As real estate becomes more and more out of reach for the average Australian, many are looking overseas to start or boost a property portfolio. A simple online search shows there are bargains to be had in the USA, UK, Asia and Europe, where you can pick up a castle in France for less than a Sydney unit.
The overpriced market in Australia can make any other region seem tempting, but beware of the many pitfalls and risks with an overseas investment. Language and cultural barriers, different property laws, tax jurisdictions and access to finance can make overseas investment an absolute minefield. Although when you’re sipping wine at your Italian villa, you might mind less.
As with any decision to purchase property, research is paramount. What looks like a bargain online may have hidden costs in renovations, stamp duty or taxes, or may not be in a desirable location to get the return you require. A site visit is a great excuse for a holiday, and to determine whether you want a long-term commitment with this country and area. While your options are only limited to countries that allow foreign investment, think carefully about where you buy. Whether you are looking for a holiday home or a rental property, it is likely you will need to visit the area and deal with local people from afar, so ensure you find a cultural fit. If you plan to rent out the property, meet with agents and ensure you get legal advice on the transaction and your obligations as landlord. In the USA in particular, property law varies across the states, so be sure to put aside a budget for specific advice for each state you consider.
You may find a property in Spain, Italy, Greece or the USA for less than $100,000, and you may have savings to be able to purchase in cash. But if like most people you require finance for your overseas investment property, more research is required. In many countries you will need a deposit of at least 10-20%, and an additional 5% to cover stamp duty, conveyancing, and other legal advice that might be required. The upside is that finding 10-25% of the purchase price for an overseas investment can be much easier than for the average Australian home.
Australian banks can’t take a foreign property as security for a home loan. But if you have more than 20% equity in any existing Australian properties, you may be able to re-finance to an 80% loan to valuation ratio to free up some cash.
The next step is to speak to an Australian bank with international branches or international banks with operations in your investment location, for example HSBC and Citibank. Or, contact the local bank in the country of investment. Note the process may be quite different from a loan application in Australia and there are no guarantees that a loan will be granted, however favourable the deal. Banks may set a lending limit as well as requesting proof of income and assets.
Before entering into any overseas property investment, be sure to talk to a tax accountant familiar with the tax rules in your target investment location and Australia. Investing overseas can result in unintended tax and residency issues, with high penalties for noncompliance. An expatriate tax advisor can help you to determine the potential tax consequences and ensure all the appropriate paperwork is filed on time. Again, the USA has a complex and onerous tax system that varies between states.
Last but not least, ensure you have a trustworthy local person or business overseeing your investment. An absent owner can be a vulnerable target for scammers, so make sure you get regular updates on your investment to maximise value.