If you want to understand how does gearing work, then keep reading, because you can use it to jump start your nest egg.

‘Used wisely, gearing can turbo-charge your return on an investment.’

Borrowing to invest – also known as gearing

– is a way of using other people’s money to get ahead. Used wisely, it can turbo-charge returns on an investment. Gearing works very simply.

Gearing is generally a medium to long-term strategy of at least five to 10 years. But even modest amounts invested can generate real wealth given enough time and dedication to this method. Most of us are familiar with borrowing to make our biggest investment – our own home. So gearing works by simply applying similar principles when borrowing to invest in assets such as a share portfolio, or property.

Gearing can deliver a sound strategy to jump starting your nest-egg because it offers a way to increase the value of your total pool of investments by allowing you to put down a small deposit and borrow the rest. The key is to make sure the total return (income and growth) is greater than the cost of borrowing.

How gearing works

You provide either cash for a deposit, or other assets as security, and receive a loan to fund an investment. The main difference with this type of borrowing is that the loan is used for income-producing purposes. Buying a home that produces rental income, or buying shares that pay dividends are both examples.

When borrowing to invest, you need to consider different types of gearing. Negative gearing is where income from an investment (such as dividends or rental) is less than your interest and/or other expenses. Positive gearing is where income from an investment is higher than your interest and/or other expenses.

People hold a negatively geared asset for two main reasons. First, in Australia, you can typically offset any loss made on one investment, against other income, resulting in tax savings (which works well for those on high marginal tax rates). Second, the capital growth of the assets mean you can sell an asset for a capital gain that more than covers losses over the time the investment was held.

Is gearing right for you?

If you are still wondering how gearing works, depending on your circumstances, the benefits of gearing can include:

• If the investment is positively geared, you have access to a passive income stream (extra money in your budget) that can provide greater lifestyle choices.
• By borrowing to invest, the capital growth potential of your assets is greater. This is because of the greater capital base to begin with. You can use gearing within a self-managed super fund — as long as it complies with ATO rules.

It can be a great strategy if you have a long time frame because the more time your money has to earn, the more opportunity for compounding (adding any earnings received to the amount you contribute [principal] and then reinvesting them to create more potential earnings).

It is easy to see why gearing or borrowing to invest can provide a great approach to building wealth. Every year put off investing makes our ultimate retirement goals more difficult to achieve.

Investopedia provide a handy definition of gearing too.

If you’d like to chat about finance, please contact us.

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With all the uncertainty in the world at the moment, many people are thinking to themselves, ‘is now a good time to buy an investment property?’

‘Even in the current market, plenty of us are looking at getting our foot in the property door. It is easy to understand why.’

Purchasing property to rent out is still the most popular way to build up assets. However, it is a major decision, which requires planning, research and careful budgeting.

The good news is that property can be a potent wealth builder over the long term, and like any investment it experiences cycles. So is now a good time to buy in? It depends on your goals.

Here’s 5 steps you can apply to property investing that will pay off.

1. Time Frame

Knowing when to jump in really depends on your investment time frame. Property is an investment with at least a 7 to 12 year horizon, depending upon market cycles. Transaction costs to buy and sell are around 9 per cent, which means you have to make that back before you get the benefit of any growth. Property investment as a short-term investment is only for the very lucky, or the very brave!

2. Strategy

The right time to invest in property is as soon as you’re financially ready, and that means putting together a strategy that includes a purchase plan and budget, because you really need to know how much cash you have available to invest and what returns to expect. And you’ll want to look at the tax benefits too. For example, with a positively geared property the tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit for your next property.

If you are wondering is now a good time to buy an investment property, then start preparing now so you are ready to buy when the time is right for you

3. Pre-approval

Be ready to buy the perfect property when you find it by getting a pre-approval. A good mortgage broker can be a valuable resource in this step.

Did you know that after you take out a loan to purchase an investment property, interest on the loan and most property expenses can be offset against rental income for tax purposes?

