Your questions about investing in the UK answered by the experts
Investment properties can be one way to increase your wealth and this isn't restricted solely to Australian properties. The global economy has made it possible for Australians to invest in some countries and net strong returns, but these kinds of investments might not be for those who aren't willing to put in the extra time required. There are many additional requirements one needs to think about when investing in overseas property.
Buying an investment property in Australia already has a number of challenges. Investors need to know the market they're investing in intimately and need to have a clear plan outlining what they want to be able to achieve with the property. They also need to have sorted out the other side of buying an investment property - their finances. Then there's also the different taxes you'll pay such as capital gains tax and the extra time you'll be required to put into both the property itself and its management.
Investing overseas magnifies some of your challenges
- You don't know the market: If you haven't lived in the country you plan to invest in you'll have to carry out thorough research of the location you want to buy in. Many experts strongly recommend buyers visit the location they intend to buy in, to ensure the area is one you like and more importantly so you can research the claims whoever is selling it is making. Also remember you won't be able to regularly visit your investment if it's overseas.
- Finance is harder to obtain in a foreign country: Obtaining finance in some nations is more difficult for foreigners and may have several extra requirements you'll need to fulfill.
- Managing your property can be more difficult: There's also the issue of having to manage the property from Australia, where the distance might make it more difficult to find a good property manager and tenants.
- Exchange rates play a part in returns: There's an extra risk related to exchange rates when investing in a foreign country. If the Australian currency continues to rise, then your investment might lose value.
- The applicable tax structures: Considering these points, it's never a bad idea to enlist a team of professionals, such as buyers agents, tax specialists and financial planners to help you along the way.
The main question you might have as an Australian investor is why you would invest overseas instead of investing back home? This is an important question especially when there are many spruikers who are trying to encourage Australians to invest in properties aboard. Many believe investing in the UK can be beneficial because:
- It has a developed property market. The UK is a broad market with many different property options.
- UK property values have fallen dramatically. This has happened steadily over approximately the last five years. In fact the Halifax Bank released a report mid last year stating the average home in Britain had fallen by £40,000 over the last five years.
- The Australian Dollar is strong. While this means it's harder for those exporting out of Australia, it's cheaper for Australians buying in overseas markets.
- The British Pound Sterling is weak. The British Pound has take a nose dive over the last ten years. 10 years ago $1 Australian Dollar bought 40 pence, whereas now it's recently been as high as 69 pence. This again means it can be cheaper for Australians to buy investment properties.
- Your investments are diversified. If you have a diverse pool of different assets in different markets and classes, this protects you in the event one market collapses. Having a property in the UK is separate from the Australian market, so if one collapsed the other wouldn't necessarily follow.
Finding the right investment property in the UK is much like finding the right property anywhere in Australia or around the globe. This section will give you some tips on how to find the right investment property in the UK. These are:
1. Inspect the property
Once you have identified a property that you're interested in purchasing, travel to the UK and inspect it. Photos can be misleading and can make rooms appear larger than what they are. In addition, you can never be sure of the area the property's in until you visit it yourself. Failing to look into all avenues might result in you purchasing a property which isn't attractive to renters and may affect the return that you receive.
2. Look into demographics
To find the right property to invest in you must first look at the demographics of the area. Choose areas with high property ownership where the people are mostly working professionals.Back to top
Pulling off a successful investment strategy in the UK will rely on a number of predictions. Namely that the Australian dollar will eventually become weaker once again, the British Pound Sterling will lift in value and that UK property values will increase.
If you have no idea about if this will occur or not, then it's crucial that you conduct thorough research of trusted sources and consult the right professionals before buying an investment property in the UK.
Read on below to learn from investment expert Chris Gray
- Chris Gray is a leading investment property expert.
- He hosts 'Your Property Empire' on Sky News Business Channel.
- CEO of Empire, an independent consultancy for investors who want to build their property portfolio.
Is there a high return from investing in UK properties?
