You’ve heard of “buy-to-let” investments, but if you’re getting on a plane to invest in overseas property we like to call it “fly-to-let”.
And with council tax and stamp duty rises for second homes in the UK, some investors are looking overseas. You get all the benefits of a bricks and mortar investment plus some unique advantages.
Fly-to-let can include letting a property to tourists on short breaks or long-term tenants to treat it like their own home.
And if you’ve ever baulked at the prices to rent a Mediterranean villa for two weeks in August, you’ll know that the returns can be excellent.
But there are a few things you need to know before investing in property abroad.
Understand the local laws
While most countries want the investment from foreign buyers, some limit exactly how you can invest in property abroad. This includes countries like Canada, Australia and Malta.
As a non-resident you may be limited to investing in a new-build property, for example, or just hotel-style developments.
Some countries don’t restrict what you can buy, but do limit what you can do with it. Certain areas may allow short-term lets, for example, while others may only allow long-term lets.
The rules can get even more local, even down to the building itself. So, while in the UK a leasehold flat may have restrictions on letting, don’t assume you escape such controls on freehold property overseas. Your building home-owners association may have the power to ban rentals too.
Even when local laws allow tourist rentals, if the authorities feel that there are too many rental properties locally, they can simply stop issuing rental licences for a time.
For most property owners, even investors, such restrictions are an overall positive – they help to keep supply of rental homes limited, for example.
But the rules vary wildly from country to country, and even from city to city.
The golden rule? Don’t assume. Do your research and get good local legal advice.
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Decide between a short-term vs long-term let
Deciding between short-term and long-term rentals is perhaps your biggest decision. It affects your returns, responsibilities and level of involvement.
Short-term lets (think Airbnb or Booking.com)
These bring in higher income during peak tourist seasons. But they also come with more wear and tear and the need for constant cleaning and management.
Plus, many cities are cracking down with tough regulations to control housing supply and reduce disruption for locals.
Still, you’ll be very popular if you keep a few weeks spare for family and friends - and for you, of course.
Long-term lets
Long-term lets for overseas properties usually bring in a more stable income, fewer management headaches and, in some cases, tax advantages.
But once a tenant’s in, getting them out can be tricky. Which brings us neatly to…
Brush up on landlord and tenant laws - they’re different overseas
In the UK, landlords have some pretty clear rights and processes for eviction. Abroad? Not always.
In some countries, especially in Europe, the balance of power sits firmly with the tenant. Evictions can take months or even years, especially if the tenant can prove hardship.
In some places, you can’t evict a tenant at all during winter, even if they’ve stopped paying rent.
This is why it’s essential to vet tenants carefully, understand local rental contracts and never rent a property without having solid legal agreements in place.
Yes, you have to pay tax on overseas property
Great, you’re making an income! Now you just need to pay the tax on it. This may require you to employ an accountant there.
You will probably face capital gains tax when you sell the property, plus other local levies too.
So get tax advice early. A good international accountant will help you stay compliant and keep more of your returns.
Consider a property management company
Unless you live nearby (or love hopping on planes to fix broken boilers), you’ll need a local company to manage the day-to-day.
That might include advertising the property, handling bookings, dealing with tenants and maintaining the place. It’s an extra cost, but one worth budgeting for. You don’t want to be handling panicked messages at midnight because a guest in Corfu can’t find the Wi-Fi password.
How hands-off the investment will be is up to you. Fees for property management companies typically range from 10% to 30% of your rental income, depending on what’s included.
Look for a company with good local knowledge, English-speaking staff (if you’re not fluent in the language) and strong reviews from other overseas landlords.
Sort the paperwork and fine print
You can’t just slap a listing on a website and start renting. In most countries you’ll need a specific licence or registration number for short-term letting.
Some cities require annual inspections. Others ask for noise meters to be installed. Some of the rules can seem plain weird – in Italy you can’t leave a key box outside.
And if you skip the paperwork? Fines can be hefty, and you may be banned from letting at all.
Long-term lets on overseas properties involve fewer hoops to jump through, but even then, you’ll need to register the tenancy properly and comply with things like safety regulations and deposit rules.
It takes care, focus and effort to stay compliant as a landlord in any country; even more so when investing in property abroad.
Is it worth investing in property abroad?
Fly-to-let properties - or investing in property abroad - can be a great way to diversify your income, build long-term wealth and maybe even carve out an excuse to spend more time in the sunshine.
It has all the benefits of property investments, like stability and long-term rewards, and can be much more interesting than just playing the stock market.
In recent years, when interest rates were near zero, it often made more sense than putting money in the bank. But it requires planning, patience and professional help.
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