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Property Investment Abroad -- Beware of Guaranteed Rents

By Expert Author: Don Suter | View Article Summary
Word Count: 446 words | Views: 117 view(s)
Don Suter

UK buy-to-let investors are being tempted by offers of guaranteed rents on property deals around the world, but how good are these deals in real terms and will there be any rental demand once the guaranteed period ends?

Worldwide opportunities

Investors are looking beyond the overcrowded UK market for untapped property hotspots in Eastern Europe, the Middle East and out to the Far East.

Deciding on the best foreign markets to invest in is a case of weighing up the potential for growth and rental income against the risks and costs.

For example prices of residential homes in Beijing rose by 20% in 2005 (according to the Beijing Municipal Construction Committee), however there are many issues regarding the transfer of funds out of China, a 5% tax on rental income and the possibility that the Chinese government could claim the land back.

Latvia on the other hand presents a lower risk to foreign investors, with membership of the EU and the ability to borrow up to 90% of the value of the property making it a more appealing choice.

However, this is not to say that an investor can simply buy any property in Latvia and expect to make easy rental returns. Like any foreign market, the risks are generally higher than buying in the home market.

Incentive to buy

To help encourage potential landlords to overseas markets, a number of investment companies are offering guaranteed rents for anything up to 5 years. Rental guarantees, it is argued, provide a reliable safety net for riskier markets, however many experts warn they are merely a marketing tool and advise investors to look very closely at the deal being offered.

Key issues

One of the biggest issues with guaranteed rentals is a lack of demand for the property once the period has finished. Guarantees are often used to market properties that otherwise would not sell and many investors are shocked by the resulting drop in income.

In addition to this, it is often the case that investors end up footing the rental bill themselves, when developers inflate the price of the property to cover the guaranteed rent. This can provide a further shock when the investor tries to sell the property and realises that it is not worth as much as they originally paid for it.

If you do opt for a guaranteed rental deal, make sure that it is properly underwritten by a bank. Otherwise you would be at risk of losing the guarantee if the developer were to go out of business.

Poor regulation means that it is also worth checking the small print for any hidden clauses that enable the developer to avoid paying the guaranteed rent and it is always a good idea to seek expert advice.
About the Author/Author Bio

UK property search - Search for homes to buy and rent, plus information on property investment, buy-to-let, mortgages, insurance and plenty more - http://www.ukpropertyportal.co.uk

Article Source: http://www.articlesphere.com/Article/Property-Investment-Abroad----Beware-of-Guaranteed-Rents/8351

Article Submitted: 2006-01-29 | This Article has been viewed 117 times.

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