There’s no single secret to choosing a successful rental property overseas.
Instead, four factors need to come together to ensure that:
- Healthy, regular payments show up in your bank account.
- You don’t lose your mind.
Today, we’re going to take a look at these four secrets.
(By way of full disclosure, I’ve swiped these straight from the experts at last week’s Global Property Summit.)
Secret #1: Engage The Right Property Manager
Unless you’re living near your investment property or have personal experience in property management (and don’t mind your time being taken up with administration and tenant issues), it’s highly advisable to employ the services of a professional property management company.
Services differ greatly depending on the company and the market in question. Sometimes you’ll have one company to take care of advertising your property and managing bookings, while another will be charged with maintenance. The Holy Grail is the one-stop shop that offers everything from changing light bulbs to offering airport transfers to your clients (we know one of these in Medellín, Colombia). Be sure you understand what services are offered as you weigh up the costs.
The cost of property management varies by market and also by rental type. But as a guideline, look for agency commissions that fall in or around these rates:
For furnished long-term rentals: 10% (or one month’s rent)
For short-term rentals: 20% to 25%
Be wary of agencies quoting below these prices—they usually provide a minimal service… or go out of business fast.
Secret #2: Know The Market
Before you buy your property, it can be helpful to speak with property managers in the area to help identify which neighborhoods receive the highest occupancy. You’re looking for a minimum of 70% to 80%.
If possible, spend time in the area. Walk around to see who is renting… and what they’re renting.
When Lief and Kathleen were buying their rental apartment in Paris, for example, most investors in the city were buying up studios. With fewer one- and two-bedroom properties in the rental pool, their two-bedroom apartment had less competition. Think about what you can you do to stand above the rest.
Secret #3: Don’t Underestimate Location
Pay attention to the areas that are most appealing to tourists… but don’t ignore those up-and-coming areas that are within reach of amenities. A lower entry price in an area of strong rental opportunity may result in a greater ROI.
For short-term rentals, walkability is vital. Foreign visitors in big cities typically don’t want to drive. They want to stroll to shops, cafés, and restaurants. In major cities, proximity to public transport (especially a metro or tramline) is an advantage.
Ultimately remember that, in this digital age, no matter how attractive your property is inside, you can’t hide a poor location. If you’re far from amenities, some disgruntled visitor (or 10) will call you out on TripAdvisor.
Secret #4: Don’t Overspend On Your Asset
This one can be a challenge. Many first-time overseas buyers try to put their own stamp on a place—especially if they’re planning on spending some time in the property themselves (we call it “The Spousal Factor”).
Overspending on furniture is generally not recommended. Unless you are hitting the luxury market (and can charge higher rents to justify the cost), skip the antique shops and go with IKEA or similar.
Above all, what you want is a tasteful, uncluttered look that photographs well. The best way to go about this is to hire a professional interior decorating firm. A little investment here can pay off in spades.