Common Mistakes Made by International Property Buyers
In today’s globalized world, people increasingly purchase real estate in foreign markets. We see it both on the investment side where investors seek new markets in search of higher yields and capital appreciation, and the personal use side where people seek new and exotic locals to vacation or retire.
Buying real estate in a foreign market can be an excellent decision, but there can be traps along the way. Here are 3 common mistakes that international real estate buyers make.
Guaranteed Returns. Many developers offer a guaranteed rental return on new construction to generate interest from international investors. This marketing tool is often a trap for the unwary.
Always ask the developer who is providing the guarantee. A guarantee is often provided by a developer that intends to zero out its accounts on completion of the project, leaving the developer unable to financially perform on the guarantee. Or worse, the guarantee is given by a management company that is loosely affiliated with the developer with little to no assets to substantiate the guarantee. The point is, do not take the guarantee at face value.
Do your research and determine the merit of the investment without the guarantee.
Impulsive Purchases. I cringe every time I see someone buy real estate at a developer’s booth at an international property show or at a developer’s stand in a mall. Or worse, after a developer pays for an international buyer’s trip to visit the property and applies the pressure until the buyer relents and signs a reservation agreement.
Remember, there is a reason many countries have adopted “cooling off” legislation so buyers can get out of a sales contract. Never act while the developer’s agent is giving you the hard sell. Go home and do your research. There is never only one property left, and chances are, the price is not (actually) going up tomorrow.
Serviced Apartments. Serviced apartment (and hotel condos) are increasingly marketed to an international audience and can be a good purchase under certain circumstances. Take for instance a buyer that wants to purchase a vacation getaway, and wants to rent the place while away to generate some income to defray the costs; a serviced apartment may make sense.
That notwithstanding, serviced apartments tend to under-perform as an asset class and are often difficult to sell. You also forfeit control to a hotel operator that may not have the reputation/ability to make your investment a success. To make matters worse, chances are you you know nothing about the occupancy levels and nightly rates in the locale you invested.
Again, if you intend to use the serviced apartment as a vacation/second home, then they are worth considering. But they often do not pan out as pure investments.