This is my most favourable option

Any suggestions?

A few side questions:

1. Invest in Poland/Germany/best place in your opinion
2. What is appreciation like in Germany/Poland at moment or future..I know the rent is good in Germany and this is a must to pay mortgage
3. Would 200k get me 2 apartments over there

Any wise opinions grateful

Cheers
IM
 
Not going to answer your main questions; person with Irish property, tax knowledge (particularly re. non-residency) would be best person to answer you on that one.

On your side questions on Poland vs Germany, I can give you some info from the Polish perspective:

+ Affordability: Poland would be more affordable. Cost per m2 starts @ 5,500 PLN or very roughly €1,375 per m2. However, Polish is a market of cities, with very distinctive prices, trends, costs etc., so you need to compare cities, not countries.
+ Cost of entry: You could buy a Polish apartment with approx €25k in equity, provided you are prepared/able to get a local mortgage for €50k to complete the purchase price.
+ Rent: Smaller rental market potential in Polish cities in general than in German. Rental yields would be 5.5% gross and 3.75%-4% net.
+ Capital appreciation: Rocketing in Poland this year, probably between 10%-20% depending on the city. Expect it to grow 10%+ again next year but then settle down in 2008.
+ Risk: IMHO, Gemany would win out big time. 1. Poland has political issues, leading to current deficit account issues, leading to potential 2. currency issues. The subject of devlauation/under/over valuation of the Polish currency has been discussed in other threads. It is not in the Euro etc. Germany would be more stable but wil it have any growth?

Therefore, don't buy 2 apartments in the one country; buy one in each and hedge your bets.
 
Thanks for all suggestions..They are taken on board..

Have looked at alot of investments of late and property is definitely
the way to go at present..I dont know where else I could have made a 40k profit in 1 yr from selling an aprt after 20% CGT tax

I think I will go with Berlin Germany as the guarantee of rent with a yield
looks a safe bet...may not appreciate a whole lot but the % yield is good

I must attend a property exhib in Cork on sun 22 of Oct before making up
my mind..Anyone else take this route through a prop agent???
 
Be careful of these property exhibitions.....they will sell you anything. Why not go over to Berlin & have a look around.

It's a fabulous city. Some of the local property agents have the best deals. Like every other European country, there seems to be a Paddy price as well as a local one. Most Germans have excellent English.
 
Investmind said:
1. Paying the stamp duty and renting it out or
2. Selling it, take my profit and avoid stamp duty and then get a new mortgage to invest in 2 apartments in either Germany (prob Berlin) or Poland - This is my most favourable option
Click to expand...
You need to crunch the numbers and assess the viability of both options carefully and see how they fit in with you own plans. If you are heading abroad do you want to be an absentee landlord under plan 1? Plan 2 has the advantage of a tax free capital gain into your hand now which can be spent or invested in some other way. Also - why are you seemingly so fixated on property alone rather than diversifying across other asset classes, risk/reward profiles etc.?
 
I thought Id pay at least 20% CGT on the capital gain..is that not correct?
Can you explain a bit more about risk/reward profiles?
They definitely wouldnt be making as much as 25-50% would they?
I go for property as you cant really lose imo if you hit the right place and
I can Berlin being that place in around 5 yrs time..
 
Investmind said:
I thought Id pay at least 20% CGT on the capital gain..is that not correct?
Can you explain a bit more about risk/reward profiles?
They definitely wouldnt be making as much as 25-50% would they?
I go for property as you cant really lose imo if you hit the right place and
I can Berlin being that place in around 5 yrs time..
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Sale of a PPR is exempt from SD and CGT, so no, no CGT if its a PPR.

Risk/reward profiles look at how much you are willing to lose in relation to how much you hope to gain. Property is high risk (even choosing the right property has certain risks attached) whereas a Deposit Account has low risk (apart from inflation lowering the amount - but has a similiarly low reward!). Plenty of tools online to help you look at your own personal profile.

25%/50% isn't guaranteed with property. Even with a great property the costs of flying over for all viewings/signings, taxation on foreign properties, legal fees etc. etc. etc. can all erode profits. This together with property not being a liquid asset adds greater risk (you can't cash it in, you have to sell it so need to find a buyer).
I'm not suggesting you won't get good returns from property, but I would suggest you also consider other options for some of your fund. Why put all your eggs in one basket if you don't have too?

If you feel Berlin is right for you then go for it!
Just worth looking at putting some of your investment money into other options to spread risks.

You could look at (just as an example... hundreds of other options... ) some ETFs or index linked funds. You can still spread between safer options (top European funds where most the companies are stable) and riskier ones (emerging funds etc.).
 
