The 7 “deadly sins” of investing in property (article 3 of 4)

Private Property South Africa
Anton de Leeuw

While the process of purchasing an off-shore investment property may be complex and time consuming, the process of managing the property after the purchase can be demanding.

Not understanding local legal and tax systems, or the property costs

Many inexperienced investors do not appreciate the effort that can be required to manage an investment property once it has been purchased, particularly if that property is off-shore and you are working within a different regulatory environment and tax regime.

How does the buying process work? What are the risks? Are deposits required? How will you ensure that your funds are protected? How does transfer work? Will your title be secure? Is title insurance required? Is the state landlord-friendly, or is it difficult to evict non-paying tenants?

How does the tax regime work? What will the best structure be? For example, should you register a company in the US? How will you/it be taxed, and at what rate? What will the impact of this be on your cash flow?

What are the various costs? A good checklist includes estimated renovation costs, agents’ commission, closing costs (transfer costs), the cost of setting up a company (if required), escrow fees (if your money will initially go into a trust account), property taxes, HOA levies, pest inspections and insurance, hazard insurance, and management fees.

All these costs can be established through a proper due diligence, something which is often not done, or not done thoroughly. Additionally, investors can underestimate the paperwork and hassle required to set up a buy to let operation in another country.

In the case of the US, a company might have to be set up. If so, the following must be considered:

Which type of company? How does the incorporation of the company work? What documents need to be signed? What are the costs? How do you register the company with the IRS for tax purposes? Do you need a bank account in order to operate in the USA? If so, can you actually get an account opened without physically being in the USA? If so, how?

Poor management

Ongoing management of a property is as important as buying in the right area and at the right price. You could, after all, keep the property for 20 years. Not being close to the property is a major concern for most investors, and it is thus critical that the property is managed by a team of professionals that you can trust. You need to know who will do their best for you, including ensuring that your property does not fall into disrepair.

Unlike companies that follow less complete business models, YDL Property Investment’s clients benefit from a full service solution. Clients are not handed over to other parties to complete individual parts of the process; the entire process is handled end-to-end by YDL Property Investment’s experts.

YDL Property Investment walks with their clients through every stage of the property purchase, setting up the vehicles to facilitate the purchase, ensuring compliance with local taxation requirements, and ensuring that the properties are managed by reputable, professional and successful letting and management agents.

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