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Overseas Investment Choice

Today's investors are always looking for the next market and, as a result, the wide choice of countries to invest in has grown significantly over the last few years, providing a wide and, at times, confusing choice.

Finding the property hotspots is only a part of the challenge. Investors need to balance this with the risks of investing in that market, along with the ease of conducting business. The finance options and investment gearing will also provide the investor with a much stronger investment decision whilst minimising the opportunity for significant losses.

Some of the key questions that you need to consider (apart from the predicted growth rates) when making an investment decision are:

What finance options are available, in what currency and what rates?

The level of financing or ‘gearing’ that you can make on your property investment is one of the key factors that will determine the return on your investment. This should have an even greater effect than the increases in property prices, as it acts as a multiplier to the property market growth rates.

For example, if you invest in an emerging country with say a 30% growth per year without a financing option, then a £50,000 investment could be worth £84,500 in two years, providing a £34,500 gain and a 69% return on investment, and typically at a high level of risk.

If you invest the same £50,000 in a strong market, with annual property price growth at say 15% and good finance options, for example financing at 80% LTV, then £50,000 could be invested in property worth £250,000. The investment could be worth £330,625 over two years, providing a gain of £80,625 and 161% return on the investment in a much safer and more stable market.

What is the status of the financial economy?

This is an extremely important point often overlooked by both new and more experienced investors. The gains made in an emerging market can be quickly eroded if the currency weakens by just a few points.

How strong and corrupt-free is the legal system?

Not all legal systems are as solid and safe as the UK legal system, and you need to know that your hard earned money is not going to be at risk due to quirks of the local legal systems. Minimising the risk of your investment is a major factor when investing and there are numerous cases where local legal systems issues have resulted in loses for the investor.

How easy is it to conduct business in that country?

Language barriers can often lead to misunderstandings that, whilst not necessarily intentional, can lead to frustration and be potentially costly.

Can you get finance in that country? How easy is it to send currency to and from the country readily and with good exchange rates? High exchange and commission rates, along with delays, can make a significant impact on the actual cost and gains on the investment.

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