Pretty artist impression of some beautiful luxury apartments by the sea. They are not even built yet and will be brand spanking new. But it gets even better. It is fully serviced so the whole overseas property will be fully managed. And to top it all off it comes with a guaranteed rental for FIVE years producing a net yield of 6%!!!!! The final sprinkling on the cake is the flat is being offered at 50% of the list price. WOW.
Where can you go wrong? I mean you have a nice income cashflow for 5 years, no hassle as it is fully managed and you have a beautiful holiday apartment to use if you so wish once it is all paid for right? WRONG.
Here is the sting.
- The list price is a piece of fiction
- The purchase has to be a cash purchase
- After the 5 years the service charges are exorbitant and if you don’t pay they will seize your flat
- The flat is worth less than you paid for it
Now that doesn’t sound good does it. Here is how it works.
- A builder finds a piece of land by the sea in no mans land and builds apartments at £10k each (labour is cheap out there and the land was bought at budget prices).
- Give the flat a list price of £100k.
- Discount the flat to £50k so it appears to be cheap.
- Give the pretty plans to a UK property company to flog to their innocent database of investors.
- Purchasers are told there is no finance available for the property – it has to be a cash purchase of £50k.
- The builder pays them back 30% of what they paid over as 6% every year for 5 years totalling £15k.
- Builder now has received £50k – £15k = £35k for his £10k flat.Thus it is a £25k profit or a 250% return on capital for the builder. The builder now has a very big smile on his face.
- In year 6 the builder asks purchaser for £5,000 a year service charge.If you do not pay builder takes back holiday flat and sells on.
- If you do pay but try to sell flat no one wants it because of the high service charge and is worth £10k at the most.
Your holiday flat turns out to be a holiday nightmare.
The way to avoid all of these problems is get finance for a property from a reputable bank. If a reputable bank will lend on a property then you can be assured the property has some value. Banks do not lend unless they think the property has a value so they can seize if you stop paying the mortgage. The bank takes the biggest risk not you so always remember that. You piggy back on their control procedures like GETTING A SURVEY from a professional surveyor.
If you do want to buy overseas for cash make sure it is built and DEAD CHEAP otherwise stay away.
Hope you can look at these overseas brochures in a different light now!