I get asked all the time about investing in property overseas, but investment property is not an asset class I have any personal experience with. Luckily I have a friend who I have watched go from beginner to professional investor over the course of many years, and I have persuaded him to share some of his knowledge with us. Although he is back living in the UK now, Graeme lived in Japan for almost 20 years, and built up a large chunk of his property portfolio while he was living here. He was not a “rich expat”, just a guy with a regular job. He values his privacy, so I’m not going to publish his full name and contact details, but if you have any questions for him he is happy to answer them through the blog. I hope you enjoy the interview and find some value in his knowledge:
SMA: How did you come to live in Japan?
G: I came here directly from university and like many people, planned to stay only a few years. In the end I stayed a lot longer and thoroughly enjoyed my time in Japan.
SMA: What made you start investing?
G: A good friend recommended the personal finance book Rich Dad Poor Dad. The book was written in plain English whereas other finance books used complicated terminology and were difficult to understand. Reading this book I realized I did not have a financial plan for the future. This concern about not having financial control of my future was the starting point.
SMA: Can anyone really become a property investor?
G: In my experience not everyone is cut out to be a successful property investor. One mistake people make is to think property is a get-rich-quick scheme, but it takes time to be successful. If, however, you surround yourself with good people and the right knowledge, property can develop into a dependable source of income for the months, years, decades and even generations to come.
Not everyone can make it as a successful investor and a personal example comes from a couple of years ago when I enrolled in a property-investing course. About 40% of the participants did nothing with the information, 50% turned property into a hobby and now make some money from it and 10% are becoming extremely successful and gaining financial freedom. Anyone can go on a property course but you have to be motivated to be successful.
Ask yourself the question: How motivated am I to be a property investor? If the answer is less than 75% I wouldn’t bother. However if you are serious then it is worth getting educated, taking action and making a positive impact on your financial future.
SMA: Don’t I need a lot of money for this?
G: No, you don’t need as much money compared to other investments. For example, the average stock investor who wants to buy $100,000 of stocks needs to invest $100,000. However a property investor who wants to buy a $100,000 property only needs to invest $25,000 because the rest can be secured with a mortgage on a low interest rate.
This is one of the big differences between the stock market and property and gives you hard evidence about which one is more secure, because your bank will not give you money to invest in the stock market but will give you money to invest in a property. The ability to intelligently use other people’s money through leverage is one of the key skills of a good property investor. (SMA – leverage is available for stocks, but only for highly qualified investors)
SMA: What is the first thing I should do if I want to invest in property?
G: Many people think the first thing to do when you invest in property is find a good location, others think the first thing to do is find a good property. Both of these things are important, however they are not the first thing to do.
Before anything else it is wise to consider your property strategy.
Your strategy is an overall plan to know in which direction you want to move. Strategy is crucial because it drives all your decisions and actions. Having a clear property strategy means answering questions such as:
* What is your long-term goal?
* What specifically do you want to achieve and gain from property? – Do you want monthly cash flow from rental income or do you want large chunks of money from capital gains?
* Do you want to invest in small buy-to-let properties at the cheaper end of the market, or do you want to invest in multi-let properties, which cost more and have more regulations but offer a bigger return?
* Or do you want to focus on a strategy such as social housing, which is a longer-term project, perhaps in riskier parts of a town, but can give you a steady return?
* Or you may choose to focus on flipping property and making larger sums of money by buying distressed property, refurbishing them to a high standard and selling them for a good profit.
Once you have a clear strategy, next consider your area:
* How well does your area suit your strategy?
* What are the strengths and weaknesses of investing in this area? – What types of tenant live in the area (families, unemployed, young professionals, students)
* In which direction is the area heading?
* Who can give you the information you need to choose a good investing area?
The more you understand your area the better your chance of success is.
Finally, focus on individual properties. This is when you start viewings and making offers. Viewing properties means identifying necessary repairs, calculating the cost of repairs and then having a trustworthy team in place to first refurbish and then manage the sale or rent.
The acronym to remember is SAP – Strategy. Area. Property.
First formulate your long-term strategy, next learn about a suitable area, and then start viewing and offering on properties.
The average, uneducated investor just goes out and buys a property without knowing enough about their property team, the area, and without a clear, long-term strategy for financial success. This is why so many investors get into trouble, with long voids, difficult tenants, or members of a property team who are a liability rather than an asset.
So, for safety and speed remember- S.A.P!!
SMA: How can someone in Asia get financing in the UK?
G: Raising money is one of the tests to see if you are truly motivated to be a property investor.
First of all you may have your own money to invest. If not, there are many ways of getting finance and today we will focus on bank mortgages. It often depends on your individual situation, for example there is international bank lending from big banks such as Nat West, Barclays and HSBC. These banks offer international loans. Of course they will ask a lot of questions and whether you get a mortgage usually depends on your existing relationship with that bank. If you have a good credit history with them you have a much better chance of getting the money.
Another possibility is to visit your local bank in Japan/Asia as they may have a relationship with a bank in your investing area. If so you may be able to borrow on property in your target location. The first thing to do is speak with your local bank and find out their international banking relationships.
A further option is working with a close family member in your investing country who can get a mortgage for you and will own the property. Together you sign a deed of trust so that you actually control the property and benefit from the rental income.
Whichever method you choose, ultimately your goal is to build a track record with a bank so you can borrow easily in your investing country.
A final point on this topic is that you don’t need to buy a property to financially benefit from it. With as little as $5,000 pounds you can angel invest and support professional property investors with a return of 6 – 10% and your money back within 8 months. A more complex option is to use lease options to control property. These strategies will be explored in future posts.
SMA: What’s the difference between investing in the UK and in Japan?
G: You can make money from property in any country. There are however some important differences to remember. The main difference between Japan and the UK is that Japan is a rental income market, whereas the UK is a rental income and capital gain market. In Japan, the land typically holds its value but the property devalues. If you invest in the right area the income generating opportunity is quite strong, particularly compared to keeping money in the bank. In the UK, property is built to last and generally prices increase over time so you have the double benefit of rental income, and when you sell the property you should make a profit, sometimes a substantial one.
SMA: Are you concerned about Brexit?
Brexit is a great opportunity for overseas property investors!
Since the referendum the pound has crashed and anybody transferring currency to the UK will see a massive difference. Your foreign currency is now worth 10% to 40% more than pre-Brexit vote, which means you can buy more property, and with historically low interest rates, now could be the best time to invest in the UK.
Furthermore if you start a limited company to hold your portfolio, from 2020 the corporation tax will be reduced to 17%. As tax is one of your greatest expenses this is an important factor.
Yes, there are some concerns about our relationship with Europe which will need ironing out, but people will always need a place to live and unlike Japan the U.K’s population is growing, which means more demand for the same number of houses.
We also need to consider that in certain areas, investment is already flowing into the UK. Examples of this are in the northern towns of England with new intercity train lines planned (HS2). In Yorkshire, Hull’s European City of Culture Year, combined with the opening of Siemens 310 million pound wind turbine factory, represents a big boost for property and property investors by bringing long-term jobs and money to the area.
SMA: Where do you see yourself in 10 years time?
G: My career has been in teaching and property investing so I would like to combine these two skill sets and become a property mentor. I have been strongly supported by inspiring property mentors, therefore to help other motivated people move forward and achieve their financial goals would be a dream come true.
SMA: Thanks Graeme, we look forward to talking with you more soon!
Smart Money Asia 