Investing in overseas property is more risky than investing in property in Australia. It is much more difficult to make sure the investment suits your needs if you don’t have local knowledge and you can’t regularly inspect the property. ASIC has recently received many complaints about promoters who are encouraging Australians to invest in the United States property market.
Here are some things to consider if you’re thinking about investing in property overseas:
• Good tenants and good property managers are hard to find, especially when you’re removed from direct contact.
• Expensive renovations and repairs may be needed, especially if the property is in a location prone to squatters and vandalism. Buying property sight unseen is a big risk.
• You must factor in Australian tax laws, local property taxes, insurance, management costs, and ongoing repairs. There are lots of hidden costs that the promoter may not tell you about.
• Does the country you are looking to invest in have foreign ownership restrictions?
If you’ve been ‘invited’ to invest in a supposedly ‘cheap’ overseas property, ask yourself why they need someone in Australia to invest? Why aren’t savvy locals investing? Chances are it’s a dud investment. ASIC reminds us of a true cliché – “if it’s too good to be true, it probably is.”
Benefits and downsides of Property Investment
• Property can be less volatile than shares or other investments
• You can earn rental income and benefit from capital growth (if your property increases in value over time)
• If you take out a loan to purchase an investment property the interest on the loan is tax deductible
• You are investing in something you can see and touch
• Rental income does not usually cover your mortgage payments or other expenses so you may have to use your regular income to cover these costs
• A jump in interest rates will affect your return and decrease your disposable income
• There may be periods of time where you don’t have a tenant and will have to cover all costs yourself
• You can’t sell off a bedroom if you need to access some cash in a hurry
• If your property investment is your major investment then you may have little or no diversification
• If the property market goes down so does your whole investment. There are many instances where people have ended up owing more than their investment property was worth, this is known as negative equity.
• There are high entry and exit costs
Investing in property is a good way to grow your assets. As with other types of investments, it’s important to do your research and seek professional advice if you’re unsure about anything. Here at The Quinn Group our experienced team of lawyers, accountants and financial planners can assist you with all of your investment property queries. For more information about the dangers of investing overseas submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.