4. Research

Based on your strategy (negatively or positively geared), you’ll be able to begin your search, which will ultimately determine whether there is a good investment out there that fits your budget. Look for areas where high growth is expected, that is, where there is potential for capital gains. And check out areas where rental income is high compared to the property value.

5. Take Action – is now a good time to buy an investment property

Making property investment work is about getting the fundamentals right, which is usually achieved by solid research, observation and calculated risk. Of course, property prices go up and down, but if you don’t sell you are unlikely to ever make a loss. So don’t let indecision be your biggest barrier to entering the market. With the right advice, research and property selection, you can always profit.

What next?

The best thing to do next is remain in the market — especially if you’re looking to use property as a way to replace your income in the long term and retire on your investments. High yields and pockets of growth can always be found. The key to having a great property investment is ensuring it outperforms the market in capital growth because serious returns come from areas with great growth prospects.

Yahoo Finance published an interesting article about buying property now too.

If you’d like to chat about finance, please contact us.

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If you are wondering what to look for when buying an investment property, here’s 5 tips to help you get started when looking to invest in property.

Many of the most successful investors use real estate to build wealth.

If you’re ready to jump into property investment as an asset class, there’s some things you’ll want to know because where and what you buy can affect your return on investment.

Let start with what to look for when buying an investment property

1. Where to buy

• Look for areas with high growth, that is, where there is potential for capital gains.
• Look for areas where rental income is high compared with the property value.
• Research median prices to show what you might pay for property in the same area.
• Investigate vacancy rates. A high turnover may make it harder to rent the property or make it difficult to sell later.
• Research proposed changes in the suburb that may affect future prices. Things like planned developments or zoning changes can affect the future value of a property.

2. What to buy

Look for properties with features that have wide appeal, such as a second bathroom, lock-up garage or somewhere close to shops, schools and transport.

• Choose a property that will attract more than one segment of the rental market, such as singles, couples, young families or retirees.
• Low maintenance costs are important: Units can be perceived to be easier to maintain than houses, although you will have to pay owner’s corporation fees, which can decrease your returns.
• Property prices can fluctuate: When deciding if a property investment is right for you, remember that property prices can go up and down.

3. Understand borrowing costs

Buying, selling and managing an investment property can affect your overall return. When you buy a property, you will have to budget for expenses. For example, if you borrow to invest you will have interest repayments and if your investment is positively geared you may pay tax on your rental income. If you sell the property you may also have to pay capital gains tax if the property has increased in value.

Key things to decide in what to look for when buying an investment property:

Most people borrow to invest in property. But the more you borrow, the more you pay in interest. Therefore, it is important to understand negative versus positive gearing:

Negative gearing

Negative gearing is when your income from an investment is less than your expenses.

A loss can be used to reduce your taxable income which will reduce the amount of tax you pay. You’ll need to know what you can claim as a deduction, and remember you are only reducing your tax payable because income from your investment isn’t covering expenses.

Positive gearing

Positive gearing is where your income from an investment is higher than your interest and/or other expenses. This means you will have extra money left over but you may have to pay tax on the additional net income.

Other things to consider in what to look for when buying an investment property

4. What expenses to budget for

There are numerous costs involved in real estate and this is the reason why you should start with a plan and finish with a list of what you’ll need to budget upfront. Consider using the “35% rule”, which suggests that, on average over time, expenses on a property will equal 35 per cent of total income. So if a property rents for $2,000 a month, put aside say $700 to cover expenses a month before paying the mortgage payment.

5. Managing an investment property

You have two options when it comes to managing your property: DIY or engage a managing agent.

• If you manage the property, you avoid paying management costs. But you’ll have to do everything, from showing the property to tenants to collecting rent and organising repairs. You also need to comply with landlord regulations.
• If you get a managing agent to look after the property, their management fees are generally tax-deductible.

Terri Scheer, the landlord insurance company publishes a guide on what to look for in an investment property too.

