Brendan Burgess
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How to avoid losing money investing in property overseas
- Thread starter Brendan Burgess
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OverseasCafe
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Hi Brendan.
The lack of a response to this topic may be indicitive of the Irish approach to purchasing property overseas. It's all about the rush gained from the chase with very little effort expended in making sure that the investment is intrinsically safe. This could well explain why we are currently seeing a large amount of calamity in overseas markets. We have been buying overseas with impunity for a number of years now and it takes a while for the bad news to seep through. What we have seen so far may well just be the tip of the iceberg.
Many of the factors which need to be addressed to avoid losing your money when investing overseas have been covered on this forum before but we'll have a stab at covering a few of the most critical ones in any case.
We are presuming here that Brendan is referring, in the main, to investment property overseas. Those looking at lifestyle purchases can pretty much choose to purchase what and where they wish. The problem is that very few Irish investors buy purely for lifestyle purposes. If there is any element at all of investment, even if it is only to let the property for a few weeks to cover some of the expenses, then you need to be a good deal more careful.
An independent solicitor is a vital first step. Independence is the key and preferrably engaged before you make any commitments. Most of us begrudge them every penny they get but their value is only evident when you see how many people get into trouble when not using a solicitor. It is quite unusual to find those using a properly certified and insured solicitor running into trouble. The Lynn case is not a good example as, although the clients had legal representation, it was clearly not independent. This probably was not flagged to them when taking this legal advice but it is usually advisable to get legal representation via some route other than a referral from the agent or developer with whom you are dealing.
Most of the problems you see popping up from time to time with Irish purchasers could be avoided by using a solicitor, it is the single most important factor bar none, to consider when purchasing overseas.
Get your feet on the ground. If you don't know the area and haven't been there then don't buy there. If it is too much like hard work to get in a plane and go there for a few days to see what the area is like then save yourself a lot of time and trouble and invest in a good syndicate or fund. An inspection visit with an agent does not count by the way. This is a sales tool meant to convert as many leads as possible, it is not meant to give you any knowledge of the area. Inspection visits, in any case, tend to be predominantly aimed at resort areas so if you're buying for investment the fact that there is an inspection visit on offer probably means you shouldn't be buying there in the first place.
Get information on rental potential from an independent letting agent on the ground where you intend to purchase. An independent letting agent should have no vested interest in whether you purchase the property or not. Their remit is to tell you the level of demand for the property you are proposing to purchase, the level of associated costs, local charges and taxes. A letting agent should also be able to tell you whether you are being overcharged for your property and what the proper price for the property should be. They should also be aware of any proposals for further planning or building in that region and whether this will flood the rental or sale market in the area. This will be important in terms of maintaining your level of return from the property and will obviously affect your ability to sell the property down the line.
Don't buy resort property for investment purposes. If your purchase is predominantly for investment purposes then stick with mature major city markets with high levels of liquidity, a growing population and a strong rental tradition. Purchasing in resort areas (ski, golf, beach, it doesn't really matter) should only be considered if there is a lifestyle element to your purchase. You should be prepared for the fact that this lifestyle element will make it harder to make money from your property in terms of letting, and very possibly when you come to sell it.
If you are buying only for capital appreciation (i.e. purchasing property to flip on at a profit either before or after completion) you are a gambler, not an investor. Be prepared for the fact that you stand a very good chance of being left with the property on your hands and make sure that you can financially cover this eventuality. If not you could be in real trouble.
With the best will in the world some people run into trouble, both in Ireland and overseas. Take the Transmontagne leaseback case as an example, most people who purchased in Transmontagne managed developments did so taking all the appropriate precautions, and still got into trouble. They do, however, at least have a property to show for their troubles and the leaseback operator may well also be sorted out at some stage.
At least by keeping these points in mind you will help minimise the chances that you will run in to trouble.
There is a buying guide and plenty of other advisory articles on our website.
The OverseasCafe.com team.
The lack of a response to this topic may be indicitive of the Irish approach to purchasing property overseas. It's all about the rush gained from the chase with very little effort expended in making sure that the investment is intrinsically safe. This could well explain why we are currently seeing a large amount of calamity in overseas markets. We have been buying overseas with impunity for a number of years now and it takes a while for the bad news to seep through. What we have seen so far may well just be the tip of the iceberg.
Many of the factors which need to be addressed to avoid losing your money when investing overseas have been covered on this forum before but we'll have a stab at covering a few of the most critical ones in any case.
We are presuming here that Brendan is referring, in the main, to investment property overseas. Those looking at lifestyle purchases can pretty much choose to purchase what and where they wish. The problem is that very few Irish investors buy purely for lifestyle purposes. If there is any element at all of investment, even if it is only to let the property for a few weeks to cover some of the expenses, then you need to be a good deal more careful.
