Investment or Speculation?

When deciding which country to invest in, you should decide if you are an investor or a speculator.

If you are looking to invest, we would recommend the established and proven markets of southern Europe which offer, and will continue to offer, good weather and ease of access. These include southern Spain, the Algarve, the French Riviera, the Canary Islands, Majorca and Cyprus.

For those looking to speculate, try eastern European countries such as Croatia, Bulgaria and Hungary. However, be aware that there could be uncertainty with issues such as legal ownership of land and tax.

House prices are cheap in the former eastern Bloc countries: £20,000 can buy a farmhouse in Bulgaria, while £35,000 buys a new build apartment on the pretty Black Sea coast. In Spain, by contrast, around £70,000 is the minimum one should expect to pay for a new apartment on one of the Costas, and considerably more in many places even if you buy off-plan – literally off the plans before a brick has been laid – the cheapest option.

 Buying Off-plan

Nine times out of 10 buying off-plan is the best route to good capital appreciation. However, if you require rental income on day one, you should consider buying a resale in an established area and not off-plan, where you may have to wait up to 12 months for the apartment to be built, and several months afterwards for the marketing to kick in before you see any real rental income.

 Outgoings

Outgoings as well as income will be considerations when buying a property to let overseas. Factor in that unless you are going to manage the place yourself – potentially difficult if you are several hundred or even thousands of miles away in the UK – you will have to employ and pay a managing agent to oversee any minor repairs that may need undertaking as well as arranging cleaning services between paying guests.

Ask neighbours, or the estate agent you buy from, for a recommendation to a good management service for cleaning and maintenance, but if you possibly can take care of the marketing and bookings yourself. The return will be much better and if the place you buy is established, well-located and is marketed correctly, including to friends, family and colleagues, a 5% net return on investment is realistic.

 Return on investment

The return on investment, or yield, is the annual rental income expressed as a percentage of the price of the property. For example, if you buy an apartment for £100,000 and during the course of the year your rental income is £10,000, the yield is 10% gross. The net yield, however, the income minus all overheads, including fees and taxes – on rental income, in Spain, for example, 25% is payable – is the critical figure. Around 4-5% net is considered viable, bearing in mind you will need to achieve 7-8% gross to realise that figure net.

In order to achieve these magic numbers, the golden rules of buying-to-let are:

• Purchase in a country that is easily accessible by plane and where the sun shines.
• Ideally, buy a two-bedroom apartment – most families, who will be the major rental market, consist of two parents and two children.
• Only buy a property that is no more than 30-45 minutes’ drive from the airport and within 20 minutes of beaches and amenities.

 Look for...

For good year round rental potential, investors should buy a property that is in close proximity to local amenities, golf courses and the beach. But also consider a development that offers facilities such as a 5-star resort, where, for example, they will arrange airport collection, taxis, restaurant bookings and tee-off times. The details matter.

Other details that matter include the number of weeks you make the place available to rent and when – you may want to reserve your property for personal use – void periods (empty weeks), and seasonal fluctuations in the weekly rent you can charge, generally known as high, medium and low weeks that are dependent on exactly where the property is in the world.

Thirty weeks in any one 52-week year is considered the average annual number of weeks you should aim to let the property to make the necessary 4-5% net yield to make the property viable and to keep your head above water at all times.