Property Sale Overseas: Property Articles
Alternative Ways to Finance Your Overseas Property
Other than using mortgages for investment there are alternative
methods of financing available to you, the other options to be
considered are:
Cash
An obvious and simple way of financing an investment if the funds
are available.
In general terms however it is better not to use your own funds when
someone elses is available i.e. a bank.
This is simply because by investing only a small amount into each
investment and financing the remainder by debt then more investments
can be made and therefore potentially greater return can be
achieved.
Buy to let
A popular source of raising finance in many countries, this is the
raising of finance through the rental income that will be generated.
In other words the lender assesses the rental income achievable and
lends an amount based on that rental income.
Lenders will be conservative in their estimates so it is unlikely
that 100% funding will be possible.
In addition please bear in mind that many emerging markets do not
have sophisticated financing products so this type of product may
not be available.
Company Purchases
Some investors will have their own company and may consider using
the company for the purchase of an investment. This can make a great
deal of sense if set up correctly as an investment company, however
the investments will all become commercial assets of the company and
careful tax planning is required to ensure there is no double
taxation incurred when trying to extract profits from the company.
Those investors that have trading companies may legally use their
company to invest in a property and this often appears attractive as
the company may be able to raise funds more freely than the
individual, but this does bring a great deal of tax issues that
could affect the profitability of the trading element of the company
and means the asset is at risk from the normal trading creditors,
therefore it is not normally advisable to use this mechanism if an
alternative is available.
Shared
Investments
Quite simply this implies buying with a relative, friend or group of
friends. This is often a good entry method into investing in
property as it reduces the amount of cash investment required by
each individual, making the opportunity more feasible to a greater
number of people.
When investing with others there may be disagreements and disputes
therefore it is important to make an initial contract between all
the investors detailing the amounts invested, the percentage returns
each investor is eligible to and the mechanism of agreeing
decisions.
The latter point is particularly important when there is an even
number of investors which can lead to split decisions or when
parties have invested different amounts.
Pension
Schemes
Some pension rules allow for the investment in residential property
abroad. Not all pension providers are likely to choose to allow such
investments in their main fund so it may be necessary to seek out a
specialist pension fund manager.
Pension schemes are strictly controlled by law and taxation
regulations, which differ between countries, however investing in a
buy-to-let property through a pension can be attractive as there are
often significant tax advantages regarding the contributions into
the scheme, income generated from the investment and capital gains
upon sale.
These are specialized investments therefore it is vital to take
independent financial advice from a qualified advisor on the
selection of appropriate investments.
Investment
Fund Purchases
In basic terms these are individuals who come together under the
umbrella of a financial advisor or fund manager to invest in real
estate.
For Example
A fund manager sets up a fund requiring an initial investment of
15,000 per person, and requires at least 500 investors to invest.
This provides a fund of 5,000,000 which can be invested in a complex
of apartments generating both rental income and capital
appreciation.
Please bear in mind that these funds do need to be run by a fund
manager therefore costs will be associated with the investment but
these are often calculated as a percentage of the income.
Also this is not a personal investment and decisions regarding the
investment are often taken by the fund manager in the interest of
the investors.
