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Investing in Property – Where should I invest? UK & Abroad

Over the years property has proven to be a sound investment for thousands of savvy people with money to spare. While property markets have seen short term wobbles in most parts of the world, over a long stretch, and that might mean fifteen years or more, property has usually out-performed other opportunities.

Only a couple of years back we expected UK property prices to come crashing down as Britain, indeed much of the developed world, plunged into crisis. But it didn’t happen. OK, so a lot of people were unfortunate and found that they had to sell at a small loss, but even then it was probably cheaper than renting for them.

Those who bought thirty years ago in good parts of Britain should be in a position to retire on their gains and probably live out their days free of money worries, but that was then. Can strong returns still be found today? And what about abroad?

This article hasn’t been isn’t for the serious hard nosed investor, after all they should know what they want anyway. This is more for you or me, people with a little spare cash, and a dream of getting in on something good.

Buying in the sun:

First let’s look at the ever tempting idea of buying in the sun. An investment will seem so much more exciting for the amateur if it’s something they can see and touch now and then, especially if it’s something they enjoy.

We talked to Mr Offland from Chester who has a three bedroom flat with a roof terrace just outside of Marbella and we asked him how his investment is performing. “At it’s peak the flat was worth about £690k, blooming marvellous considering we paid £380k back in 2005. Right now I could only get about £350k for it, so there’s lots of ways of looking at that. I could say I’ve lost £340k, I could say that I’ve lost £30k. But actually we’re saying we don’t give a hoot because it’s in a great location, we’re here for four fantastic weeks a year, it’s rented for 80% of the available weeks, and we have no intention of selling anyway, so why worry. And anyway, prices having started climbing around here again already”.

Not everyone has the luxury of Mr Offland’s long term view, but if you’re after a fast buck then property may be too risky for you anyway.

Wherever you choose to buy just remember, when a market starts to climb out of a crisis it’s almost always the best, most expensive areas that pick up first, and a 5% inflation on Mr O’s £690k is a lot more attractive than 5% on something cheaper.

Expensive areas tend to be expensive for good reasons, and the best reason of all is that people want to be there, whether for work, or holidays, and the infrastructure is good too. And that’s where you’re potential rental income will be best, be that as a holiday, or long term let.

In Spain at the moment that’s certainly true of Barcelona. The city of the beautiful people is seeing scary inflation that will price the small time buyer out very soon, but if you can afford to buy near one of the marinas then your future should be bright.

Our Mr O should soon see his value increasing again too. Marbella has always been a favourite and popularity brings that all important demand.

Considerations:

Buying abroad needs careful thought and deep pockets. It may be worth talking your plans through with a trusted impartial third party who won’t get carried away by the dream. Here are a few of the many areas you need to consider.

Long term let, holiday let, or pure holiday home? Renting your property will certainly increase its returns and may even make it self-funding. Long term lets are far less stressful, and may even produce better long term returns unless you buy in an area offering an all year attraction.

If you do decide to go the holiday let route look for something special that will thrill your guests, then in three to five years you should have a steady stream of repeat business which will ease the strain of filling the weeks.

Tax: Making a profit will incur tax. Worse that that, it will probably incur tax in the country where your investment home is, as well as at home when you bring the money in. Across Europe most countries operate a tax credit system with HMRC that will save you from paying tax twice on the same income, but you may have to jump through hoops to avoid the extra cost.

Insurance: Take care selecting the right insurance, and remember your third party liability to your guests too. Many schemes have demanding restrictions that may mean it’s difficult to get your costs covered in the event of a claim.

Maintenance: If you’re only in your holiday home a couple of times a year you’ll need trusted maintenance teams who are easy to get hold of. The best rental incomes will be achieved from places where nothing goes wrong and the place is immaculate all the time.

Borrowing money: It may be less complicated to secure borrowing on your UK home, but if you do need to borrow abroad take great care over early repayment penalties, currency risk and exposure to interest rate fluctuations.

Documentation: Don’t sign anything you don’t understand. Get everything translated, and consider having a UK solicitor check all the documents you’re presented with.

Exit plan: Right now you think you want it forever – but plan and be aware of the pitfalls of an early exit. Just saying…

Where to buy? If you will be buying just one investment property then beware of the risk of being carried away on a dream, but then after a good reality check it’s probably worth buying where you want to go. At least that way when the market is down and there’s nothing to gloat about you and your friends still have somewhere great to stay.

More…

And what about old Blighty?

It may rain too much and be cold in winter, but hardly ever have a touch of snow, it may seem that the glory days have gone, possibly never to return. But the fact is the UK property market is still an attractive investment. Some areas of the country remain dirt cheap, and some are still falling. London though is outstripping all reasonable expectations yet again, and renting your investment is unlikely to cause too much worry, particularly in a good area.

Yields across most good areas are topping 5% again as demand still considerably outstrips supply. If it’s steady returns and strong capital growth you seek then Britain takes some beating, especially when you also consider the lower risks involved.

All the considerations above apply to Britain as much as overseas, yet it’s worth remembering that with some careful planning and good advice you may even be able to avoid capital gains tax when you come to sell.

Property will never be an investment for the faint hearted. Take your time, weight up the options, and beware of salesmen while you’re on holiday – they are trained to sell, but you’re probably not trained to see through their tactics.

Good luck, and if you buy in Tuscany let me know, you’ll have a friend for life!

Images Courtesy of Alex Pepperhill & Unique Properties

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