With the amount of information out there, it’s hard to know which route to take. Fear not, our 7-step starter guide will keep you right.
1. Know where you want to invest
Knowing where you want to invest is the first step in buying an investment property. There are loads of free and paid resources that can help you research any area in the country. You can use them to study housing supply and demand, economic growth, vacancy levels, average house prices, and household incomes. Using them will help you determine if buying a property because it’s around the corner from your house is actually a good idea.
2. Determine what you want to invest in
When investing, it’s better to understand what’s in demand and not invest in what you think is “good.” Different areas have different demands. If you’re buying in the suburbs, its likely single homes that would rent easier. If you’re looking at city centers, the demand will likely be geared more towards apartments. No matter which type you choose, you need to know what qualities make it desirable. Characteristics like the size, number of bedrooms and bathrooms, plus other amenities such as a garden, swimming pool, or a gym can make a big difference.
Once you’ve nailed down where and what you’re investing in, you can start researching opportunities. There are a few ways to find investment properties. You can search online, use an estate agent, or consult a sourcing company. You can also set up alerts on property listing sites that will notify you when a property that matches your criteria is listed. Having a good advisor is recommended and can be very valuable to overseas investors, as they are a good source of connection to mortgage brokers, banks, furnishing firms, and letting companies.
4. Know your numbers
Knowing your net cash flow for a rental property is vital. This is the net income minus mortgage costs and expenses. It is especially crucial if you want to have positive cash flow, which should be a goal. To get an idea of the income you can expect, you can talk to letting agents, or use free tools that let you analyse the average rental rates based a property’s location, type, and size. Always compare like with like and avoid comparing a new, luxury apartment block with one that is a bit older and lacking the same amenities. Learning about the vacancy rates for the market you are in is also worthwhile.
5. Secure financing, if needed
Unless you have the cash to buy outright, you’re going to need financing. One of the biggest perceived challenges that expat and foreign investors face is securing a mortgage. It can be challenging as some lenders view you as a higher risk. However, don’t worry; there are plenty of providers that specialise in tailoring options for those living overseas. If you know what to look out for, you can avoid some of the more common challenges. These can range from the time difference to difficult lenders or getting the proper documentation prepared and certified. Most lenders prefer borrowers that work for large multinational companies, with a minimum income of at least £50,000. This can make it even harder for entrepreneurs and the self-employed. Learn more
6. Find a Tenant
Once you own a property, you need to find a tenant. A couple of ways to approach it are online or working with a letting and management company. Using a company has the advantage of an extensive database of tenants and knowledge of the rental market. You will also need to screen tenants, as it can mean the difference between a quality one that looks after your property and pays on time or one that mistreats it and doesn’t pay rent on time. A good letting company will usually have a process for doing that. However, even the most in-depth checks can still result in a challenging tenant.
7. Manage the Property
You can do this two ways: hiring a company or doing it yourself. If you are overseas, then you’re likely to use a letting and management company. If you’re looking for a hands-off investment, this will work best. They deal with everything in exchange for monthly or yearly payments. They all have different fee structures. However, it will usually be around 8–12% of your rental income per year. Choose your management company wisely. Ask to speak to other clients and visit other properties they look after (online reviews can also be helpful).
So, now you understand the 7 things that overseas investors should know before embarking on buying a property. Armed with this knowledge, you will be able to better understand if an opportunity is for you or not.
If you like our ideas and would like to learn more about how we implement and manage them, say hello! Contact us here.
If you like our ideas and would like to learn more about how we implement and manage them, say hello!
Contact us here.
Article by: Rory van den Berg