By Tony Booth

With the property market experiencing a slow down in recent months, it is important to really understand your investment strategy and what you need to do to optimise your return and avoid any potential pitfalls. Tony Booth, writer for Property Secrets, overseas investment experts, highlights the ten biggest mistakes made by investors and how they should be avoided.

1. Adopting a High Risk Strategy The lure of high returns from emerging countries has a tendency to blind some investors - always remember that higher return often goes hand-in-hand with higher risk. By their nature, newly emerging property investment locations around the world have no history to prove they are likely to be consistent or reliable. Some emerging countries may also have unstable political, financial and regulatory systems.

There is often an advantage to following others along a known path, rather than venturing into potentially unstable and uncertain regions where the gains may be high, but so too are the risks. Adopting this type of win-all or lose-all strategy is akin to playing financial Russian roulette - and only those who are prepared and can afford to lose everything should consider taking part.

2. Believing What The Salesman Tells You It is extremely foolish to assume everything the developer's salesman tells you is true. It is likely there will be rental income and tenant demand assertions and inflated capital value growth expectations given - but there is unlikely to be any independent or reliable research to back-up the claims. Even worse, the salesman will probably extol the positives and ignore any negatives, such as the fact that another block of apartments will be built alongside yours in 'phase three', completely obliterating the view currently enjoyed.

The sales people employed in some overseas countries earn commission (rather than a salary), which encourages them to complete a deal regardless of the quality of information being given to potential buyers. Much of the information supplied should therefore be considered suspect, at the very least. The only way through this foggy path is to undertake your own exhaustive research to verify every element of a potential purchase. Consult the local authority over planning issues and future development in the area and always employ a local lawyer as well as one in the UK to verify the legal facts and status of ownership.

If an estate is already part constructed, knock on doors to ascertain what occupiers (some may be owners or tenants) think about the development. Even before you meet with a salesman, prepare a comprehensive list of questions - then seek to get every question answered and verified through an independent source.

3. Assuming all Property Markets are the Same Familiarity with the way the property market operates in the UK can lead novice investors down a blind alley to disaster, if they assume things operate in a similar fashion in other countries. The UK has a long and established history and, more importantly, the legal and financial regime of buying, selling and renting property is infused with consumer protective legislation. Emerging countries rarely enjoy the same degree of stability or reliability - and very few impart the same level of legal protection. There are also often political or legislative issues operating in another country that a UK investor might be completely ignorant about, but these issues could severely affect the security of a particular purchase now or in the future. The legal, financial, cultural and political status of a foreign country should be thoroughly researched before an investor considers the practical opportunities of buying there.

4. Eagerly and Blindly Following the Hot Spot Trail Following the global hot-spot trail can be extremely risky, because success depends on the quality of information and just how up-to-date it might be. Bare in mind that an established hot spot could have capital values that have already peaked, so buying there may prove unprofitable. Some investors are over-reliant on nuggets of information from television property shows; but viewers sometimes fail to realise that such programs might have been made six months or even longer ago, and much could have changed in the interim period. Following the hot-spot trail is only a lucrative strategy when reliable, high-quality and up-to-date information relates to emerging property hot spot markets that have yet to reach their optimum growth potential.

5. Having Vague and Uncertain Investment Objectives Investing on a whim or a hunch is always a mistake, particularly when a buyer has no firm objective of why they might be purchasing or how they intend using the property. This is how the bad reputation of 'timeshare' developed, because many fell for the hard-sell tactics while on holiday, without truly realising the implications and lack of actual investment potential until they travelled back to the UK.

Investors need to have a clear plan, lots of information and time to research and reflect on the financial, legal and investment implications of a particular property in a particular country. Having a holiday home is one thing, but what is the demand for others to rent it outside your 'own use' period? Is the demand sustainable? What if you get bored with the property - would you be able to sell it and make a profit - or would over supply in the area cause problems?