If you’d like to chat about finance, please contact us.

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If you are wondering ‘should I buy the house or property next door?’ then it is really important to consider whether, where and what, you buy will affect your return on investment.

The real estate mantra ‘location, location, location’ is no less vital when choosing an investment property.

So should you buy the house next door?

It depends. Investing in real estate — or any investment — should be about increasing your wealth and securing your financial future. Therefore a simple rule before considering any property purchase is to understand the market where you are buying.

If you decide to invest in a house in your neighbourhood, you’ll need to do some leg work.

For example, accessing independent information from a source such as RP Data can provide crucial insights. This will include data on average rents, property values and demographics. You also need to investigate whether council or government are planning works which may impact negatively on the area you’re interested in.

Putting all your eggs in the one basket may not be the wisest financial idea either. Different property markets, for example different States are often at different stages in a market cycle. For example, one State might be booming and another might be going into a downturn. By having property investments in different markets, you can go a long way towards hedging your bets, which can be of benefit in the long run.

Of course, an advantage of buying the house next door is that you can choose your neighbours. But a disadvantage is if the value of one house takes a hit, it is unlikely the other one will rise.

It all comes down to making considered decisions, because positive returns can be delivered if the fundamentals align. Here’s 4 things to reflect on, which may help to mitigate risk:

1. Buying at the right time is critical

Investing in real estate is all about capital growth, so choosing a property that is more likely to increase in value is one of the most important decisions you can make.

2. Count the cost of investing if you are considering buying the house or property next door

Before making the leap you also need to be aware of taxes involved in property investing and add these into your calculations. Stamp duty, capital gains tax and land tax need to be taken into account. While interest rates will vary over time, property investors can expect to increase rents when rates are on the rise and hold steady when they fall.

3. How you manage your investment when you buy the house next door

How you manage your investment can also determine whether you will reach your financial goals. It pays to consult professionals you can trust. With the right advice, you can decide if it is the right path for you.

If the fundamentals check out, also consider a property manager to find the right tenant. It is money well spent [and generally tax-deductible] in the quest to get the best possible value from your property.

4. Investment time-frame

While there’s no doubt investing in property can put you on the path to long-term wealth. Property should be seen as a medium to long-term investment to maximise returns. That’s because if you sell it within 12 months you’ll be slugged with a hefty capital gains bill. If you sell well after that then a 50 per cent CGT discount applies if the investment property was originally purchased with the intention to hold it. Just be cautious if you are considering buying the house next door.

Also, it worth noting that it typically costs 5% of the purchase price to get into a property in taxes (i.e. government stamp duty) and fees (i.e. bank fees and Solicitors costs). And up to 4% (i.e. real estate agent fees and advertising costs) to get out. So for every $100,000 you spend on a property, you need to make back an additional $9k before you break-even on any sale.

Domain.com.au have lots of handy tools to allow you to research more about the house next door and other information about your suburb.

If you’d like to chat about finance, please contact us.

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Reduce your tax in Australia and get the tax man to fund your lifestyle.

‘One of the most popular wealth creation strategies is negative gearing an investment property’

How much you can claim in your tax return is an often overlooked element of property investment.

Because there’s two main reasons for that:

• Investors don’t realise how much money they are missing out on by failing to claim.
• They don’t understand it is a perfectly legal way of reducing tax in Australia.

We are talking about claiming depreciation

Depreciation is the amount the Tax office lets you claim as a provision for wear and tear on your property. Similarly the ATO allows owners to claim wear and tear against assessable taxable income for eligible investment properties.

The more deductions you can claim on a property, the higher your tax benefit. Therefore it makes sense to be able to claim as many deductions as you’re legally entitled.

