Things to consider before investing in a foreign property

Real estate is one of the most common investments, for the very simple reason that it is incredibly lucrative. Perhaps you've already got a home, or you are considering investing in another property to rent out. But you may be also looking at venturing further overseas. Many people invest in property overseas, and it can be incredibly lucrative, especially when it's in the desired location as long as you can afford it so make sure you have checked a mortgage calculator based on your income for where you are looking to buy, this makes sure you understand the costs this is going to have for you. But some people hear horror stories about a property not being finished in time, or the builders causing problems, ultimately resulting in investors losing thousands of dollars. So before you sell your home or expand your portfolio, what does it take to invest wisely in a property overseas?

Really Think About the Right Location

The temptation from an investor’s perspective would be to find a market that is up-and-coming, and cheap. But this could very well fall flat on its face. Because, after all, you are relying on the rumor more than anything. It is far better to go for an established market, especially when you are a first-time investor. When you see a house for sale in another country, take the time to see if it is an established location. Mortgage providers will look more favorably on properties in areas with a proven rental market. As nice as it is to be investing in a property, based in a beautiful location, it's got to be a sure thing, investment-wise.

Remember the Taxes and Exchange Rates

As romantic a notion as investing abroad is, you must consider the different tax rules to each country. It's vital to get to grips with each country's tax rules before you purchase anything. Countries have their own additional taxes, sometimes known as Stamp Duty. If you are using this property as a rental, and are charging money to tenants, it's important to speak to a tax advisor to get a clear picture of how your overseas investments could impact your tax obligations. It's a great idea in theory, but if you are paying more money in taxes than you are making in rent, you will either have to increase the rent and run the risk of losing out on good tenants, or think about getting rid of the property altogether. In addition to this, you have to factor in the exchange rates. You might be savvy when it comes to the exchange rates, but it's a good idea to use a specialist that can figure out the best way to transfer payments, minimizing the chances of your money being lost in poor exchange rates.

Understanding the Local Area

Investing in a property in another country is not just about getting a feel for the place. You need to use a legal specialist who has knowledge of the local property market. There are law firms that specialize in properties overseas, and it's important to find these individuals because they will have an understanding of the destination, as well as the financial assistance. You can always choose a legal firm based in your chosen destination, but make sure you keep the lines of communication open. It's a little thing, but you need to be aware of things getting lost in translation. This is especially true when it comes to legal documents. If you are investing in a country where you have no knowledge of the lingo, it might be best to have somebody that is able to liaise so you can get the best deals, as well as make sure you know exactly what you are getting into.

Investing in a New Development

If you decide to invest in a development where the properties are yet to be built, you need to communicate with the developer. You need them to show you some of the recent projects. If there's no information online, or they are not able to show you anything they've done recently, you need to hold back on transferring any cash to the developer. You need to make sure that there is a clause in the contract that states you will get any money back if the development is not completed. It sounds like a fantastic idea to invest in a property, especially if it is a new one with modern materials. But this can be dangerous and can result in you not getting any money back if you don't cover yourself.

Do it right, and investing in a property can be very lucrative. Do it wrong, and it can land you in heaps of trouble, financially, professionally, and in terms of your reputation.

Money Hip Chats: Vacations

It’s time for another Money Hip Chat. I tried to think of things that are annoying to budget for, and I’m going with vacations. Lisa, what comes to mind first when thinking about vacationing on a budget?

Lisa: I think the foundation of vacationing on a budget is to adjust your expectations. I think a lot of young couples and families run into trouble because they’re trying to keep up the kinds of vacations they had prior to getting married, when it was on their parent’s dime. That’s simply not possible (or wise) when your income is significantly less. Another related issue is when extended families want to do grand vacations that may fit within their budget, but simply don’t fit your budget. It’s a tricky business because turning them down can be a source of family drama. I think that’s why having a budget is so important--it sets a clear expectation. An example conversation you might have to have with older siblings or parents: “Our annual vacation budget for the whole year is $500. That’s simply not enough to join you on a cruise and have enough money left over to visit at Christmas. We’d love to spend time with together--what if we did something else?”

Lauren: That is such a good point. I think it’s important to remember that the point of vacations is creating memories with people you love, and that can be done without spending a ton of money. I’m not knocking great vacations. If you can fit it in your budget, then go ahead. But if it just doesn’t make sense financially, then don’t stress about missing out, because you can still create those memories doing something less expensive-- like camping, a road trip, sharing a beach house/cabin with friends or family, etc. One of the expenses that really seems to add up on vacations (especially with kids) is food. How do you save money on food on vacations?

Lisa: We definitely do a lot of shopping beforehand to make sure we’re stocked up on fruit, water, and snacks for the car (gas stations snacks are crazy overpriced). We also take advantage of whatever food the hotel is offering for free. In addition to breakfast, the hotel we just vacationed at offered a “Manager’s Reception” with a full dinner Monday through Thursday evenings. For eating out in general, rather than buying overpriced combo meals, we buy individual items (I don’t like soda anyway). What do you do?

Lauren: Mostly we’ve just visited family, and our moms have cooked for us :) But Aaron’s taking a month off of work before school starts and we’re going to try and fit in a few day trips. In general, I definitely think eating local food on vacation can be a wonderful source of memories-- but that doesn’t mean you have to go all out for breakfast, lunch, and dinner every day. I basically snack all the time, so when I’ve traveled in the past, I brought a box of Clif bars that I could eat on the go. It was a Costco sized box, and packing it was fine because it freed up some weight/volume for souvenirs on the trip. I still enjoyed eating in restaurants and at street vendors, but having food I brought myself meant I didn’t have to buy food on the go for every single meal, which saved money. 

Another thing we've done to save money is pooled our frequent flyer miles on JetBlue as a family. Don't forget that even small children can earn miles, so being able to consolidate can really help. If you or your spouse travel frequently for work, those miles can be especially helpful as well. Pooling all of our miles got us 3.5 round-trip cross-country tickets for a family reunion this summer. We ended up spending only $300 out of pocket to get all four of us from Boston to Oregon and back again.

Share-- How do you save money on vacations? We'd love to hear from you in the comments below!