International real estate is a good investment

Real estate abroad: are holiday homes a good investment?

In times of extremely low interest rates, investors look for ways to invest their capital with lucrative returns.Real estate abroad is an interesting option because it offers two advantages. On the one hand, returns can be achieved with the development in value and rental and, on the other hand, they are available for personal use. The following examines the question of what you should consider before buying property abroad and which countries are particularly suitable for this.

Buy real estate abroad and enjoy wonderful vacations

Foreign real estate is very popular in times of low interest rates

Many people dream of buying an overseas property to create a private getaway for vacation. This has several advantages. You can spontaneously spend a few days in your own apartment or holiday home at any time and arrange yourself there as you wish. In addition, the owners of foreign properties often plan to use them as retirement homes and therefore prefer countries with a mild climate. The desire for a domicile in the sunny south is understandable, but before you buy real estate abroad, you should gather enough information.

In which countries is it worth buying a property abroad?

Due to the weak economy in the southern European countries, the conditions for buying foreign real estate there are currently very good. The euro crisis is forcing many owners to sell, so that an apartment or a holiday home can already be purchased for a five-figure sum. However, German investors are not only drawn to the south. The following countries are particularly popular:

  • France
  • Portugal
  • Spain
  • Italy
  • Croatia
  • Sweden

In some of these countries, private investors can buy real estate abroad at low prices and besides, these destinations can be reached within a few hours by plane.

In which countries is buying overseas property difficult?

Switzerland, Austria, the Netherlands and Denmark are also popular with investors. However, it is more difficult to buy overseas property there:

  • Switzerland: If you want to buy foreign property here, you have to reckon with strict requirements and high prices. Because with the so-called “Lex Koller” the alpine country is defending itself against the “foreign infiltration of the native soil”. In recent years, those interested in Swiss real estate have switched to the French Alpine region.
  • Austria: Here you have to obtain a purchase permit beforehand.
  • Netherlands: Buying foreign real estate in this country is only possible without any problems if it is not used as a holiday home, but as a primary residence.
  • Denmark: In order to buy foreign real estate here, one must have lived there for at least five years and is liable for tax.

How can you manage foreign real estate?

In addition to the purchase price, the costs for ongoing management should be included in the purchase decision. If you only want to use the apartment or holiday home yourself, it is easier to ensure that it is managed. Anyone who spends time in their vacation home often takes care of the cleanliness themselves and can even look after the garden themselves. However, if foreign properties are empty most of the year, you should hire a caretaker service to take care of them.If you want to buy real estate abroad in order to generate a lucrative return on investment by renting it out, it is necessary to hire a caretaker service for cleaning and gardening. You also need staff to look after the holidaymakers on site. The costs incurred for this should be included in the calculation.

What taxes are due on foreign real estate?

Saving taxes when buying property abroad? These taxes are generally due.

Over a million German citizens own real estate abroad and every year another 750,000 foreign properties are bought by Germans. Whether the purchase makes sense in terms of tax savings depends on a number of factors. The real estate transfer tax is almost always due. It ranges from one to four percent in Switzerland and a maximum of 13 percent in Greece. In certain cases, an additional 25 percent speculation tax must be paid there. Only in Denmark is there no real estate transfer tax.

In addition, owners must pay annual property taxes.In addition, there are types of tax in various countries that are unknown in Germany. In Italy, France and Spain register and cadastral taxes are payable, and in Spain VAT is charged on new buildings. If you do not rent the apartment or holiday home in France and Spain after buying it, you will have to add housing or owner-occupancy taxes to the property taxes. If the foreign property is worth more than 700,000 euros, wealth taxes are also due in both countries.

Can you save taxes with real estate abroad?

If you want to buy the foreign property in order to use it as an investment and rent it out, you must state the rental income as income in your tax return. However, the expenses for repairs and renovations as well as the financing can be offset against tax.

How can you find and finance real estate abroad?

Offers for foreign real estate can be found on special internet portals. Before you apply for a real estate loan for financing, you should get information from the “German Protection Association for Foreign Real Estate”. Theoretically, it is possible to use a building society loan agreement for financing, but the bank must agree to this. The reason for this is that different countries have different mortgage laws, which makes the bank's risk assessment more difficult.

How is the property valuation of foreign properties carried out?

This type of real estate appraisal requires a high level of expertise and experience and should therefore be entrusted to a renowned real estate appraiser. With a professional appraisal you avoid nasty surprises after the purchase and therefore the cost of the real estate appraisal is a very sensible investment.

Buying overseas property is an interesting way to get higher returns on capital and also offers the opportunity to create a second home abroad. An overseas property is also a sensible investment to provide for retirement. Because in the medium term, real estate prices can be expected to rise in the crisis-ridden countries around the Mediterranean. Before buying, you should inform yourself exactly about the conditions in the respective country and have the property valued professionally.

Images used in this post:

© Zac Cain - Unsplash
© nattanan23 - Pixabay

This post was updated for you on: September 11th, 2020