Top tips: How to buy property abroad
Buying a property abroad is a big step that people may not not have taken before. Here are some important considerations.
Hire an independent lawyer
You would always use an independent lawyer when buying a property in the UK, so why do anything different when buying abroad? You need somebody to help you through the legal process and that person needs to be on your side and not the side of the seller, agent or developer. If there is an issue with the property you need to be aware of it and also need to know how to solve that problem safely.
Find out about costs and finance
The costs of buying abroad can be significantly higher than in the UK. It is therefore vital that you do some calculations regarding the final cost of buying when looking at your budget and build this into your total spend.
Many people don’t do this and are then surprised when the costs are higher than expected. They then start cutting costs such as lawyers, valuations and surveys – which is when they start to get themselves into trouble. Finding out about the total cost of buying ensures that you can afford the property and makes sure that you stick to your budget.
Understand how the process works
Whilst the process of buying in some countries may appear to be similar to that in the UK it can be very different in others. In some, for example, there can be two different contracts to sign prior to completion. Many countries use the Notarial system (qualifying statement) to transfer property rather than the system that we are used to in the UK. In some countries the searches are even carried out after you sign the preliminary contract.
What you are trying to achieve is essentially the same. You want to buy the property free of charge and problems and make sure that you make payments when it is safe to do so. However this process can be very different overseas.
Just because you are buying a property abroad doesn’t mean that you don’t need to worry about the structure of the property. Most people don’t obtain surveys on overseas properties because they are buying abroad and don’t think that they have to worry about issues like wet rot. However, hot climates can have equally as damaging an effect on properties and therefore surveys are still highly advisable.
Valuations and due diligence
Do your own due diligence. When a property is for sale at a cheap price, it doesn’t mean is a bargain. It makes sense to get an independent valuation to ensure that you are not paying too much. Back home you probably know the value of properties in your area well. Abroad you are unlikely to know what they are really worth. Some sellers even have a different price for local buyers and foreign purchasers.
There can be large savings to be made by getting the right exchange rate on your purchase. Even small fluctuations in the rate of exchange can have a major impact on the amount that you actually pay for the property. The amount that you might save can run into hundreds or even thousands of pounds. This can help you pay all those extra costs on top of the price of the property or even your first holiday to your new home.
Understand the tax implications
The tax systems abroad can be very different to those familiar to you. They may also have an impact on your tax affairs back home. Tax rates differ between countries; the tax year is often different to that in the UK and the way that tax is calculated can be very different as can any tax free allowances that you are used to.
On the face of it some tax systems can appear daunting but also very strange. Having a professional explain these to you can help you understand why things are as they are and also help you plan your purchase in the most tax advantageous way possible. It makes sense to take advice on this when you buy.
Understand the obligations of ownership
Buying the property is only the start of your ownership. You need to understand how a whole range of different things work such as taxes, insurance, communal areas, inheritance rules and so on.
If you are buying your property for investment, don’t imagine that you will have a full season of holiday lets booked out. Take into consideration that inevitably there will be dry periods during the year which you will need to build in to your costings.
Think about selling or inheritance when you buy – this is your exit plan.
Doing this at the beginning can avoid problems in the future. Obviously your priorities will dictate some elements of your exit, but thinking about this at the beginning can mean that what you intend to do with your property is possible with the minimum of problems and cost in the future. It is much easier and cheaper to set things up properly in the beginning than it is make changes later on.
Who should own the property??
This is probably the biggest decision that you can make. Deciding on who should own the property has a major impact on taxes and inheritance and can save you large amounts of money. There are many options ranging from an individual, a couple, partly or totally in the names of any children, company ownership, trusts and so on. The solution that is right for one person may be a complete disaster for somebody else as this is a very individual calculation.
This can be a complicated calculation and decision to make but it is vital that you do this before you buy as changing the ownership later on can be quite expensive. Getting the decision right can save you thousands of pounds.
Neil Heaney is CEO of Judicare Group.