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Overseas Property Investment - Due Diligence



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By : David Garner    99 or more times read
When faced with a potential region of the world for an overseas property investment, I take a standard approach of research which covers the following:

Economy of the country

Here we look at factors such as GDP growth for the last three years and the breakdown of GDP, is it growing, shrinking, what industries are important, how reliant on FDI is the economy. We will also look at the unemployment rate, is it increasing or decreasing. From this information we can get a fairly good idea of the strength and health of the country and the real estate market for the purposes of making an overseas property investment.

Demographics & Housing

We want to know the population, the level of growth (a great indicator as to any housing shortages), and the number of residences.

For example in Istanbul there are 3.3 million properties and a population of 12.5 million which is growing at 3.3% per annum, which means there are almost four inhabitants per property and another 400,000 people moving to the city each year. This indicates a housing shortage, giving Istanbul great potential as a buy to let investment.

Legalities

We need to know foreign ownership rights for property investments in the region, can we own freehold or is it leasehold, what is the property purchase process.

Tax

We need to know purchasing costs such as transfer tax, stamp duty etc. But we also need to know on-going tax liabilities payable to local and national authorities such as annual property tax as these outgoings will have an impact on cash flow.

Rental Market

We will run a comparison of no less than ten like for like properties in the vicinity of the investment and what rental yield they are achieving and what costs are associated with managing the property investment, how will it be managed remotely?

Capital Growth

We need to have a good idea of what is driving the market, this is based around an analysis of ICI or Investment, Communication and Infrastructure.

We want to know why property in general will rise in value, are there new transport links making communication easier by road/air/rail? is there investment into business creating jobs in an area and hence a need for housing? Is there investment into improved infrastructure, roads, hospitals, community facilities, drawing people to an area creating a market boom.

We need to satisfy ourselves that this market is a good one for overseas property investment, we want to know that we CAN invest in property in this region, we want to be confident that property is likely to go up in value over the next five years, we want to know that there be people to rent the property, we want to know what will it cost me to own on an annual basis, and we want to know that there is likely to be someone who wants to buy property in this area when we come to sell.

If we can answer all of these questions positively then we can say with a certain amount of confidence that there is the potential for a profitable buy to let overseas property investment.


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