Expat Advice. Buy Overseas or in Aus

Discussion in 'Investment Strategy' started by FlyingHigh, 19th Aug, 2022.

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  1. FlyingHigh

    FlyingHigh Member

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    Hi all,

    Looking for some advice on strategy.

    I'm an Aussie currently living in London paying a ridiculous amount in rent each month for a 1 bed flat (approx. 3,100 AUD).

    I'm considering purchasing a flat in London to live in to subsidise the high rent that I am paying. I would live in it for a few years and then probably rent it out when I move back to Aus or somewhere else in the world. The yields don't look too bad for a flat in the area that I'm looking at - could maybe get to 5%. The London flat market isn't doing much at the moment though and has probably decreased since Covid. Historically it has done very well though.

    My other option as I see it is to suck up the high rent here and continue investing in Australia but my borrowing capacity is significantly restricted due to the high rent that I am paying.

    Any tips / advice would be greatly appreciated.
     
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  2. skater

    skater Well-Known Member

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    If memory serves me right, I think @geoffw had/has a property in the UK. Maybe he can give you some insights......
     
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  3. geoffw

    geoffw Moderator Staff Member

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    I did have a place, but I sold it in 1999, so I couldn't offer much relevant advice.

    Perhaps there's an English based property forum or Facebook group where you could find some better targetted advice?
     
  4. Casteller

    Casteller Well-Known Member

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    I owned a 1 bed flat in SE London for 8 years (lived in it for 5 when I was a UK immigrant). Sold it in 2007 at a good profit. It was about to become liable for cap gains tax as I didn't live in it anymore after I left London for Zurich. Managing agent fee was 13%. I never saw myself returning and i had various issues with it as an investment for 3 years so decided to sell it.

    Since then government has made major changes to deductions of various things which have made it untenable for many, but maybe doesn't affect as much non-residents.
     
  5. ashish1137

    ashish1137 Well-Known Member

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    Hi @FlyingHigh

    You need to figure out where eventually you would land.
    If it is Australia, best is to buy investments with high yields.
    Dependending upon sttae, you can start as low as 350k in decent quality areas and get about 6% yields.
    Hoping that might help in your borrowing but have a chat to your broker and assess possibilities.

    Regards
    Ashish
     
  6. BeautifulBicycle

    BeautifulBicycle Member

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    I did (am doing) this right now, though not in London. In my case it was more because I was sick of dealing with landlords, terrible renovations, rent increases and potential terminations of leases and the numbers stacked up from a cashflow perspective. Key factors for me were
    - mortgage payments on my property are much lower than renting the same property and were significantly lower than what I was paying to rent a larger abode, so the difference each month you are able to deploy to other investments
    - I was not intending to move in the short-term
    - Property here has consistently shown good capital growth
    - I did downsize in area to have my own place, so you need to be prepared to do that, but it also means less furniture to buy, rooms to clear, power to heat etc
    Haven't made a plan for what I will do when I leave, but likely to sell as I don't fancy the idea of being an offshore landlord, but ill do the math when the time comes.

    Run the numbers and see how it looks, YMMV. For me though it was more an emotional/lifestyle decision, but once I crunched the numbers it was a no-brainer
     
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  7. GreenTreeFrog

    GreenTreeFrog Well-Known Member

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    I lived in Edinburgh and London before going to live in Vanuatu. I wished I had bought in both places in UK. From that I learnt, and made it a rule, to always buy where I lived going forward. I would seriously consider it.
     
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Consider UK tax laws and especially how CGT applies after departure and their main residence rules. Also consider taxes and duties and land taxes etc.
    If the property is retained then when you commence AU tax residency its MARKET value in AUD terms on the date you commence residecny may be its australia CGT costbase but it will depend where you live etsand its possible if your rent in AU that it can remain your main residence (absence rule) for up to 6 years. But you ned to understand UK tax laws which limits deductions for interest etc so "negative gearing" under buy to let rules in the UK often make it attractive to sell. Also understand CGT in the UK once its no longer your home. get AU tax advice closer to the time you plan to return. In simple cases sale of UK exempt property and repatriation of proceeds to AU can be simple.
     