What to claim to reduce your tax in Australia

The ATO allows property investors to claim rental and investment property depreciation deductions. Because these deductions are related to the building and plant and equipment items contained within it. As a result, there are more than 1,500 items identified as depreciable assets under capital works, including:

• Built-in kitchen cupboards
• Clothes-lines
• Door and window fittings
• Driveways
• Fences and retaining walls
• Garages
• Sinks, basins, baths and toilet bowls

Similarly, deductions up to 35 per cent of construction costs of can be made to reduce your tax in Australia. These include things like carpet [and other removable floor coverings], hot water systems, air-conditioning, security systems, blinds, curtains and light fittings.

Depreciation is an after-thought for many investors.

However, it is often better to consider this information before buying to maximise savings. For example, a new property often has a lot more depreciation allowance than an older pre-owned property.

How to Claim if you want to reduce your tax in Australia

Investors need to complete a personalised tax depreciation schedule to claim depreciation deductions. Most people engage a quantity surveyor to do this for them who will provide an official report in an acceptable format. For that reason, deductions available on a specific property will be outlined in a depreciation schedule.

Your accountant uses this schedule each year when preparing a tax return.

Above all, by utilising the benefits of depreciation, you can turn a negative cash flow property into a positive one.

ASIC publishes a guide to income tax in Australia.

If you’d like to chat about finance, please contact us.

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In the past 20 years, residential real estate gained an edge over shares, so is it better to invest in property or shares?

Choosing between shares and property can be confronting for investors.

And it is easy to understand why: both asset classes traditionally perform extremely well.

In the past 20 years, residential real estate gained an edge over shares. The most recent long-term investing report — released by the ASX and Russell Investments in June 2018 — revealed residential investment property returned 10.2 per cent over a 20-year period to December 31, 2017, compared with 8.8 per cent for Australian shares before tax.

So it would seem the shares versus property race couldn’t get any closer, but what factors should investors consider when deciding between investing in these two asset classes? Is it a question of predicting which will be the better investment – shares or property — over the next 20 years?

Given investors can’t rely on past performance as an indicator of future results, it really comes down to five 5 factors:

1. Total returns (capital and income)

Do you need to generate income? If so, you can from both types of investment. That is, you earn money from a residential investment property via rental payments, while dividends are another way of generating an income stream from a share portfolio.

2. Getting started

How much can you spare? Starting out investing in shares requires only a relatively small amount of capital so entry, exit and holding in this market is cheaper and easier compared with property, which has higher start-up costs in terms of entry price and stamp duty.

3. Needs and circumstance

The right investment depends on the individual investor. An investor has a number of things to consider such as how long the money can be invested, the level of returns sought and the amount of risk the investor is willing to accept.

4. Marginal tax rates and gearing

Many investors aren’t aware that tax significantly changes returns on both asset classes, particularly for those on high tax rates. That’s where gearing comes in because it can enhance returns for investors at the highest and lowest marginal rates.

5. Time – do you invest in shares or property?

Investment time horizon: compounding provides a cumulative effect to total returns.

It’s a lot to think about but your most important investment decision will be how you spread your money across the asset classes. For example, shares can incorporate Australian and international stocks, while property could include listed, commercial and residential.

The ASX advises that having your money spread across a range of assets will decrease your overall risk. For example, within shares it reduces the impact on your portfolio if one or two companies perform poorly. However, it really pays for investors wanting ongoing successful returns to learn more about all asset classes [not only shares and property], and seek solid professional advice to develop a diversified investment strategy.

For more information about shares, ASIC publishes a handy guide to shares.

If you’d like to chat about finance, please contact us.

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If you are wondering, ‘how can i pay off my mortgage faster?’ – for most of us, owning property is our biggest investment, but it doesn’t have to be the most expensive.

Regardless of what we owe, paying down the mortgage is a smart money move.

How can I pay off my mortgage faster – Easier said than done?

In fact there are numerous ways to reduce mortgage debt without putting undue strain on stretched finances.

Here’s 5 that won’t dent the budget.

1. Pay down the principal early

Did you know the point at which you pay the most interest is in the first years of your loan? That’s when the principal is at its highest, so the sooner you pay down the principal the better off you’ll be.

