In whatever investment, before we proceed, we really have to do the calculation carefully. Focusing on just the rental yield without taking into consideration the absolute amount of profit is unwise. There are many other aspect of investment will ultimately break our investment.
Few questions that we really need to ask.
What if tenant default rental payment?
This is the simplest and the most important question to think about. It is aimless to have the attractively high potential rental yield but not being able to collect the payment from the tenant. Renting out for free is as good as a company manages to sell their product but not being able to collect the payment from the customer. If default payment is the case, leaving the property vacant instead of renting out for free is probably better option. Don’t forget about the potential damages, legal action needed to evict a default tenant.
How much does the air ticket cost?
If we don’t have someone to help us collect the arrears, the only solution, we need to fly there personally to do the necessary, all these cost! E.g. Air Ticket, legal fee, time, hotel lodging. If the annual NET PROFIT (i.e. after all expenses, depreciation and tax; I want to emphasise this) is merely few thousand dollars before considering all these contingent expenses, probably this investment option should be out of the consideration. Any one rental default would wipe out the entire year’s profit. So much hassle, yet low profitability!
Who can help manage the property?
Unless we have strong network of contactS that we can mobilise easily over there, otherwise be prepared to beg someone to go on our behalf to maintain the property or to pester the tenant to pay up. Begging someone at the foreign land where we are not familiar with is certainly disastrous mentally, physically, and financially.
Are we familiar with the secondary market there?
Buying and paying for a property is easy, but selling / repatriating the sale proceed will be a challenge for many overseas investment, especially in the developing countries. In whatever investment that we are in, if we have problems to find buyers to buy from us, we will certainly have problem to command good price as a seller. If we can’t exit at a good price, why bother to enter in the first place?
Conclusion
Owning an investment should be pleasant, joyful affair instead of being a stressful experience. Therefore next time think twice if the property does not cost us at least a few Millions of dollars. If the asset price is too low, and hence the net profit, it probably is just a waste of time because any contingent expenses arise would just wipe out the little hard earned profit.
