The Risks and Benefits of Foreign Property Investment

Property investment is one of the oldest forms of investment in existence. Land is a resource that will never disappear, and a more tangible investment than stocks and bonds. However, investing in foreign property is a whole different kettle of fish. With careful planning and a firm knowledge of how foreign markets work, you may find that investing in foreign properties is more profitable than domestic property investment. On the other hand, if you are not well-informed about the risks involved you may end up losing a large portion of your investment.

The best way to get started in the foreign property investment business is to talk to your financial advisor. Your advisor will be able to tell you which markets are currently likely to be the most profitable for you and your financial situation. The amount of money you intend to invest will have a significant role in the markets that you should invest in, and the most profitable types of properties may vary depending on the market. Here, we will discuss a few of the risks and benefits of foreign property investment to get you started.

Varying Tax Laws

One potential risk of a poorly-researched investment could be the tax laws in other countries. Non residents of the UK who sell property could pay as much as a 20% tax; other countries very well may have similar taxes. Make sure you know the tax laws of any foreign market before you dive into it. Even an apparently attractive market could turn your investment into a fiasco if the taxes are near or over the profit that you would have made. Keep in mind that tax laws can change, so there is always the risk of being caught unaware by taxes when it comes time to sell.

Changing Exchange Rates

If you are careful, changing exchange rates can work in your favour. You could potentially make a profit on property that you sell for the same price as the purchase price if the value of the pound is up. However, if you have to sell unexpectedly you could end up well in the red if all factors are working against you. To use exchange rates to your favour, try to buy when the value of the foreign market is high, and sell when the value of the pound is higher.

To illustrate: imagine one pound was worth ten dollars. You buy an object for ten dollars, or one pound, and sell it for twenty dollars. If the pound is worth five dollars at the time that you sell, the value of the pound has gone up and you will have made a three pound profit. If, however, the pound is worth twenty dollars when you sell, you will have only earned back the original one pound that you put in. In reality, of course, the exchange rates will only change by very small increments, but these small increments can make a very large difference when you are dealing in tens or hundreds of thousands of pounds.

Fluctuating Markets

Markets that you are not intimately familiar with can surprise you with fluctuations that domestic investors may have seen coming. If you are very new to the market, you also may not yet have an eye for the properties that will sell well in other countries. Detached country manors, for example, that you may have trouble selling in the U.K. at present may sell very well in the United States market. An advisor who is familiar with foreign markets will be best able to guide you in buying properties that may sell well, and in keeping an eye on the market changes that could put your investment at risk.

Before investing in any foreign property, make sure to learn about the tax laws and market particulars of that country, and try to purchase at a time when exchange rates could work in your favour. Well-informed investors are better able to invest their money where it will be both secure and profitable, so having a network of financial advisers and market experts is key to your success in investing in foreign markets. With preparation, knowledge, and a little bit of luck, foreign property investment could be the best investment you will ever make.

Sam Jones the author of this article often advises readers thinking of property investment abroad, to visit the helpful advice pages first at uSwitch.