2. Make more payments

One of the simplest strategies to pay off your home loan faster and save on interest is to make extra repayments. By paying down your mortgage fortnightly, with many lenders you’ll pay 13 payments a year instead of 12. Of course, if you can make even more payments throughout the year, such as a lump-sum amount, you could save thousands of dollars and reduce your loan term. And given rates are at all-time lows, rounding up your repayment to pay that little extra also helps.

Before taking action on how can I pay off my mortgage faster

3. Check out package deals

Ask for a discount on your loan. Some lenders offer professional packages to specific professional groups or members of professional organisations that can shave up to 1 per cent or more off your mortgage rate. If you don’t ask, you’ll never know whether you’re eligible. And there’s often further savings tied to a package such as discounted home insurance, and fee-free credit card or transaction accounts. Also look into the benefits of all-in-one loans or 100 percent offset loans, which allow you to pay all your income into an offset account and then repay all your debt from the one account.

4. Consolidate all your debts

If you have more than one credit card or loan, pay off the one with the highest interest rate first, or tackle the smallest debt first. Better still, most lenders allow you to refinance all your debts under your home loan or an unsecured debt consolidation loan. If you have a mortgage and equity in your home, incorporating your personal debt onto your mortgage and increasing repayments could save a significant amount of interest. Consider what you’ll save by transferring credit card or personal loan debts with interest rates of around 15 to 20 percent to your home loan where interest rates are under 3 per cent! Just remember though, you need to increase your repayments so these debts don’t hang around for the life of your mortgage.

If you are really serious about ‘how can I pay off my mortgage faster’

5. Split your loan, or pay more off your fixed rate

It seems we don’t have to worry too much about an interest rate rise. However if you want to stick to a budget, fixing your loan is the way forward. But don’t fix the lot. You can hedge your bets by taking out a a split loan, which allows you to take part of your loan as fixed and part as variable. This way you can still make those extra repayments or lump sum amounts on the variable component of your “combination” loan. Already locked your loan down to a fixed rate? Check with your provider whether you can make extra repayments without penalty. Most lenders will allow you to pay an extra $10,000 a year off your fixed loan without incurring extra fees.

There are many more ways to reduce mortgage debt and save on tax at the same time.

ASIC publish a handy guide to paying off your mortgage faster too.

If you’d like to chat about finance, please contact us.

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Positive Gearing and Cashflow – ‘Know when to go with the flow.’

All positive cash flow properties are positively geared but not all positively geared properties are cash flow positive.

Yes, it might sound a bit complex but it is well worth taking a moment to understand it.

Choosing an investment strategy can be difficult. Choosing between positive gearing and cashflow can often be harder. As an investor a lack of cash flow can leave you in limbo. Making you unable to move forward to build up your portfolio.

I often hear from clients that they want a positive cashflow property, and for many investors who have spare savings. Combined with today’s low interest rates, this is quite simple to achieve. We simply put additional cash in as a deposit to reduce the costs of owning the property. Which brings them down to a level where the income exceeds the expenses.

A positively geared property is often what a client really wants. Many don’t want to use any of their spare cash even if they have some. What this means is that they actually want to make a profit. That is once they have got their rent in and paid their expenses out. Naturally at this point, it is likely that they are now going to have to pay some tax too. But at the end of the day, they don’t want to have to put any money from their own pocket in to subsidise the property in any way.

It is more about using these strategies for your own financial gain if you have the flexibility to do so.

So let’s look at a couple of examples of positive gearing and cashflow:

Based on a positively geared property — which generates more income than expenses before and after tax.

• You purchase an investment property and each month it brings in $1,000 in rent and you pay $700 in property expenses. At the end of the month, there’s $300 in cash spare ($3600 before-tax that year). After-tax, based on a marginal rate of, say, 47 per cent, not including Medicare levy or surcharge, you still have more than $150 per month in loose change.

