Expat Property Investing 101: Survey The Risks

Expat Property Investing 101: Survey The Risks

Nice real estate – if it wasn’t for the mines.

As we discussed in the first installment in this series, a property investment is likely to be one of the larger purchases you will make in your lifetime. Therefore, it only makes sense that you do a thorough survey of the possible risks to your precious investment BEFORE you commit that big lump sum in order to avoid any potential landmines.

As with any minefield, a good map will see you safely through, but if you go in blind, your investment is in danger of taking a hit at any moment.

Now this post is in no way meant to scare you away from making a property investment; on the contrary, it is meant to help you assess the risks so that you can take steps to minimize them.

After all, you don’t want that property that you had expected to be a solid foundation of your investment portfolio to end up causing a catastrophic loss that sets your financial plan back several years.

So let’s take a look at some of the major risks and the tough questions that you should be asking yourself and others before you jump in:

1) Geopolitical Risk

As an expat investor with the world at your doorstep, this is probably the first risk you should look at as you decide where you want to buy your property.

  • What are the chances of a war, act of terrorism, or disruptive political change happening in the country or region?
  • Is the government stable in the country?
  • Is the government stable in neighbouring countries?

2) Market/Economic Risk

Property markets are different in every country, and in fact every city.  Some might even say the market is different in every neighbourhood of a city. Wherever you are investing, it is important to study the market.

  • What is the long-term economic outlook?
  • Is the economy diversified or only based on one or two key industries?
  • Will you be able to find tenants with good incomes to pay the rent that you want?
  • Where is the property market in the real estate cycle?
  • If the property prices are low, is it only due to short term factors or long-term structural weakness?
  • Is there currently a speculative boom that isn’t supported by the economics?
  • Is there a lot of flipping of properties in the marketplace? If people are lining up to buy properties that have yet to be built at ridiculously high prices, run away fast!

3) Policy Risk

A sudden change in government policy can have a massive impact on the property market and your ability to manage your property.

  • Is the property you are buying in a jurisdiction with a strong real estate legal framework?
  • Does the government have a reputation for changing the property or residency laws at will?
  • Is there a clear landlord and tenancy act with a straightforward method of resolving disputes?
  • Are building codes of high standard and strictly enforced?
  • What is the law on title to the land? Can you own it outright as a foreigner, is it only a long-term lease, or must you own it with a local partner?

4) Property Risk

Once you have decided on a country and a region within that country, you will put your feet to the ground finding your property.

  • Is the structure of the property sound? After identifying a potential investment, you MUST have a full property inspection done to identify any major issues.
  • Is it a new build? Do your due diligence on the builder. Find out what warranties are included.
  • Is the title clear? Make sure your lawyer checks the details on the title and explains any issues to you.
  • What is the neighbourhood like? You should spend time looking around the area, talking to the neighbours, and generally getting a feel for the place. NEVER buy a property in a place you have never been without first going there to do your research.

5) Management Risk

After you have actually bought the property, you have to manage it. If the property is only for your personal use, this can be as easy as having a friend or someone you hire to look in on it every once in a while and do a little work to maintain the grounds if you have any.

However, if you are going to be renting it, you need to find a good property manager, which can be a challenge.

In fact, you should not buy a property until you have found someone you can trust to manage it like it was their own.

I personally feel that this is one of the greatest risks for expat property investors who are absentee landlords. If you don’t have a great property manager, your property could end up being a nightmare, causing you endless sleepless nights.

When we bought our first property in Canada while living in the Middle East, we hired a property manager based on a few recommendations from other investors in our real estate investment network.

The manager seemed to be fine at first, but after a while took longer and longer to respond to questions and concerns. While we were receiving our rental income every month, we were worried that our tenants would also have problems contacting the management company, so decided quite quickly to find another manager, who we have been with ever since.

Good property managers are hard to find, so do your research ask for recommendations, and when you find a good one, treat them like GOLD.

6) Insurable Risks

Yes, you can insure your property against certain risks, but that doesn’t mean you should ignore them! Even if you are well insured, any insurance event is going to cost you some money and probably a lot of grief. Before you buy, assess the risks of natural disasters affecting your property.

  • Is the property surrounded by trees and forest that get dry at certain times of year and are susceptible to forest fires?
  • Is the property in an earthquake zone?
  • Is there a volcano nearby (not joking here!!).
  • Is it in a hurricane/typhoon track?
  • Is it low-lying and thus at risk of flooding.

All these risks are real in many areas of the world and should be carefully considered when you are in the property finding process.

 Let Fear Motivate You To Be Thorough

There are probably more minor risks that I haven’t listed, but these are the larger risks that you need to assess and minimize to ensure that your investment is protected.

As I mentioned at the start of this article, this list of risks isn’t meant to scare you away from property investing, but to put a little fear into you so that you go the extra mile with your research and due diligence before you take the great leap into a new property.

So be fearful, but move forward. Don’t let the fear stop you from taking action.

Continue to educate and inform yourself, investigate your property investment options, and research your target market.

How about you? Can you think of any risks that we didn’t mention? Do you have some advice for us on managing the risks to our property investments? Share your wisdom with our community in the comments box below.

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