Risk is at the top of everyone’s minds at the moment with the threat of US default and subsequent sovereign downgrading, as well as the mounting debt problems continuing to swamp Greece and other European countries now being drawn in. In addition we have seen a further round of European Bank stress tests by the European Banking Authority, which surprisingly only failed eight banks, provoking criticism that the tests were not tough enough, partly due to not accounting for any sovereign failure, even as Greece was teetering on the edge of default.
So, turning to risk of a more personal nature, how do you define your attitude to risk and how does this affect your overseas property buying profile?
How do you define your overseas property risk profile?
If you are considering where to invest in property, it helps if you know what type of investor or buyer you really are and then using this as a “sanity-check” when buying your overseas property.
So decide the level of risk you are comfortable with, so that you are aware of where your comfort levels are, even if you consciously decide to overstep these. Attitude to risk is personal and so it should take into account your own circumstances, your personality, your capacity for stress and your timeframes.
Some key questions to ask yourself in order to establish your risk profile:
So first a rather corny question, what keeps you awake at night?
Does borrowing someone else’s money make you feel uncomfortable or does tying up a lot of your own money make you feel queezy?
This will shape how you structure your finance, (in addition to other considerations , such as earning power, the budget you are working to and overall financial situation). Ask yourself, is parting with a deposit of £3,000 or £30,000 going to cause you discomfort?
The higher the deposit that is put down, the higher the risk of currency exposure
So to what extent does dealing in a different currency create discomfort?
If you are using a mortgage in local currency, then, that part of the purchase price is less exposed to currency fluctuations. But say you are buying a €250,000 property and want to put down a 25% deposit, then the timing of paying that €62,500 deposit, is going to be important, to take account of currency exchange rate fluctuations. If however, you are buying with a 100% local mortgage then the exchange rate is less important at the time of purchase, because there isn’t the exchange exposure on purchase.
Is not seeing your property on a daily basis going to give you cause for concern?
If you are buying in Europe, the geographical distance is less than if you were buying on a different continent and likely to be easier to get to your property quickly, should you need to.
What are your aspirations in terms of capital growth or maybe even income if you are thinking of renting out? And over what timescale are you buying for?
If you are buying for the medium to long term, rather than speculating in the short-term, this gives more room for manoeuvre, when you come to exit your investment. There is more time to play with when timing a sale when the market is favourable.
Are you a WYSIWYG person? (What you see is what you get?)
Do you need to see something concrete that you can touch and feel rather than trust that something will get built as you expected it? If so then new build or resale properties are more for you than investing off-plan when you need to be able to visualise a property from a “plan”and trust all the detail and facilities will come to fruition. There is more risk involved when a whole development and all its facilities are being built off-plan, but then again that’s when the trade-off comes into play and you are likely to get the most keenly-priced, desirable property
Don’t forget you don’t have to work this all out for yourself. You can talk to professional advisers and professional overseas property agents.
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Property Venture® is an award-winning, UK-based agency for overseas property who helps people buy investment property and holiday homes in Europe, more easily and safely than they can on their own, because we offer grounded common-sense advice.
The focus is mainly greater Europe: Poland property, UK investments, Spain property, Turkey property, Cyprus property
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