Buying purely on the experience of holidaying in a country rarely makes sense, because tourists are usually protected from the realities of living there. Investors should always make a purposeful 'business trip' to gather information, talk to ex-pat owners or other investors, get a feel for the country and undertake extensive research about current and anticipated market conditions. They should also decide the precise purpose of the investment - whether it is intended as a holiday home, a short or long-term capital investment or rental property - and then analyse the local market to verify supply and demand.

6. Not Recognising the Need for an Independent Solicitor Overseas developers commonly offer the free or discounted use of their own conveyancing solicitor, which is all very well - but to put this 'offer' in context, would you be happy about using a vendor's solicitor when buying a property in the UK?

Always employ a solicitor you have chosen - and one that is familiar with the laws, regulations and tax regime of the pertinent country. The value of independent advice and the verification of ownership rights cannot be underestimated. Personally, I would in addition employ my own UK solicitor to check on the authenticity of ownership documents and to ensure the legal transfer follows appropriate protocol, because this is where many buyers of overseas property find problems long after the purchase has completed.

7. Failing to Verify an Exit Route It's all very well buying a property abroad, but what happens if and when you decide it has become too expensive to maintain and manage or if the profit potential proves unattainable? Some investors complete all the necessary pre-purchase investigations, but fail to research whether the local market and the laws and taxation regimes allow for easy and economic disposal. Buying a place in the sun might seem attractive, but always check whether the dream holiday home has the potential of becoming a millstone, if things go pear-shaped.

8. Falling for Incentives Don't believe the hype. There is no such thing as a free lunch, so if a developer is offering free furniture packages or a 'sign-up now for a discount' deal - be aware that somewhere along the line the cost of the 'incentive' is likely to be factored into the price. Do your homework, check and verify the real base value of the dwelling and consider any intention to buy on facts and statistics you have gathered yourself - while ignoring any lures or incentives proposed.

Under no circumstances accept a 'sign today for a discount' deal, because this particular 'pressure selling technique' incentive prohibits you from consolidating and considering facts about the property and the area. Also remember that if a developer needs to offer an incentive, there is the possibility the units are not selling, so ask yourself whether the prospects for rental yield or selling at profit are actually as good as the claims being made.

9. Ignoring Construction Quality Developers are extremely efficient and well practised at 'dressing' a property to make it look inspiring and attractive. But furnishings, décor and a bit of glitz and glamour might divert your attention away from what later may prove to be a poor and inadequate construction. It is rare for overseas buyers of new development properties to have an independent survey undertaken, but sometimes it can prove essential, particularly if the developer and their reputation are unknown. At the very least, inspect a property with an eye on its structural aspects, rather than the quality of furnishings and accessories.

10. Failing to Quantify Management Fees and Maintenance Liabilities Even a good quality property in the right location could prove uneconomic, if the running costs prove excessive. Holiday home buyers often fall for what others might perceive as a scam, whereby they are tied into an ongoing and often mandatory maintenance charge at the same time as buying the property. The system is similar to a leasehold service charge in the UK, but in some countries owners have no right to terminate a management company contract or opt to employ someone with better credentials.

The result is that investors might find they buy a property that costs a fortune to keep. Quite often, the management and maintenance costs far outweigh any possible rental income and, of course, these costs must be paid whether or not a tenant has been found to occupy the dwelling. Some less scrupulous developers reduce the purchase price of their properties, just to attract would-be buyers and capitalise on management contract income. Make sure you and your independent solicitor examine a purchase contract carefully to ensure awareness of ongoing fees and liabilities.

-ends-

Notes for editor

About Property Secrets:

Property Secrets, founded in 1999, is a firm of independent analysts, commentators and deal finders who deliver wealth creating market intelligence on property investment across Europe. With a subscription website of 75,000 members and 100,000 visitors per month, Property Secrets is focussed on researching, analysing and interpreting long-term property market trends for its members. The company produces a range of books and reports on current market trends, as well as provides members with carefully-selected, high-growth investment opportunities in Central and Eastern Europe. Property Secrets' acknowledged industry experts view property investment as a long-term strategy and aim to build a secure and lucrative financial future for its members.

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