Buying a home abroad in Ten Easy Steps
There is a gimmick that is still popular. It involves giving advice in a certain number of steps. Why this should help attract readers I don’t know, but apparently it does. So I may as well climb on this particular band-wagon..
Firstly, a quick call on why my advice is good. Maybe I can do that in ten silly steps as well.
- I have bought and sold property in nine different countries over a period of forty years. I have long term experience.
- I have called the tops and bottoms of the UK and Spanish property markets with 100% accuracy over the past forty years.
- I issue an annual property analysis. I have been doing it for thirty-five years. I have never been wrong.
- I’ve written books and articles on real estate for over twenty years, appeared on radio and t.v. in several countries, and have clients in 70 countries.
- Good grief, I even invented buy-to-let back in 1991, and wrote a book about it in 1993.
- I’ve got bored. Oh well, perhaps this should read: Why My advice is Good in only Five Steps…
On to my ten tips
>>>>> 1 Work out what the heck you’re trying to achieve to start with. That is prime. Why are you buying? Anyone who doesn’t start with this question and kick it around for a year or so is asking for trouble.
Do you want a holiday home or a retirement home? If the former, why? Why would you always want to take a holiday in the same place? Work out what it will cost, including taxes, repairs, and everything else. Then add in the opportunity cost (the cost of not having the money you just used up). Even if you put that in at 5%, you need to put it in, and if you only get 5% on your money you need to talk to me because you are screwing up really badly. Now check rental costs, and do a little subtraction sum. Now start thinking!
If you only want a holiday home it is much cheaper to rent. However, you may want a retirement home. You can book a one bed apartment for €75 a week. Three apartments out of every five are empty. Buying is idiotic. A three bed villa with a pool in the Algarve will cost you about €800 a month on a long-term contract. Heck, I know. Last year I was renting out one for precisely that figure. I repeat, buying is idiotic. If you want some of those deals all you have to do is contact me.
I know most people can’t do maths, but here are some very simple sums. Try and commit to memory. Rental cost = €800 a month = €9,600 a year. Purchase price for 3 bed apartment (let’s say) €150,000. Taxes and maintenance and insurance: €3,000 (that’s probably a bit low, but let’s be generous). You now do not have the €150,000 but you do have the house. You can get 8% return on investment pretty well anywhere in the UK property market. I usually get anywhere between 12% and 20%. But if you invested that money you would get an income. 8% of €150,000 = €12,000.
Let’s resolve the above figures. Buy the house which comes with a €3,000 a year running cost. You now don’t have the money. Alternatively rent a place for €9,600, and invest the €150,000 bringing in at least €12,000 a year. You’re roughly €6,000 a year better off, and you don’t have the worry about maintenance, or selling when you change you mind and want to return to the UK.
The re-sale market is excruciatingly slow in a tourist zone, which is why you should always buy in or close to a normal city.
If you are buying for retirement, or because you want to live somewhere else, check that it suits you. Flights need to be frequent and cheap for getting back to see the kids. Cheap living perhaps? Warm sea. Plenty to do. Good climate. And talk to the locals, and read the letters expats write to the newspaper to get a feel for the place. Then check the property sales section to get a more realistic feel for prices.
>>>>> 2 Always spend time living in the target area before buying. Three months minimum. And check out whether it’s for you. DO NOT UNDER ANY CIRCUMSTANCES RELY ON PROMOTIONAL TV PROGRAMS.
>>>>> 3 Work out (from tip 1) where would suit you best. Town, country etc. Close to shops and all amenities if you are old or frail.
>>>>> 4 Now check property prices using the local press. Do not under any circumstances go into an estate agent’s office to check prices. They have nothing to do with reality. And check prices against the local economy. See tip 5.
>>>>> 5 Now do some proper research. What’s the average wage? Property turnover? Rental returns, and so on? If the average wage is €1000 a month, what should the cost of an average home be? Maximum 4.5 times income + deposit. Answer, about €60,000. That’s what the locals are paying. Why should you pay more? The real answer to that question would have to be “Because you’re daft.” That’s what you should pay. Add no more than 50% for a top quality area. If the cost is more than that then you are being screwed. I dont care what anyone else says, I say you are being screwed, and I can get you a better deal.
>>>>> 6 If prices are too high, wait, and think whether you should be renting instead of buying.
>>>>> 7 The rest is the same as for buying in the UK. The only difference is the currency choice for any mortgage. The euro has strengthened against sterling rather badly over the past few years. That has affected not just the amount someone would pay in sterling on a euro mortgage, but the conversion of pension funds. This latter point is crucially important. Generally speaking, get any mortgage in the same currency as your income. And remember your pension is at risk if you live in a different currency zone. If sterling crashes you will get seriously poorer.
>>>>> 8 If you are buying for a holiday home, take a course in elementary maths first. The holiday home market has crashed all over Europe. I dont see it recovering any time soon. If you buy you will be buying into a falling market. You will also find resales in tourist areas are difficult. You should preferably buy into a normal market not a tourist market. Those deals hold up in bad times a lot easier. But, and this is the crunch, it makes no economic sense to buy. It’s cheaper to invest in something that brings you in an income, and then use that income to pay rent. Now you’ve got the home and still got the money.
>>>>> 9 One further point you should consider when buying abroad. By buying real estate you are investing in a country. Would you invest in a company that was going. broke, or was not performing well? Of course not. Investing in a country is no different. Do not invest in under-performing or broke economies. You should under no circumstance invest in politically unstable countries either. That rules out Turkey. Forget Greece and Cyprus, they are bankrupt. Forget Italy, Portugal and Spain. All these countries are in dire economic straits. You have been warned!
>>>>> 10 Call John Clare and get his personal advice. I’ll save you tens of thousands of pounds. I’ll charge you peanuts.