Guide to Letting a Property Abroad

Congratulations! You have found your property abroad, safely negotiated the legal and financial hurdles and been handed the keys to the door. But just when you think the hard work is over, those bills – mortgage and communal apartment fees possibly, utility charges certainly – start landing on the doormat with a thud.
Letting out your property, especially if it is in a popular holiday area, may seem like an ideal way to cover your costs but it is not all plain sailing. Here is a guide to the pleasures and pitfalls of letting a property abroad.

Define your objectives

First, check that there are no restrictions on renting your property out. Some countries withhold permission for foreigners to rent property. That was the case in letting property in Cyprus, for example, before it joined the EU. Individual resorts or apartment blocks may have restrictions on how many weeks you can rent a unit out for or may ban pets or even children. These restrictions will all impact your potential rental market.

There have been many salutary stories in the press recently about buyers who were told they could expect a four-month rental season only to find that four weeks is nearer the truth. Do your research thoroughly. Be a secret shopper and approach an agent as a potential tenant to see how many properties he can offer you. Be hard headed in looking at the market where you have bought. If you are letting your property in a city such as Barcelona or Paris, then you may be able to expect strong rentals year-round. If, however, you have bought to let in a ski resort, there may be no summer market.

Set clear and realistic objectives, remembering that many owners are happy just to cover their costs, hoping to realise capital appreciation when they come to sell several years down the line. Work out how many weeks the average property in your area rents for and what price you could get. Remember that the recent boom in people buying property abroad means that the market for rentals is becoming more competitive so make your property stand out by being more high-tech or comfortable.

Congratulations! You have found your property abroad, safely negotiated the legal and financial hurdles and been handed the keys to the door. But just when you think the hard work is over, those bills – mortgage and communal apartment fees possibly, utility charges certainly – start landing on the doormat with a thud.

Letting out your property, especially if it is in a popular holiday area, may seem like an ideal way to cover your costs but it is not all plain sailing. Here is a guide to the pleasures and pitfalls of letting a property abroad.

Define your objectives

First, check that there are no restrictions on renting your property out. Some countries withhold permission for foreigners to rent property. That was the case in letting property in Cyprus, for example, before it joined the EU. Individual resorts or apartment blocks may have restrictions on how many weeks you can rent a unit out for or may ban pets or even children. These restrictions will all impact your potential rental market.

There have been many salutary stories in the press recently about buyers who were told they could expect a four-month rental season only to find that four weeks is nearer the truth. Do your research thoroughly. Be a secret shopper and approach an agent as a potential tenant to see how many properties he can offer you. Be hard headed in looking at the market where you have bought. If you are letting your property in a city such as Barcelona or Paris, then you may be able to expect strong rentals year-round. If, however, you have bought to let in a ski resort, there may be no summer market.

Set clear and realistic objectives, remembering that many owners are happy just to cover their costs, hoping to realise capital appreciation when they come to sell several years down the line. Work out how many weeks the average property in your area rents for and what price you could get. Remember that the recent boom in people buying property abroad means that the market for rentals is becoming more competitive so make your property stand out by being more high-tech or comfortable.

How often will you stay in the property yourself? Most costs will stay the same whether you rent the property or not. If you plan to have large family get-togethers over Christmas and New Year in your swanky new ski chalet or aim to take August off to enjoy your Tuscan apartment, you will be losing your most lucrative rental weeks while still having to pay mortgage and running costs.

Choosing to use a property management company

If you own a property abroad, you may plan to arrange the rentals and maintenance yourself from home but this is rarely an easy option. Who will clean it in between lets? Who will check that rules – for example, banning animals or small children – are being followed? Imagine sitting at home in the UK and hearing a severe storm is heading for your holiday haven. Who will be responsible for securing your property and checking on a regular basis? Informal arrangements with neighbours are not a good long-term solution and for many owners, a property management company is the only sensible solution.

A good property management company should maximise the periods when your property is rented out as well as taking off your hands all the day-to-day hassle of maintaining it. It will charge for this service, taking a percentage of the rental return from you: 20% is normal but 50% is not unheard of, so work out carefully what they will do for you.

