New to Investing?
Added by: Loxley McKenzie | June 15th, 2008Introduction
You are probably wish you had a little more time to spend on the really important things in your life, like spending time with your family, pursuing your real passion or simply having a good old rest without having to worry about the thousands of emails you will need to reply to when you get back to the office. You may just want to have your money working a little harder for you over the medium to long term - after all, your savings account is not making you a lot of money at present and with price increases coming out of every corner, your purchasing power is slowly being eroded away. What will you do when it is time for you to retire? Will you have enough income to maintain the standard of living you desire?
Investing in property is one of the most effective ways for you to change your life and to become financially free. In addition, property investment is a straightforward process that can be learnt by anyone - you certainly do not have to be a genius to make money from investing in property and it is far easier to understand than stocks and shares.
Our ‘New to Investing’ guide will give you a general overview and some quick tips on how to invest successfully in overseas property. We regularly provide our members with free property investment courses to help them develop their investing skills, if you are not already a member and would like to receive access to these free courses click here to register.
Why Invest Overseas?
You may have attended quite a few dinner parties and talked with individuals from all walks of life who had invested at the start of the domestic property boom. They are now sitting on a small fortune and have the freedom to do the things they like doing the most.
Looking at the current domestic market conditions, you probably thought you had missed the boat. You are probably right - the opportunities that were once there in the domestic market are lot harder to find these days. The good thing is that there are still a few overseas property markets that are just starting to emerge, with the potential for huge returns for the early investor.
Just imagine if you had bought just 2 properties in your domestic market 10 years ago! In most cases you would have doubled your money. Many well-informed investors are already investing in emerging property markets with the potential to mirror what happened in their domestic market.
Investing in overseas property, when done right, can be not just a profitable experience, but also an enjoyable one.
Set Goals
So where do you start? The first thing you should look to do is to set your goals. To be successful in any area of life you have to know where you are heading, you have to know what it is you want to achieve. A great tip is to write them down on paper and refer to them. Research has proven that those with written goals perform better than those without.
By setting goals you are much more likely to keep focused and to achieve your objectives.
An investor goal might be ‘to invest in property located in Brazil in order to achieve an annual income of £100,000 a year by 1st January 2016′.
Stop reading for a second and set yourself a clear and measurable goal now.
Strategy
Congratulations! You have written down your goal. So now we have to work out how to get there, your strategy.
To formulate your strategy it is a good idea to start building your knowledge by doing in-depth research. Gather as much useful information as you can via the internet, property seminars, books and magazines. You will also need to work out how much spare time you will have available for property investing and how much money you have available to invest. If you do not have any money to invest then your strategy could be to look at how to raise this capital - could you re-mortgage your home or could you save a little from your income each month?
It is also good to have someone check your progress on a weekly or monthly basis. Having a mentor is a very good idea. An experienced mentor will help you to avoid the pitfalls, move at a faster pace and keep you focused on the end goal. I am indebted to my own mentor and still go and see him occasionally, even now.
Let us review the goal we made earlier, ‘to invest in property located in Brazil in order to achieve an annual income of £100,000 a year by 1st January 2016′.
So how can we make this happen? What is our strategy? Our strategy could be, ‘to buy 25 properties in Brazil, with each property contributing a profit of £4,000 per annum’.
If you would like help setting your goals and strategy our ‘Property Game Plan’ service may be a good place for you to start. You will be given access to an experienced property investor who will develop a tailored property investment plan for you and provide on-going support as you go about your journey to becoming a successful property investor. Click here to contact us about our ‘Property Game Plan’ service.
Do Your Home work
One of the most important aspects when investing in property is to know your market. Do take the time to research, research and research again. Read as much as you can. A good place to start is on the internet. In addition, read magazines, books and visit exhibitions. Talk with people who have done it before - nothing beats firsthand knowledge.
We are always doing our homework, so we always have new insights to share with you. Stay informed click here to register to receive up-to-date articles and reports.
Understanding the Risk Factors
Unfortunately, there is no such thing as a ‘risk-free investment’. The most important aspect for the investor is the understanding of the risks that are present. We all have different attitude to risks and your approach to risk is personal to you. You should only look to make investment decisions that you are comfortable with.
We all can accept that the higher the risk the higher the potential rewards and the lower the risks the lower the potential rewards. The successful overseas property investor should be looking to build a diversified portfolio that balances the risk and reward exposure.
Below you will find a list of some of the potential risk areas that need consideration when investing overseas.
Political Risks: Are you investing in a country with a stable government?
Legal Risks: What rights do you have as a foreign investor?
Liquidity Risks: Is there a market that is ready to buy property?
Currency Risks: Are currency fluctuations likely to work for me or against me?
We will be doing a series of ‘Understanding the Risks Factors’ bite-size courses, which will go into further depth about this crucial topic. If you are not already a registered member, please click here to ensure you do not miss out.
