Capital growth or rental yields?

As overseas property investment is becoming increasingly popular, large shares of British buyers are looking for big profits in countries they have often never set foot to. Seasoned investors seeking better returns that those achieved at home, novices keen to jump on the property bandwagon but priced out of the UK market, first-time buyers opting to purchase overseas while renting back home...

New property companies and investment clubs are springing up and new destinations aiming to be tomorrow's "hot spots" are being added nearly daily. In all the confusion and sales frenzy, is it surprising that investors, worried about missing out, often sign up for The ultimate opportunity just to find out their big profits dream has turned into a very real nightmare?

The time of awakening generally comes...on completion.

A quick glance at overseas property agents websites and you will see the new mantra: off-plan buying equals huge profits. Have a closer look and you may be shocked to see how many of these property investment "specialists" sell you the dream you only need a tiny deposit to make fantastic profits - there is no need for you to have the funds, or even ever take out a mortgage...simply buy off-plan and sell before completion with a massive profit! What could be more appealing to a first-time investor or buyer on a budget?

Well, it may all sound exciting, but there is a far bleaker side of the story. While most look at buying abroad (especially in Central and Eastern Europe) for the benefit of potentially high capital gains, one should never forget capital growth is far from guaranteed and should only be viewed as an additional advantage, never the only purpose of investing!

But, I hear you say, many have made money flipping off-plan properties. True, but at least as many have gotten into trouble, unable to either complete or sell the properties, or completing and having a vacant property on hands, as there haven't been much of a tenant demand in the first place... I know of plenty of such investments gone sour, both here in the UK and overseas.

This is why I can't stress it enough - do your research! Research is what makes a difference between a lucrative investment and a money loosing headache. Do not - EVER - buy a buy-to-let property in an area that does not already have a good rental demand! There is nothing more foolish than purchasing a rental investment (whether it be tourist letting or long-term lets) where there is no rental market at the time you're investing.

Yes, if you are extremely lucky, a rental demand may suddenly be created by the time your new property is ready to be let...BUT, if you are that lucky, you will do better still playing lotto! Ie, in my experience, if an area does not offer good rental returns today, it will likely not do so in 1-2 years either.

Ignoring rental yields is a very risky strategy. A vacant property will quickly erode any potential profits, and selling may not be as easy as you had been told at the time of signing at the dotted line. After all, what makes a case for massive capital growth in such a short time scale as 1 or 2 years?

Undoubtedly, most of the Central and Eastern European countries offer good long-term prospects for property price growth. However, in order for this to happen, the population needs to get more prosperous, investment needs to keep flowing in for many years after their EU entry, economic growth has to continue strong. There are massive differences between the levels at which each of these countries is today. Some are reasonably wealthy, some still incredibly poor. However, none of them will achieve UK's or Ireland's prosperity levels overnight...and neither in 1 or 2 years.

So, the safe strategy has to be a medium to long term one. And, once you are set to hold your property for a number of years, I'm sure you realize the huge importance of a solid rental market...

True, there are also markets where short-term capital gains have been made. A closer look will reveal the source of such sudden growth: foreign (mostly British buy-to-let) investors. If you ask me, this is the riskiest of all investments, with no back-out strategy at all.

Buying in a country/area where virtually all property is sold to foreign investors, with no local buyer demand (and future rental potential being based on elusive international holiday makers) is a sure way to disaster. You may manage to sell on to another keen investor, but what happens when all the off-plan apartments start coming onto the market, chasing British investor buyers (who at that time may well have lost interest and found another international "hot spot")?

So, to sum it up...Unless you are a gambler, forget short-term profits. Buying a good property in an area with solid rental demand and holding for the medium to long term will almost certainly pay off. Flipping may work out for you if you're lucky, but the only sure beneficiary of such strategy is the property agent who sold you the investment.

Now, don't get me wrong. We too sell new built properties. Am I just being hypocritical?
Well, not quite. Although nobody can guarantee future rental demand (in any market), we only offer investment property in areas where you can rent them out TODAY (we believe our buyers are investors, not gamblers, and counting on future tenants where there are none today is not a good option).

Even more importantly, we offer all types of property - residential (new and classic), commercial, land, vacation homes - and will always advise potential buy-to-let investors on the most appropriate location for rental first, with options for new or resale property in second.

And you will most certainly never ever hear us promoting flipping (ie selling on before completion) -> The way to property prosperity (in Slovakia and most other markets) is holding and letting your property for the medium to long term.