Would advise caution on Berlin. In particular, keep out of the former East Berlin where a lot of investors got badly caught in the early nineties when they bought up tenanted apartment blocks and renovated them, and then found that they hadn't done the math. A lot of this garbage is now creeping back on the market, promoted by agencies that are otherwise reputable. In my view, these agencies have not researched the Berlin market carefully, or indeed the wider german market. I recently made test phone calls to a number of agencies that are newly promoting Germany and they really seem to have no grasp of the market realities there. At least one agency that was previously involved in somewhat questionable marketing practices in another market vis a vis "guaranteed rentals" is now operating in Berlin, so tread carefully.
Best bet in Germany is one of the cities in the former west of the country. Frankfurt is good, also Hamburg. Bonn can provide some bargains in the residential market.
Tenants in Germany tend to stay for a long time, so returns are stable by and large. However, that also means that they demand a good standard in common areas including maintenance and repairs, and any fall-off in standards can (and does) result in witholding of rents by all tenants in the block, with consequent hit on your cash flow. Tenants tend to be very organised in German apartment blocks, and any agency worth its salt should warn you of this.
Also be aware that rents tend to rise by no more than inflation, with consequent hold-down of resale values as a factor of rental return.
Stay out of Berlin in any case unless you know exactly what you are doing, that is the best advice I can offer you.
 
Can I just say that there is one question, that should be the first question that passes the lips of any property investor, when questioning an agent regarding an investment property.

'Can you provide me with verifiable net yield figures on the property you are marketing?'

Get it tattooed on your arm, learn to say it in several languages but for the love of mike ask it. (And get a satisfactory answer)
 
Duplex said:
Can I just say that there is one question, that should be the first question that passes the lips of any property investor, when questioning an agent regarding an investment property.

'Can you provide me with verifiable net yield figures on the property you are marketing?'

Get it tattooed on your arm, learn to say it in several languages but for the love of mike ask it. (And get a satisfactory answer)
Click to expand...

I would agree completely with you on this one but I honestly dont belive there is a single agent in the country that can provide this level of detail on any of the overseas residential properties they are selling. I recently spent some time looking into buying a property in Spain but didnt go for it because I wasnt satisfied that it would give me a positive cash flow. The agent couldnt answer any of my questions on tax rates etc. I guess it could be argued that agents arent responsible for informing people on their tax liabilities but in my opinion most are purporting to be wealth advisors and as a result should be able to provide to a potential buyer details of expected returns.

I think commercial property syndicates are better in this regard - at least the few I have looked at seem to make some attempt at detailing the cash flows....
 
hi,

just have some VERY basic questions about buying abroad as i haven't done it before so please excuse their simplicity in advance..

my questions are:

1. What exactly does "Guaranteed Rent/rental yield 5% mean? does it mean that this is the typical return in the area/for the property or is the property company going to look after the rental of same for the first 3 years and take its cut?

2. How does the typical irish investor pay for his/her property abroad? i.e. do they usually get a loan from a bank here or from one in the country that they're buying in? if it's the former, can you transfer money abroad for the purposes of buying a property as simply as that?

3. Rental income (assuming there is a profit after paying the mortgage repayment). Can you transfer this money home without tax?

4. Finally, if one sells at a profit abroad, is the money liable for CGT here?


I realise these are very basic questions to many of you but i've searced for answers on this site and others and couldn't find anything.

thanks for any replies,

k.

P.S. How do you guys go about finding a good agent in whatever city you're looking at? on the internet? or are there any agents here in ireland who would have some decent berlin properties?
 
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1. What exactly does "Guaranteed Rent/rental yield 5% mean? does it mean that this is the typical return in the area/for the property or is the property company going to look after the rental of same for the first 3 years and take its cut?

Forget it, it's usually a marketing scam by which a couple of years rent is added to the price and then drip fed back to you minus handling fees. In extreme cases, the "guarantee" is given by a separate paper company that fades away when the building is complete, and you don't see a penny of your "rent".

2. How does the typical irish investor pay for his/her property abroad? i.e. do they usually get a loan from a bank here or from one in the country that they're buying in? if it's the former, can you transfer money abroad for the purposes of buying a property as simply as that?

How long is a piece of string? In general, I have found that the majority of small investors extend the mortgage on the family home or on an investment property that they already own in Ireland.
With regards to transferring money abroad (to non-euro area), stay away from high street banks unless you are a big customer with lots of clout. Go to a commercial bank like Anglo Irish and open a trading account with euros, then give a trader the instruction to trade at a particular rate and then transfer to your lawyer's account in the target country.

3. Rental income (assuming there is a profit after paying the mortgage repayment). Can you transfer this money home without tax?

The only two certainties in life -- death and taxes! If you make profits, you pay taxes (or you are a crook).

