by Jeremy Smith
16:53 PM, 13th February 2014, About 10 years ago 3
Every so often we get offers from companies promising guaranteed yields for investment in overseas properties or property developments. These are usually for one or two years, whether the property is rented out or not. This can be the case with UK property developments as well.
Sometimes they even guarantee further investors down the road when you want to sell on.
The pitfall with overseas investments in particular, is that it is much more difficult to make sure you are paying the local market price for your property.
In the UK we can so easily check out the local ‘for sale’ prices and the ‘sold’ prices, so the occurrence of this is a lot less common I would think.
I came across this in Berlin, it is easy to tell you how it works:
The agent guarantees rental for say two years at 8-10% return on investment, let or not. After that they can source tenants for you if you so wish.
The problem is the buying price; it is usually around 20%+ higher than the real market value, so in effect all they are doing is giving you back some of your money, as if it is rent.
When the two years are up they don’t guarantee to find you tenants, but if you want to sell on, they are hoping that prices have risen and you don’t notice that you paid 20% more for it than you should have done. If the property has been tenanted for the first two years, that’s all extra profit for them too.
The buyers who are coming along to buy when you want to sell are usually more clients who don’t know the real local market value of the property they are buying. Therefore, you might get lucky and you might make a profit, but that’s not guaranteed at all.
One trick the agents use is to show you properties in one area and then try to base the value of the ones they have for sale in a slightly different area on the higher value area properties.
Berlin has good, moderate and bad areas quite close to each other, and so is exceptionally good for this sort of sharp practice.
There will be perfectly honest and trustworthy agents out there, but there are also some who will take advantage of a buyers limited market knowledge, so overseas buying is much more time consuming and hazardous for the investor.
Just saying, be careful if you are buying overseas!
All the best
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