Compare that to the scenario of a positive cash flow property — which generates a loss before-tax but more income than expenses after-tax.

• In this instance, your investment brings in $1,000 in rent each month but your property expenses are $1200. Before tax you’re down $2400 a year but once you claim, say, $10K in depreciation, based on an assumed rate of 30 per cent, your total loss for the year (on paper) is actually $12,400. Given you are entitled to claim back total expenses [at 30 per cent], you’d receive a refund of $3,720. In effect, you paid out $2,400 but got back $3,720 — a profit of $1,320 after-tax that year.

In this instance, your investment brings in $1,000 in rent each month but your property expenses are $1,200.

Of course, the level of equity or deposit put into an investment property purchase can affect the total annual cost of owning real estate.

Is there really a difference between positive gearing and cashflow?

Apart from the opportunity costs of any equity or cash you put down as a deposit. Taxation is where the opportunities differ. A positively geared property is one that delivers a positive cash flow after-tax but a positive cash flow property must generate a LOSS before-tax and a positive cash flow after-tax.

Put simply both strategies generate income, but the decision of what works really comes down to which one best benefits your circumstance: before-tax or after-tax.

That’s why it is important to consider your investment objectives. That is, you may have the cash sitting around in your bank account to buy a property outright. But if you borrow using equity in your home, you can increase the cost of ownership by the amount of interest the bank charges. Or you may prefer to borrow the full amount. Even if you don’t need to, it will increase the face value of the cost of ownership to maximise tax deductions and decrease overall costs.

To put that in perspective, it’s essential to understand that investment properties can be expected to earn either a good rental return or capital growth. Better still, both capital growth and a great rental return. If you are still trying to make sense between positive gearing and cashflow, then consider the following.

For more information, ASIC publish and handy guide to Investing and Tax.

If you’d like to chat about finance, please contact us.

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If you are wondering ‘do I need a deposit to buy a house?’, here is a quick and simple summary of how you can get into a property sooner.

‘We all want to achieve the great Australian dream.’

After all, owning our own home is life-changing. It offers security and more often than not leads to being financially better off.

Interest rates are at an all-time low.

Plus buying a house is exciting. What’s not fun is saving for the deposit.

So is a 10 per cent deposit enough to buy a house?

Yes, and no. The new deposit normal is now 20 per cent to avoid paying LMI (Lender’s Mortgage Insurance) — a one-off insurance payment that protects your mortgage lender against your default. This means you’re likely to only need a 5-10 per cent deposit.

Given most institutions are restricting the loan to value ratio they’re willing to extend to borrowers, LMI is usually payable if your LVR — the amount you need to borrow as a percentage of the purchase price — is above 80 per cent.

High property prices mean that most of us will need to put down a deposit to get a loan approved, and the more money we have, the less likely we’ll need to take out LMI.

Therefore putting a borrowing strategy in place is crucial in deciding whether to invest extra time saving up a large deposit, or paying LMI and applying for a loan with a small deposit.

Larger deposit versus a lower deposit

A downside is a small deposit attracts a larger LMI premium. On the plus side, some loans offer additional features, including lower interest rates to reward borrowers with bigger deposits.

Do I need a deposit to buy a house – work out what you can afford

There are many ways to save for a home that don’t require major changes to your lifestyle. So it pays to know how big a deposit you can afford. Work out how much you can regularly put aside and how long it will take to reach your goal — then stick to it. The easiest way to see results is to cut back on extras. And that’s where doing a budget helps.

Another tip is to open a high-interest savings account. Once you know how much you can save, make your money work for you. Don’t leave it in your everyday transaction account. Or if you plan to buy your home in a few years’ time, consider investing your savings in shares or a managed fund. Remember to always seek professional advice before making any investments.

Rent and invest when you trying to save a deposit to buy a house

Another way to get your foot in the property door is to rent and invest.