An independent solicitor is a vital first step. Independence is the key and preferrably engaged before you make any commitments. Most of us begrudge them every penny they get but their value is only evident when you see how many people get into trouble when not using a solicitor. It is quite unusual to find those using a properly certified and insured solicitor running into trouble. The Lynn case is not a good example as, although the clients had legal representation, it was clearly not independent. This probably was not flagged to them when taking this legal advice but it is usually advisable to get legal representation via some route other than a referral from the agent or developer with whom you are dealing.
Most of the problems you see popping up from time to time with Irish purchasers could be avoided by using a solicitor, it is the single most important factor bar none, to consider when purchasing overseas.
Get your feet on the ground. If you don't know the area and haven't been there then don't buy there. If it is too much like hard work to get in a plane and go there for a few days to see what the area is like then save yourself a lot of time and trouble and invest in a good syndicate or fund. An inspection visit with an agent does not count by the way. This is a sales tool meant to convert as many leads as possible, it is not meant to give you any knowledge of the area. Inspection visits, in any case, tend to be predominantly aimed at resort areas so if you're buying for investment the fact that there is an inspection visit on offer probably means you shouldn't be buying there in the first place.
Get information on rental potential from an independent letting agent on the ground where you intend to purchase. An independent letting agent should have no vested interest in whether you purchase the property or not. Their remit is to tell you the level of demand for the property you are proposing to purchase, the level of associated costs, local charges and taxes. A letting agent should also be able to tell you whether you are being overcharged for your property and what the proper price for the property should be. They should also be aware of any proposals for further planning or building in that region and whether this will flood the rental or sale market in the area. This will be important in terms of maintaining your level of return from the property and will obviously affect your ability to sell the property down the line.
Don't buy resort property for investment purposes. If your purchase is predominantly for investment purposes then stick with mature major city markets with high levels of liquidity, a growing population and a strong rental tradition. Purchasing in resort areas (ski, golf, beach, it doesn't really matter) should only be considered if there is a lifestyle element to your purchase. You should be prepared for the fact that this lifestyle element will make it harder to make money from your property in terms of letting, and very possibly when you come to sell it.
If you are buying only for capital appreciation (i.e. purchasing property to flip on at a profit either before or after completion) you are a gambler, not an investor. Be prepared for the fact that you stand a very good chance of being left with the property on your hands and make sure that you can financially cover this eventuality. If not you could be in real trouble.
With the best will in the world some people run into trouble, both in Ireland and overseas. Take the Transmontagne leaseback case as an example, most people who purchased in Transmontagne managed developments did so taking all the appropriate precautions, and still got into trouble. They do, however, at least have a property to show for their troubles and the leaseback operator may well also be sorted out at some stage.
At least by keeping these points in mind you will help minimise the chances that you will run in to trouble.
There is a buying guide and plenty of other advisory articles on our website.
The OverseasCafe.com team.
Speaking as a lawyer myself, I couldn't agree more about the need to have a good, independent local lawyer. However, the trouble with most overseas countries is that lawyers are not accountable in the same way as in Britain or Ireland. Therefore, having a good, independent lawyer does not offer the same protection to a buyer as it would in these islands.
Surely "how to mitigate the risks of losing money..." would be a more accurate title? Otherwise it sounds like a get rich quick scheme.
Independent, professional investment, taxation and legal advice are obviously key issues here. Certainly independent of any agents or other intermediaries involved in the transaction. Seems to me that many people don't bother with these.
There is a lot of problems with lawyers in real estate. number one, you have many who are also acting with the developer in some role, this would of course be denied. In fact the developer often takes a commission from the clients he sends to the lawyer, ive seen it happen.
Second if you choose your regular family lawyer he/she wont know anything about buying property in poland so they will most likely use another firm on site to do the due diligence and then just collect a large fee.
Other lawyers will make sure they delay signing contracts trying to add in points in the preliminary contract etc just so they can stretch it out and get paid more.
While I might be offending a lot of people, I have no problem in saying never ever trust a lawyer unless you have done a lot of business with him before. I think even most lawyers will admit their industry is full of snakes.
So while I agree somewhat with Overseas Cafe its a bit more complicated in reality to get a good trustworthy independent lawyer - who will be an expert on the area you are buying in. They are not going to want to turn away your money like any other business even if they know nothing about a particular project
A small checklist of the basics will help you avoid peril
-read the preliminary contract in great detail
-see title/ownership of land before signing
-see building permits or applications before signing
-make sure it has bonded construction or a bank guarantee
-enquire at your local embassy what are the ownership laws for foreigners in that country
-check the developers registration number with the local registration office
obviously there are a lot more smaller things, but those few will go a long way to making sure your investment in safe at least
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