I think there's a potential to get a high return from property, pretty much anywhere in the world. It's really a case of understanding the market, having the right contacts, doing the analysis and then being able to understand the cash flow in the properties for the medium to long term. I bought half my current property portfolio in the global financial crisis (GFC) in Australia and in one case made $1,000,000 profit in 4 months on a block of units purchased for $1,900,000. I bought two properties in the UK for GBP $80,000 in 1993 and 1994 and they've both just been re-valued at GBP $325,000,000. So even though the UK has supposedly had some major issues, both these properties have doubled every 10 years and have been positive in cash flow from day one.
How can someone find the right property in the UK?
You've really got to be on the ground to understand the market and see what's happening at open homes and auctions. Whilst it can be done over the phone and internet, personally I wouldn't do it. You really need to find a professional buyer's agent that does it all day, everyday and specialises in one or two areas. They have an unemotional view on the market and as they're inside the industry, they often have access to deals that the public don't get to see. Even when I buy interstate in Melbourne for clients, I use buyers agents. I might have the investment knowledge, but I need local agent contacts that can help me to get deals over the line.
I think there's a potential to get a high return from property, pretty much anywhere in the world. It's really a case of understanding the market, having the right contacts, doing the analysis and then being able to understand the cash flow in the properties for the medium to long term.
Who is best suited for investing in property overseas?
Those that want to diversify their portfolio geographically so that they're not all concentrated on one market. In reality, most of the overseas investors are often the people that are trying to become overnight millionaires and think that just because it's 'exotic' it's going to create more profit. Having lived in the UK, Australia was exotic. Now I live in Australia, everyone thinks Europe is exotic! There's plenty of profit to be made in Australian property right now, so why risk exchange rates, not knowing what you're doing and probably only being able to borrow 50% over there when you can have much more knowledge and leverage over here. Investing overseas is for the experts or the fool hardy!Back to top
Financing your investment property across borders doesn't have to be difficult if you have the right advice. The same rules apply wherever you are around the globe: with any sound investment strategy you'll need an A-team of professionals helping you along the way.
Similar to when you're buying a place in Australia, you can use the expertise of a local buyers agent to help you find the right property and a mortgage broker to help you find the right home loan.
Getting a loan
Unfortunately Australian lenders will not allow you to use a home loan in Australia and use it to purchase a property overseas. This is because Australian home loans require Australian property as security, otherwise a lender cannot legally recoup their losses in the event that you default.
The exception to this is a line of credit loan, which allows you to borrow using the equity in your home loan in Australia to use for whatever reason you see fit.
This means that for many considering to buy a property in the UK, a loan from a UK-based lender might be the only option.
The difference is with overseas investments you'll need someone with macroeconomic knowledge, after all you'll now be dealing with two currencies instead of only one. This is when a currency provider can be a great addition to your team.
'Dedicated account managers can inform clients about forthcoming market data which can affect the currency rate prior to any transactions to ensure they maximise their return', says Ian Cragg, Business Development Manager of TorFX.
Economic market data has a huge impact. Countries that have been heavily affected by the GFC such as the US and some countries in the Eurozone have seen property values drop by over 50% in recent years'
It's important to consider the services of a good currency provider because you are dealing with large sums of money where exchange rates do make a difference. The amounts you could potentially save from exchange rates could fund your next renovation or investment. And according to Mr. Cragg, currency providers can help you determine the best time to exchange your money depending on your financial situation.
'Every client scenario is different from the next. We have clients approach us up to a year before they need to complete on a transfer and are looking at options such as forward contracts to secure the rate there and then if it is good'.
'Alternatively we have some who leave it until the last minute and need to transfer their funds on the same day', he adds.
No matter what your foreign exchange needs are, be mindful that a good currency provider will always keep your interests as a priority and give you as much guidance along the way. You can compare international money transfer providers with our comparison table.
As mentioned, buying an investment property in the UK can potentially generate you good returns, but in no way is it an armchair investment. In addition to your financial investment, a lot of your time will need to be also invested, so be sure you're up to the task before making any moves.Back to top