Episode 36
The pros and cons of purchasing property overseas
Welcome to Finance & Fury. Today we’re back talking again about property…and more specifically, buying property overseas.
Some Australians have given up on the dream of buying property in Australia due to Australia’s high property prices.
- An increasing number of Australians, including Millennials, are investing abroad with the United States as the most popular destination. They’re priced out of the market here, and are looking to other areas and other countries for options.
- Property prices are still 32.4% higher compared to five years ago.
- There has been a 29% increase in Australian residents purchasing properties abroad.
Pros
- Cheaper house prices, which makes it easier to get into property based around the deposit requirements
- Better yields on property overseas
- Australia ranges from 2% – 5%
- Philippines from 6.13%
- A.E. from 5.19%
- Costa Rica from 7.48%
- Indonesia from 8.61%
- Provides diversification outside of the Australian market
Risks
- Finding the right property, knowing the area that the property is located, knowing the market and where that market is going.
- What Country?
- Where in the country?
- What type of property?
- It is typically best to see the property you are going to be buying
- Political and government risk
- Currency movements
- Buy a property for $300k overseas – if the Australian dollar appreciates by 5% compared to the US, you lose $15,000 in value
- Reduced or additional returns depending on whether the AUD appreciates or depreciates against the property’s domestic currency (i.e. The USD if the property is purchased in the US)
- Differences in tax
- In the US there are tax incentives to purchase the property that you live in, compared to Australia
- Double Taxation Agreement (DTA) – Most western countries have DTAs so that your income is not taxed by the two countries. This avoids the potential scenario of double taxation on your rental income if you were to rent the property out.
- Legislation changes – Overseas government or domestic making changes
- For example, QLD put an absentee tax on land if it is over $350k
- Banking legislation and interest rate changes
- Difficulty in Management
- The biggest challenges faced when purchasing a property overseas is not only finding a suitable property manager to protect your interests, but also understanding and monitoring the market.
- Distance and language barriers
- Example – If someone stops paying rent, the laws may be different and it may be hard to get action on it
As always thanks for listening! If you liked the episode let us know, if you didn’t, let us know that too. And, if you have a question or topic that you’d like us to discuss on the podcast, hit me up at financeandfury.com on the contact page
Here are some links to articles;
Business Insider, “The 25 best countries to buy rental property and make money on the side”