Real estate has long been considered a staple of the investment market, offering investors the opportunity to enjoy slow but steady growth over long periods of time. For many modern investors, the slow nature of the returns provided by real estate make it a less appealing option compared with the fast-moving alternatives made available via the growing number of online portals. Rather than bet on the long-term returns associated with real estate, expats are dipping in and out of stocks and shares, and even considering new approaches to investing such as ethical investing.
However, this doesn’t mean that real estate investment is on its way out. In fact, many still consider expat investment in property as the ideal long-term investment opportunity for those wishing to set their sights on steady and relatively reliable returns, or even those who want to invest across country borders.
Factors to consider when investing in property
When deciding whether or not to invest in property as an expat, there are many different factors that you should take into account. Some of the most important include:
Establishing your budget
Whether you choose to invest in property abroad or overseas, you will need to have a cash deposit available. Often, this deposit is between 10% and 25%, although this depends on your earnings and credit history. Other financial considerations include stamp duty, legal fees, agency costs and the impact of the exchange rate.
Choosing where to invest
There are many factors that may influence where you choose to invest, and this is an issue that you should seriously consider before you invest your spare cash in property. Investments in expat overseas properties, for example, will require you to consider the different property laws that are in place abroad. It is also important to get the best possible return on your investment, so you should consider the best location within your chosen country. For example, many see London as a key area for investors in the UK, but emerging cities such as Birmingham and Manchester may offer better returns in the long run.
Consider the type of property you choose
If you are investing simply for returns or rental income rather than seeking a possible future home, you may be able to consider alternative types of property. For example, commercial sites can provide steady rental income when situated in a lucrative location. Similarly, if you choose to invest in domestic real estate, consider putting your own preferences aside and choosing the most popular type of property in the area to boost rental income and/or potential returns should you choose to sell in the future.
Choosing your rental partners
If you choose to rent out your property, you will need to instruct a letting agent who will be responsible for seeking out and managing your tenants. It is important to find the best possible agent, even if they are slightly more expensive than some of the less reliable alternatives, as they are ultimately responsible for the day-to-day management of your investment. Similarly, you should spend time considering the right insurance company for you. As a landlord, you will have a legal responsibility for insuring your property and covering the mortgage even if your tenants fail to pay their rent. As a result, insurance is an important part of protecting your investment.
Don’t forget taxes
Whether you are considered a UK resident or a resident of another country, your rental income — or income gained following the sale of a property — will be subject to UK tax rules. This means you will be responsible for paying income or capital gains tax. These costs should be factored in to both your short and long-term plans to ensure you are always aware of your financial situation. Expat overseas properties can also be subject to tax, so speak to an independent financial advisor to find out more about what you could owe now or in the future.
The 50/50 approach to property investment
According to estate agents, one of the main themes that has emerged in recent years is increasing expat investment across more than one country. Often referred to as 50/50 property investment, this approach to real estate may not be a new one, but it has become significantly more popular thanks to expats who want the security of having money invested in property both at home and overseas.
One benefit is that expat overseas properties can act as the ideal base while living and/or working abroad, while real estate purchased at home offers rental income and a secure hub to return to should plans change. Alternatively, some expats choose to split their time across two or more countries, using their overseas real estate to gain holiday home income for part of the year while they live in their home country, and reversing this setup when they choose to return overseas.
Ultimately, having properties across two countries provides both security and flexibility. Whether you choose to keep one or more of the properties as a future residence, see them as an asset to be sold in the future, or simply hope to earn rental income while you assess your options, owning properties across more than one country can significantly strengthen your financial position.
Securing a mortgage when buying from abroad
If you decide to purchase a property in the UK while living overseas, you will need to secure a UK mortgage. The type of mortgage you choose will depend on your intentions for the property; if you choose to purchase the property with the intention of selling or moving, you may be able to choose a generic mortgage. However, if you want the property to generate rental income you will need a buy-to-let mortgage.
Buy-to-let expat mortgages and residential expat mortgages both require you to have a deposit in place and evidence of the source of those funds. You will also need proof of residency and proof of your income. While your income and bank account don’t have to be based in the UK, this would be ideal to prevent any complications during the application process.
As an expat, it is likely that the mortgage application process will be slightly more complicated. However, it can work to your advantage. For example, it can work out cheaper for international buyers to buy property in the UK as a result of the exchange rate. This means you will be able to purchase a property with a smaller deposit. Mortgage repayments can also work out cheaper thanks to exchange rates. However, it is important to keep them at the forefront of your mind as significant changes could result in an unexpected increase in monthly mortgage repayments.
Is property investment right for me?
There are many factors to consider when thinking about property investment. Your finances and plans for the future are two of the most important, and should ultimately dictate whether you pursue real estate investment as an option. At ExpatRoute, we advise all expat investors to seek independent advice based on personal financial circumstances. With the help of a financial expert, you can consider the pros and cons of real estate and decide whether this traditional but steady form of investment could be the right path for you.