What to expect from a property management company

• Advertises your property, takes enquiries from potential clients and books rentals
• Liaises with clients to answer all queries and hands over the keys and instructions for the property
• Handles all day-to-day problems and sorts them out quickly
• Keeps accurate records of bookings and income
• Handles deposits and checks inventory, replacing faulty or broken goods
• Cleans the property in between lets – and during them if necessary
• Organises additional services such as collecting from airports, arranging day tours and delivering food.

Research your chosen property management company. How long has it been operating? What is its local reputation? Try and speak to some of its clients. Remember that you will have to deal regularly with the company, so gauge how quickly it responds to your enquiry and gets back to you with any queries. Can you communicate easily with the people, or is language a problem? Does the company have a degree of flexibility to handle unexpected problems?

Realistic returns

There are many factors that will determine how successful you are in maximising your rental return. First consider location and access. Look where the nearest airports are and who flies there. The low cost airlines have given a huge boost to once inaccessible areas of Europe but what would happen if the routes became unprofitable? If possible, make sure there are alternative ways to get there, either through another carrier or else another airport close by. Trains are becoming increasingly popular as a greener alternative to flying, so look at European routes. How long does it take to get from the airport or train station to your property and how expensive is it? Look at public transport options.

Once people are in your property, consider what activities and shops are close by. If the beach or pool is a long drive away, will it appeal? Your holiday nirvana will not be popular if it is under a runway or beside a busy road. Think about access for wheelchair users. You will need to make it clear in your marketing if it is unsuitable for disabled people or very young children.

Secondly, consider the appearance of your property. If you are charging top dollar rent, then clients will expect high quality furniture. Internet access and state of the art media equipment are considered increasingly important. Be objective and remember that your prized antique furniture may not be as highly valued by others.

You have a choice of going for short lets or a long-term contract. Short lets are probably more lucrative but involve more work for you or the property management company and will generally cause more wear and tear on your property. A long let will mean a steady, assured income. The location of your property will help to determine which is more successful with an apartment in a business district being suited to a long let and a home in a holiday hot-spot an obvious candidate for shorter lets but consider all the options. In a holiday resort the reps and local workers also have to live somewhere.

With so many variables, it is impossible to guarantee rental returns, so never buy a property abroad if you are totally dependent on the rent to pay your costs. Do your sums to calculate what percentage return on your capital you regard as essential. Remember that even if you have bought as a pure investment, aiming to make it available for rent for 52 weeks of the year there will always be fallow periods. In some major ski resorts the season is 12 weeks long but this can be enough to cover costs for the entire year.

Insurance and liabilities

You will have to tell the household insurer that you are letting the property out and this will probably have repercussions on the amount you pay. It is possible to insure against loss of rental but this is expensive. You can arrange cover in the UK or in the country where your property is – normally it will be more expensive if arranged through the UK - but remember to read the small print. If the contract is not in English, make sure you get a reliable translation or else pay the extra for a UK insurance company. Your insurer may also demand certain restrictions if the property is vacant for a few weeks: turning off the water, for example.

Your insurer should also offer legal liability cover against someone suing you for an injury they received in your property, such as falling down stairs that are badly lit or tripping on a slippery floor. Ensure you have this before you let anyone rent your property.

Financial matters

The taxman in the UK will become interested in you as soon as you start earning money from your home abroad. You will need to complete a tax return in the country where you own the property and if there is a double tax treaty with the UK – as there is in most of western Europe – the UK tax authorities will take into consideration the tax you have already paid abroad.

Keep papers in order. Many costs, such as letting agent’s fees, legal fees and insurance, are deductible from the rent you have to pay tax on. Unless you are fully up to date with financial rules, consider employing a local bilingual accountant to help you.

Overview

Many people make a healthy return from successfully letting out their property abroad but it is important to be realistic about what your property is worth, what the competition is like and to budget for the worst. There will be difficult times because dealing with property is never simple: water pipes burst, white goods break down and clients can sometimes be difficult.

A final few thoughts:

• Remember that you will have to empty all drawers and cupboards of your personal effects. Many new-build properties offer separate storage space or a lock-off room which could be an ideal answer to this problem
• Furnishings will have to be of a high standard and fit in with legal requirements, such as made from flame retardant materials
• When you invite strangers into your house you have to accept that they may not look after it as well as you would. You will have to replace the furniture and fittings more frequently, too
• Finally, the thorny problem of family and friends. Do you let them stay for free and lose out on potential rent or do you charge them. This is one question only you can answer.