Investing overseas: beware the pitfalls

The strong Aussie dollar is encouraging local investors to turn to the overseas property market – but do the risks involved outweigh the payoff?

 

Many Australian property investors have begun casting their eye over the US real estate market, where property values are still struggling in the wake of the GFC.

 

Due to the non-recourse nature of the American mortgage industry – which means borrowers can simply walk away from their home and their loan, without being pursued by the bank for any outstanding mortgage payments ­– property values across the country have soured.

 

It’s possible to find good quality homes and apartments less than half of their asking price just four years ago, which is prompting Aussie investors to take a closer look.

However, those looking for opportunities abroad could be making an expensive miss-step, according to property investing expert and educator, Jennie Brown.

 

“There is a lot of talk about extremely low property prices in the United States due to the sub-prime crisis that caused a lot of mortgagee-in-possession sales, and it is understandable that local investors feel they should cash in on these markets, rather than invest locally,” she says.

 

“But the property market in every country is very different to the Australian market, with different laws and hidden fine print that could end up costing you heaps of money.”

 

In an effort to minimise the risk, some investors have taken the added precaution of using professional buyer’s agents and property managers, but Brown even cautions against doing this.

 

“Even if you work with a local professional who knows the laws and market inside out, if you have issues, you are depending on people on the ground to fix the problem for you,” she says.

 

“This can be extremely stressful, given different time zones and the fact that you are relying on someone you haven’t formed a relationship with to look after your interests. To go over there and meet with them face-to-face to build up that trust can be impractical and expensive.”

 

If you are set on spending your investing dollars in the overseas property market, however, Brown has the following advice:

Unless you go over there to examine the property yourself, it is difficult to understand what you are investing in, so don’t sign anything until you’ve physically viewed the property.

 

Make sure you research the area inside out before you buy. “Many of these properties that are selling at unbelievably low prices are in areas that are run down and full of crime, and will therefore not attract quality tenants who will protect your investment for you,” Brown warns.

 

Be wary of the motives of people and companies selling property overseas, and they could be driven “by their ability to profit, rather than genuinely helping you find a great investment deal”, she says. “This is the reason many are actually going broke, so make sure you do your own research to be confident of their credentials.”

 

Don’t be tempted by an overseas deal simply because it’s so cheap, when you could find excellent investment opportunities within Australia – where you are familiar with laws and the process, and there are measures in place to protect you interests. “Don’t restrict yourself to looking only in your backyard – often you will find great opportunities and deals in different towns and states that will provide a great return.”