INTERNATIONAL property investment sounds like an exciting prospect but it can be risky if not approached carefully.

Two things have attracted people into overseas investment recently - the slow-down of UK property prices and investors wanting to diversify their portfolios.

Deciding which countries to invest in depends on whether you are a short-term or long-term investor and if you will use the property yourself.

Short-term investors should look for a country with low legal costs, low estate-agency costs, low capital gains tax and a good resale market.

Probably the most important factor for investors is that overseas purchase costs will be a bigger percentage of the price than in the UK. Here you will get a buy-to-let mortgage with a 15 per cent deposit plus legal costs and stamp duty of around another two per cent.

In France, deposit levels on a new property are around 15 per cent but legal costs and stamp duty add up to another three per cent.

But that is very much an exception. In most other countries, you will see total purchase costs of around 7-15 per cent of the purchase price plus the larger deposit of around 30 per cent.

For an investor looking for capital gains the most important factor is the size of deposit required and the rate of house price increases. A 15 per cent deposit combined with house prices increasing at 15 per cent gives the investor a 100 per cent return. But a 50 per cent deposit combined with house price increases of 10 per cent gives the investor a 20 per cent return.

Long-term investors should be looking for high rental incomes to pay off the mortgage.

For holiday lets in mature markets, two-bedroom apartments or townhouses close to the hot-spot tourist locations, tend to produce the best yields.

In some emerging countries, such as Cyprus, Bulgaria or Turkey, you can still buy detached villas for prices that should produce eight per cent rental yields.

In these countries, the investor needs to look carefully at the choice between ski or beach holiday lets and city property for corporate let.

Corporate long-term lets in cities can be easily delegated to a management company but holiday lets usually need a lot more direct involvement by the investor to achieve high returns.

For this extra time put in by the investor, you would expect a higher yield but in some holiday destinations you may not see a better yield than that of a city flat, and the latter would be a lot less hassle.

Rental demand in established countries such as France, Spain and Portugal can give the investor a lot of confidence that they will rent out their property profitably. In emerging countries, the appeal is normally the lower costs and while some rental guarantee schemes exist you should be aware that, in the early years, your rental income may not be reliable until the country becomes better established as a holiday destination.

Holiday lets work well for investors where properties will be used by families while corporate lets work better for "buy-and-forget" investors.

There are now 230,000 holiday homes owned by the British abroad, so the competition for holiday lets is fiercer than ever.

If you do not buy a property with a long-term guaranteed rental income you really need to have your marketing plan sorted before diving in.

Speak with others who enjoyed rental success in your chosen area to get an idea of the places to advertise, likely income and work required.

Property investment overseas can be hard work but the rewards are there for those who do the research and are willing to put in the effort to succeed.


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