Buy to Invest

Buying Purely as an investment

If your intention in buying an overseas property is to buy it, keep it, and rent it out purely as an investment property and hope to make a large annual profit on the rentals, our advice is………………forget it!

The basic aim as far as running costs and income are concerned is to cover your outgoings and regard any surplus as a bonus, although the position will change if you do not have a mortgage on the property.

Capital value appreciation has been quite phenomenal in Spain over many years and more recently in Florida also. Whilst year on year substantial property value increases are now being taken for granted it must be emphasised that what has happened in the past is no guarantee for the future.

We can point you to many actual examples of large property value increases in recent years, but below is what can be regarded as a typical example showing how a capital gain may be achieved. This illustration refers to an Orlando villa purchase.

  • Assume purchase price of $350,000 which at a $/£ exchange rate of 1.92 is £182,291
  • Purchase off plan – 1 year before building commences with an overall 3-year building programme. Deposit of 20% (payable in stages) $70,000
  • End of year 1 when building commences, appreciation of 10% =$385.000
  • End of year 2 when your property completes, further 10% appreciation = $423,500
  • Sell now or keep till end of year 3 on completion of site – likely value =$465,850

Please note that the ‘likely value’ at the end of year 3 reflects the current builder’s prices for an identical property at that time. No account has been taken of the natural increase in property values. To counteract this, to an extent, no account has been taken either of closing costs on purchase.

Your overall return based purely on capital costs could be ($465,820 - $350,000) = $115,820. But remember – if you sell when the property completes, your outlay has only been the deposit. This equates to a return of over 100% on capital actually employed.

If you are buying purely as a capital investment then the ‘secret’ of course is to buy ‘off plan' – that is you need to buy long before a brick has been laid. In most cases the longer the interval between you signing the contract and the property being completed the better, as normally, a developer building an estate of say 120 properties will release the ‘lots’ in 4 phases of 30 properties or so.

Each phase will be dearer than the previous, so that by the time the development is completed after say 2 years, your phase 1 property will already have cost you probably a minimum of 20% less than the same properties in phase 4 are now selling at – and this is before ‘natural’ appreciation! The purchase price is fixed at the time the deposit is paid and the contract signed, and obviously you must have ‘spare cash’ to forget about for a couple of years, but the money that your deposit is in effect making can be phenomenal. Rather more than most form of investments!

Whilst we have provided an example of purchasing off plan in Florida, exactly the same principle applies to other countries when purchasing off plan. Working alongside Overseas Property Showcase, this gives you the added advantage of using a specialist company to help you obtain the best developments at the most competitive prices with the ultimate aim of providing you with the best investment opportunities. Whilst we have provided an example of purchasing off plan in Florida, exactly the same principle applies to other countries when purchasing off plan. Working alongside Overseas Property Showcase, this gives you the added advantage of using a specialist company to help you obtain the best developments at the most competitive prices with the ultimate aim of providing you with the best investment opportunities.

Summary!

  • Remember you are looking at capital appreciation
  • Ensure that the developer is well known with previous experience
  • Be patient- the longer the development takes the better in many ways
  • ‘Forget about’ your deposit – it is working hard for you!
  • The lower the deposit required the better, look out for developments which only require a 10% deposit with nothing more to pay until completion.
  • Don’t be in a desperate hurry to sell - you may need to wait for the right opportunity. Remember the property is increasing in value all the time. In the meanwhile you can either rent the property out or enjoy it yourself!

And one last thought – the dollar is very weak now, which favours current purchasers. The same property some 18 months ago selling at $350,000 would have cost around £199,000 but at today’s rate this could cost around £177,000. This means that now is an excellent time to buy not only to save money on the purchase price but this also gives current purchasers a considerable added bonus when they come to resell.

A substantial profit could be made on currency fluctuations alone, in addition to a substantial profit on the capital employed.

If you would like further information from our associate company Inter City Finance Ltd regarding buying for investment click on the below link:
Website: www.buy4investment.com