  9. Lacrim

    Lacrim Well-Known Member

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    Is it worth a lot more today?
     
  10. spoon

    spoon Well-Known Member

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    Agreed. But only cities of good growth potential. Or world class cities. :)
     
  11. Casteller

    Casteller Well-Known Member

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    Probably, but for a while it was looking like a good move since it was just before the GFC in 2008 when a lot of property in parts of Europe crashed 50% or more
     
  12. Chris B

    Chris B Well-Known Member

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    We bought a flat in London just before the GFC that has worked out well. At the time, rent seemed high & prices seemed cheap, so it made sense for us once we decided to extend our stay for a few years.

    I'm sure you could find a much cheaper rental for about $2k per month (GBP 1200), but it depends what part of London you want to live in and your expectations.
     
  13. carfield

    carfield Well-Known Member

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    unless you want to live in London for longhaul i wouldnt do it. managing property from afar is biggest pain to start, different tax situation etc. I lived in london around GFC times and boy i would hate to habe to manage it from so far.

    fundamentals for UK is terrible, if there is one place on planet thats likely to face stagflation, its UK. their inflation is forecast to hit 19pct so interest rate will go a lot higher... supply of labour is limited due to brexit side effects. Just looj at GBPAUD FX rate and you can see how sterling devalued.
     
  14. Weinilourson

    Weinilourson Active Member

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    Just to discuss from the other end - GBP is very low now. Would this not be a good opportunity to buy in London? It would translate to be a 10% discount from 6 months ago, just on currency alone.
     
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  15. carfield

    carfield Well-Known Member

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    if you want to punt FX just do leveraged FX

    if you have view on UK housing/tax/macro that provides you with bullish UK outlook, or have long term life commitment to justify a housing in uk (say live there 10yr+ to break even) then go the housing
     
  16. Prothonotary

    Prothonotary Active Member

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    My 2 cents (pence):

    Pros
    • London is a big, global city – lots of well paying jobs and demand for housing
    • Yields are relatively high
    • My hunch is that good flats are undervalued post COVID
    • You need a place to live
    • Interest only loan available for full loan term
    • Probably easier to get a loan in UK
    Cons
    • UK buying process is painful
    • It potentially makes your tax affairs more complicated
    • Generally avoid leasehold properties – most newer builds are leasehold. Some period conversion flats offer a share of freehold which is usually fine
    • Generally avoid high-rise buildings. Service fees are a killer.

    Ultimately, no one has a crystal ball and this is a decision for you. If you are in a position to buy, and buy something well, you probably can’t go too wrong long term.
     
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  17. FlyingHigh

    FlyingHigh Member

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    Thanks for the information Casteller. I understand that the UK Government have cut landlord deductions on finance costs, mortgage interest etc... which were previously allowed. The system I believe now for an IP in the UK is that I would have to pay income tax on 100% rental income. There would then be a 20% tax discount applied to this amount. If I was to say live in the UK property for a few years and then move back to Australia or another country - I don't think this would have too much impact on me - because the only UK income tax I would be paying would be from the one IP that would rent out at say 20,000 GBP each year? If there is anything that I am missing please let me know.
     
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  18. FlyingHigh

    FlyingHigh Member

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    Thanks Carfield - I don't think I'm going to live in London longhaul - but I think I will always need to have some form of a base here as this is where the majority of my work will come from even when I move back to Aus. No one has a crystal ball but I can see your arguments and tend to agree with your UK stagflation analysis.
     
  19. FlyingHigh

    FlyingHigh Member

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    Thanks Paul - Similar to the above post - the system I believe now for an IP in the UK is that I would have to pay income tax on 100% rental income. There would then be a 20% tax discount applied to this amount. If I was to say live in the UK property for a few years and then move back to Australia or another country - I don't think this would have too much impact on me - because the only UK income tax I would be paying would be from the one IP that would rent out at say 20,000 GBP each year? If I am missing something please let me know.