Is buying a property abroad too risky?
There are many people that subscribe to the point of view that buying a property abroad is risky and this is quite understandable but so long as you carry out the appropriate levels of due diligence it needn’t be any more of a risk than buying in your ‘home’ country. There are certainly other factors that need to be considered such as exchange rates, economic and political risks but if do your research these risks can be minimal.
The same principles apply whether you a buying a property at home or abroad especially if it is an investment property. The location is obviously a key factor, as too is getting the property at the right price. It is almost impossible to give guarantees about what the market will be like in ten years’ time but if the location is well established, has a sound reputation and is in a country that is perceived by most to be both politically and economically sound then you are a long way to achieving your goal.
So why do people look to properties abroad if many of the ‘rules’ are the same? The answer is quite simply the returns that they can get. Investment properties abroad, especially in up and coming areas can easily generate return in the region of 10% p.a. whilst the capital outlay is often far less therefore opening the opportunity up to more people. As the return is usually the key influence when it comes to investments, a return of 10% for something that would be viewed as low to medium risk is certainly attractive.
The risk factor is obviously a stumbling block for many investors but if those investors were to be offered concrete guarantees regarding rental returns over a given duration regardless of if their individual unit was rented they would probably be very interested. After all, you don’t want to be stuck with a property that is sitting empty earning nothing for several months of the year, nor do you want to be in a position where the returns have dried up after two or three years. If these guarantees were on the table, then these doubts and question marks would be removed.
There is an example of this type of deal already in place and it is offered by the New Nordic Group who are based in Pattaya, Thailand. Over the last decade, they have been offering rental guarantees to their clients and it has proved extremely successful for both the developer and the investor – both parties make a handsome profit and the risk to both parties is reduced to almost nil.
The offer in question is a 10% p.a. rental guarantee on properties purchased from the developer, either ones that are already completed or in the construction phase. These returns are guaranteed for anything from five to twenty years depending on your personal requirements and the property in question. The ‘rent’ is paid to the investor by the developer rather than individuals so once again the risk is reduced. This has worked perfectly well for over 10 years and the sound management structure and business plan mean that this will continue long into the future.
If you got a return of 10% p.a. on this type of investment with these guarantees in place, would you still think that an investment abroad was too risky?