Whether you're buying in the Maldives or Milan, don't hand over your cash without following these tips!
Buying a property abroad is something you really need to go into with your eyes wide open.
I've just written about our own experience of buying a property abroad on the lovemoney Wednesday Wealth Dilemma blog, but here are some of the things we learnt along the way, and are relevant whether you're thinking about buying an overseas property purely as an investment, or just somewhere to spend increasing amounts of your own spare time as that elusive retirement approaches.
What do you really, really want?
Just because you had an amazing holiday on the costa del sangria one year doesn't mean that it makes sense to buy a muy bien hacienda there. Could you do something more sensible with your hard-earned cash? How quickly will you get bored with going back to the same place every year?
Step back and analyse all your motives rationally, rather than emotionally, before you sign on the bottom line.
The missus and I primarily wanted an investment property, somewhere that would provide a decent return once we had paid off the mortgage, and which would supplement our retirement income. The prospect of awesome skiing and beautiful summer walking in the French Alps would be a bonus - really.
Read here how ours is turning out so far....
Trust me, I'm a salesperson
Never, ever, ever rely on a single word a sales rep tells you. Their job is to sell you the dream...and run off with the commission for a successful sale. OK, maybe that's a tad harsh - there are some honest sales reps out there - but take a large salt canister to every meeting.
We asked our sales rep if we'd be able to see Mont Blanc once our alpine apartment had been built and the village completed. After "consulting" with the designers, engineers and architects, she replied with a confident "Oui!" Well, if we climb out onto the Savoyard slate roof, swivel our snow-clad bodies and stretch ice-cold necks, we may just be able to see the mountain through the bottom end of the village.
Important? It may be, if we're trying to sell our apartment at the same time as someone with a completely unobstructed view of the iconic tallest mountain in Europe....
Do your own research
This is the share-investing mantra, and it should apply as much to buying a property abroad as checking out the P/E ratio on those equities you're thinking about investing in.
This sounds obvious, but buying a property tugs at the heartstrings more than 10,000 ordinary shares in Vodafone - part of the brain can go AWOL.
If you're buying a new-build property, check out the developer - how long have they been around, any disgruntled buyers in previous developments, how secure is your deposit if they go bust before handing you the keys?
For any property, how much are the local acquisition costs....legal fees, stamp duty, taxes? Likewise disposal costs, including local capital gains tax rules? And if you'd like to build a swimming pool, or put a helipad on the roof, what are the local planning regulations?
And do you know exactly how much it will cost to maintain the property each year?
Accessibility
El Cheapo Airways may fly direct to your glistening swimming pool now, but what happens if they drop that destination from their schedules - how much further will your connection have to be?
And how often do you plan on escaping to your foreign idyll? If it takes most of a day to get there - and back again - the alluring image of long weekends in your own rural French love-nest may not turn out to be quite that romantic after all.
It's the currency, stupid
It's crucial to make the numbers work.
If you're exposing yourself to currency risk, allow a significant cushion for any exchange movement. Repaying a foreign currency mortgage out of your Sterling income now may look fine, but what if there's a 10%, 20% or even larger swing the wrong way....will you still be able to put a hot meal on the table at home?
We took out a Euro mortgage in 2003 to buy our apartment, since when the Pound has weakened close to 25% against the Euro. It's made meeting the mortgage payments over there that much tougher, so the wife had to work a lot harder...although of course the property is worth more today in Sterling terms.
You can hedge your currency exposure by fixing a rate in advance, but there will be a charge for that and it's unlikely you'll be able to do that for as long as a five or ten-year mortgage. There are plenty of competitively-priced foreign exchange specialists out there - I've used HIFX over the last few years and can highly recommend them.
Exit, stage left
Professional investors always have an exit strategy before they even buy an asset. You should too.
You may have fallen in love with a rural finca far from the madding crowd, and not mind being a dusty 45 minute drive from the nearest small village, but would that put potential buyers off when you decide to sell? Too close to an airport or motorway for comfort? Planning permission for 200 apartments in that field where the bulls are grazing before their next match?
We thought long and hard about most things before buying our place, but probably not enough about the exit strategy. There are several hundred properties in the village, with quite a few currently for sale. As much as we think ours has advantages over others, it's a buyers' market right now and they can make cheeky offers until somebody nibbles. It's possibly easier to sell if you have a one-off property, or not so much direct competition.
Think resale, resale, resale even as you whip out your pen to buy, buy, buy. Unless you plan to own your overseas property for ever, and hand it down to successive family dynasties, of course.
I hope these few tips are helpful if you're thinking about buying your dream overseas property. Please add your own comments below, or pick the brains of your fellow lovemoney.com readers in our Q&A section if you have any specific burning questions.