4. Finally, if one sells at a profit abroad, is the money liable for CGT here?

Depends on where "abroad" is. Check the Revenue.ie website and look at the taxation treaty for the country you are investing in.
 
auto: believe that spain has to change its ctg it charges to non spanish people shortly. so maybe sellers are holding back at present to await the lower tax regime. would you think that there might be more properties coming on the spanish market once this lower taxes becomes operative?
 
3. Rental income (assuming there is a profit after paying the mortgage repayment). Can you transfer this money home without tax?
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You pay tax in the country you are buying in according to the rules of that country. In spain for example tax is due at 25% of all rental income. This as Cuchulainn says may be due to change shortly. I also understand and slightly off topic that if you have a holiday home in spain you are deemed to have got a income from if even though the property was neven let and you are taxed on this income at 25%.
You then have to advise revenue in ireland, make a tax return as though the property was in ireland and pay tax on any profit at your marginal rate probably 44%. Any tax payable in foreign country in relation to rental income can be offset against your liability in ireland provided there is a double tax agreement in relation to rental income with that country. If there is no DTA then you pay tax in both countries.
See [broken link removed] in general and "Example Rental Account" and "How are foreign rental income taxed" in particular

4. Finally, if one sells at a profit abroad, is the money liable for CGT here?
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Yes. You pay CGT in the country where the property is and you have to declare the sale to revenue in Ireland. You pay tax at 20% in ireland subject to the usual deductions. Any tax payable in relation to CGT in foreign country can be offset against your liability in ireland. The double tax agreement betweeen ireland and france for example does not cover CGT as this is a relatively new tax in france. This is currently being renegioted in relation to CGT.

You should also be aware of tenants rights in the various countries you wish to invest in
Inheritance - In france you have to leave 1/3 of the property to your children
Currency Fluctuations if investing in a country other than Euro Zone
 
cuchulainn said:
auto: believe that spain has to change its ctg it charges to non spanish people shortly. so maybe sellers are holding back at present to await the lower tax regime. would you think that there might be more properties coming on the spanish market once this lower taxes becomes operative?
Click to expand...

From my own experience on the ground in Spain, this is not a factor. There is no shortage of property for sale in Spain, particularly on the Costas. The only place that there is a slight shortage of second hand property is the Costa Calida, where it is probably cheaper to buy an off-plan new build than an equivalent older property. Everywhere else, second hand is way cheaper, up to 100K for some mid-range properties in comparison to equivalent local stuff.
CGT laws not yet amended to match European ruling, but it is only a matter of time. In essence, foreigners were paying 35% and locals 15%, and Europe cried foul on the practice. Looks like everyone could end up at 20% according to some observers.
If you want cheap but maybe hard to resell, go to Alicante and around and bid low on resales, you will buy a cheap holiday home but it may be hard to move it on at a later stage. Costa del Sol can be good if you buy in the right places, stick around Marbella and away from Calahonda/Torremolinos areas. Good rural property as I said earlier can be bought for bargain money in the Alpujarras, away from the coast (although still less than an hour away if you really really want to go to the beach every day) but also away from the lager louts and excesses of urbanisation living. Hard to understand why more irish buyers don't go this route -- you can pick up a quality holiday home in or near a nice village for buttons, and it will appreciate gradually over time. A lot of canny Brits and other Europeans have been enjoying this little secret for years.
The CGT issue never seems to be a problem in Spain, probably because a lot of under declaring still goes on -- be careful of falling into that trap when buying as it will come back to bite you when you sell.
 
Investmind said:
Im moving to the Caribbeen for a few yrs at the end of next yr to work and was thinking of:
Click to expand...

why not try somewhere in the carribean? Close enough to keep an eye on things. Remember you won't fly to poland or berlin if a serious problem arises.

there are a few names about, such as St Maarten, Dominican Republic etc. might be worth investigating. Esp the islands that were former colonies, as they tend to have steady tourist trades, and are more pre-eurpoean (st maarten is dutch, and even still use the guilder, last i heard).

haven't done the research myself, so won't adivse either way; but worth the look perhaps.
 
asdfg: can't see how the spanish ( or anyone else for that matter) can tax you @25% on rental income you didn't make. that's akin to robbery if you dont rent the property how can they deem it rented and tax you on it? I can understand a fixed rate property tax but not this. when (and if) I purchase a small apartment it will be for my own and familys personal use, renting won't be a factor, and I am definitely not going to pay tax on income I didnt earn. to spain or ireland.
 
In Spain its just a wealth tax based on the town hall valuation, but its tiny and can be less than 100 euro per annum in many towns, depending on the value of the property. Often your lawyer or accountant wil pay it for you and charge you a fee that is almost as much again as the tax, but you don't need a professional, just as a Spanish friend to help you with it the first time and don't forget it from then on.
If you do earn rental income from your Spanish home, the amount paid is allowable against any tax due on rents as far as I remember.

Some confusion here maybe between CGT and income/wealth tax?
 
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