Of course, you’ll need to be realistic. On a $400,000 property purchase you could access a 95 per cent loan of $380,000, with a cash deposit of $20,000. So you may need to consider a smaller home, or a property in a different area. Just remember you’ll also need some money to cover the costs too (i.e. the governments taxes, etc.).

Whether you plan to buy, or invest in a home, it is a huge step — and it’s easy to be daunted by the large sums of money involved. With careful budgeting, saving money towards your property dream is made much easier.

ASIC publish a great guide to buying a house.

If you’d like to chat about finance, please contact us.

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If you are wanting to buy property overseas – ‘Just remember that old caveat, buyer beware.’

If you’re thinking about buying a cheap property overseas in the hope that it will be a lucrative investment opportunity, remember that old caveat ‘buyer beware’. That doesn’t mean you should give up on the dream of holding property abroad. Just do your homework because overseas investments involve significant additional risks that you need to be comfortable with before you start.

Of course, there’s never been greater access to international investments. Investing overseas can potentially help diversify a portfolio and give access to opportunities not available at home. But it’s more difficult to ensure the investment suits your needs when you lack local knowledge or can’t regularly inspect the property.

So before you take that leap of faith into foreign ownership, consider the following issues when looking to invest overseas:

Do your market research before you buy property overseas

Property markets are often in different stages of the property price cycle. It’s important to find out how prices have behaved where you plan to make your purchase. A trend of rising prices in Australia doesn’t necessarily mean values are doing the same overseas. Jump on a plane to do your homework in the country of choice. And make sure you have all the necessary permissions, licences and planning consents before signing a contract or agreement. As always, seek professional legal advice before you do anything.

Property restrictions

There may be barriers to entry you’ll want to know about. For example, in the US, foreign buyers can’t invest in housing cooperatives but can purchase single-family homes, condominiums, duplexes or town houses. In China, there are no restrictions on the types of properties foreigners are allowed to own but investors must have worked or studied there for more than one year prior to purchase. Make sure you calculate all the tax you’ll be liable to pay, both at home and abroad, and as an Australian resident you can be taxed on your worldwide income, including rental income from overseas property and capital gains on overseas assets.

Find a real estate agent to help you buy property overseas

Don’t succumb to pressure to sign up with a deposit before you’ve obtained independent advice. It’s best to secure a real estate agent with a good reputation and references to ensure costly pitfalls are avoided. In the US, the sales commission is paid by the seller, so buyers don’t pay to have an agent to work on their behalf, but licensing laws differ in each state. Check out an agent’s credentials as the licensing system in some countries doesn’t always ensure they’re qualified to guide you through the maze of finding, evaluating and financing real estate. Plus, good property managers and tenants are hard to find, especially when you’re so far away — you’ll need someone on your side.

Retain a lawyer or broker

Although not mandated in the US, UK or Europe, it is a good idea to seek the services of a real estate solicitor (attorney). They will help with any legal issues or questions you have along the way. A good mortgage broker would be valuable too. A property lawyer can review the sales contract, check the title and other documents relating to your purchase and advise on legal and local tax issues concerning the property. Just make sure they are fluent in both English and the local language where you plan to buy.

To buy property overseas, payment generally occurs via currency transfer

Changes in exchange rates affect the amount of money you receive or send. A small change to the rate could drastically affect the value of your purchase or the income you might receive. You’ll need to pay for your overseas property in the relevant foreign currency. This will either be as a large lump sum or as regular mortgage payments. Investigate local laws before using a currency exchange service abroad, or at home. It may sway where you choose to buy.

For those with a sense of adventure, global property investing can pay off but the factors discussed above are just some of the risks you may face. Remember local politics could mean that your entire investment could be at risk. Make sure that any country you invest in is politically stable too.

With any investment it’s important to get advice before you buy property overseas. It’s vital to know how it fits with your goals, risk tolerance, investment time frame and overall portfolio.

If you’re looking to buy property overseas, RealEstate.com.au have a dedicated international section too.

If you’d like to chat about finance, please contact us.

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