Exit Strategy
Knowing your end-buyer before you invest is a crucial factor when investing in property. Your research will tell you who your likely buyers will be and how many of them are likely to be there when you decide to sell your investment. Brazil for example, has an ideal combination of factors for a perfect exit strategy - a strong local market and a rapidly rising international tourist market.
Be an ‘Early Bird Investor’
Timing your entry and exit of a property market is a key element in becoming a successful investor. The diagram below shows how the property market works.
The eagle eyed property investor is always looking to buy either at the end of a recession, the bottom, or the recovery stage, whilst looking to realise profits either by selling or via the re-lease of equity during the expansion and peak stages.
Financing Your Property
In most cases a mortgage is used to finance the purchase of investment property. In some overseas property markets, you are able to obtain a local mortgage but in some instances it would be more cost effective to arrange your mortgage in your country of residence.
It’s A Numbers Game
Property investing should be viewed as a business. It is imperative that you know how the numbers work - how much are your costs? How much income do you receive?
Wherever you choose to invest in the world, you will come across the word ‘yield’. So what is it? The definition of gross yield is as follows:
‘The annual income, before costs, from a property expressed as a percentage of its total purchase price’.
Gross Yield Example:
If you purchased a 2 bed beachfront apartment in Natal, Brazil for £100,000 including transaction costs and it rents out for £500 per month, which is £6,000 per year, then the estimated yield is:
£6000 gross income ÷ £100,000 purchase cost x 100 = 6%
Gross yield will help you to narrow down your selection of potential property to invest in, but it would be unwise to base a property purchase decision on gross yields alone.
It is essential that you do a net yield calculation. Net yield helps you to estimate the profitability of a property, because it takes your costs into account.
Net Yield Example:
If you purchased a 2 bed beachfront apartment in Natal, Brazil for £100,000 including transaction costs and it rents out for £500 per month, which is £6,000 per year and you incur running costs of £4,000 per year, leaving you a net income of £2000, then the net yield is:
£2,000 net income ÷ £104,000 total costs x 100 = 1.9% net yield
Costs can include:
- Maintenance
- Management Agency Fee’s
- Mortgage
- Property Taxes
- Insurance
Costs
There are costs associated when purchasing and selling your investment property.
Acquisition Costs: Costs incurred when purchasing
Operational Costs: Running costs of the property
Below you will find examples of these costs.
Acquisition Costs: Legal fees, Mortgage arrangement fees, Valuation fees, Stamp duty, Local taxes
Operational Costs: Mortgage repayments, Insurance, Service charges, Management agent charges, Maintenance costs
It is prudent to work out all your costs before you purchase your investment property.
Keep Good Records
It is essential for you to keep good records. As the saying goes, if you can’t measure it, then you can’t manage it. Hiring a good bookkeeper will help you to keep everything in order. You could also look to invest in accountancy software, use a spreadsheet or an account book.
Taxation
There are three kinds of taxes that investors are likely to face:
| Acquisition Tax: | tax incurred when purchasing the property |
| Operational Tax | tax incurred during the investment period |
| Exit Tax: | tax incurred when disposing of the propert |
Below you will find some examples of tax you are likely to incur:
| Acquisition Taxes: | Transfer Tax, Stamp Duty, Notary Fees, Land Registry, Vat |
| Operational Taxes: | Municipality Tax, Service Charges, Ground Rent, Council Tax |
| Exit Taxes: | Notary Fees, Capital Gains Tax, Transfer Tax, Corporate Tax, Income Tax |
We would recommend that you hire a taxation consultant to help you to minimise your tax liability.
Teamwork
To be successful in property you will need to have a first class team. Typically, you will partner with a reputable agent, who is knowledgeable in the country you are looking to invest. An excellent property agent will be able to understand your requirements and source properties that match your goal and objectives.
Your team will also include a reputable solicitor - who will help you to invest safely and securely. Your top team may also include a finance specialist and currency broker.
When is the best time to invest?
There will be many answers to the above question. However, in reality no one really knows because no one can actually tell you what is going to happen tomorrow, yet alone in five years time. If you are in a position to invest today, then go for it. If you are not quite there at present, then work on what you have to work on to be in a position to invest and start investing as soon as it is possible for you. Property has consistently increased in value over time. Experts calculate that on average property doubles in value every 10 years. So the earlier you can start investing the faster you are likely to achieve your goals and objectives.
Summary
Investing in property can seem quite daunting to the new investor. In reality if you do your research and build a strong team, you will quickly build up confidence to take the first step. From our experience once you have taken the plunge, many first time investors go on to build property portfolios worth millions of pounds. Property investing has proven over and over again to be one of the most effective vehicles one can use to achieve financial security.
If you are struggling to get started, need further information or you would like to have a mentor work with you to get things moving quickly, then our ‘Property Game Plan’ service was designed just for you. You will be given access to an experienced property investor who will develop a tailored property investment plan for you and provide on-going support as you go about your journey to becoming a successful property investor. Click here to contact us about our ‘Property Game Plan’ service.
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