Overseas property investments can be a good way of diversifying your portfolio, and can provide you with new investment options. While once seen as rather risky, overseas property investment is becoming a convenient, and lucrative investment option, with relatively low risks. The globalisation of the business and financial sectors has brought about this change in perception, and shrewd investors now have the chance to benefit from it. Being aware of the benefits and risks of overseas property investment is crucial for developing your investment portfolio.
1. Benefits of overseas property investment
- Portfolio diversification– Investing in overseas properties will allow you to diversify your portfolio by adding a wider range of investment properties that might not be available in your neighbourhood. You’ll be able to choose from a range of property types, such as BMV properties, buy-to-let properties, and residential or commercial properties. You will also be able to choose the exact location, and consider different price options. There are many emerging property markets nowadays that can offer better opportunities than the UK.
- Minimise risks – By investing in overseas properties, you can significantly lower your risks. By diversifying your portfolio, you are effectively spreading out your risks over different types of properties, and if you have a range of investments, it is very unlikely that they will all perform badly at the same time.
- Better chance of capital appreciation – As you can buy investment properties in emerging markets and can choose below market value (BMV) properties, your investment will have a better chance of capital appreciation. Property prices in an emerging property market such as Bulgaria are much lower than in many Western European countries, but as the market is expected to grow in the future, property appreciation will be more significant. Similarly, you can find a range of BMV properties in the USA property market.
- Maximise profits– As your investment will have a better chance of capital appreciation, and you will have a wider range of properties and locations to choose from, you will be able to maximise your profits. Whereas overseas property investments do involve risks, especially for inexperienced investors, you can avoid most of these if you fully understand the risks, and have an effective risk mitigation strategy.
2. Risks of overseas property investments
- Lack of local knowledge – If you are investing in property abroad, you will lack some essential local knowledge. You should read as many books and explore as many internet forums as you can, and ask for expert advice, while also keeping track of global property trends. You should also visit the location where you are planning to invest before buying the property. Even just walking around the area and possibly talking to people who know your property location better than you will enable you to spot any problematic points.
- Currency Risks – Currency markets are quite volatile, and exchange rates can drop or increase rapidly. This can mean significant changes in your yields, so you should definitely understand and explore currency risks before choosing a location for your investment property.
- Taxes and other regulations – Don’t assume that taxations and other local regulations will be the same as in the UK. Both are crucial factors to consider for overseas property investments, so try to get as much information as you can about your chosen country, and ask for expert advice.
- Economic Instability – It is essential to understand the economic and political situation of your chosen country before buying an investment property. Economic stability or a growing economy is crucial for a successful property investment. By understanding local and global events, you will find it easier to determine which locations and areas are safer and more stable than others.