The last two years have been crazy. But, none of us expected it would trigger a real estate boom. But it makes sense in hindsight. Remote work is huge now, and it’s a realm that came with growing pains. But quickly, liberated cubicle dwellers realized they could do their jobs from anywhere.
No longer tied to one spot, they started searching for real estate in desirable places. Some moved back to where they grew up. Others sought refuge from oppressive living costs by heading to cheaper spots. And some bought in places with better weather.
Some even decided to go international. Perhaps you were among this group – after all, who wouldn’t want to work from the beach in Mexico or Costa Rica?
But as with most quickly-conceived ideas, you may have failed to account for certain realities. The fact that tourist visas don’t last forever – a big miss. And at any time, COVID travel restrictions could stop you from accessing your unit.
So what’s the solution? Rent it out, of course! But that comes challenges of its own – from property management to the UK overseas landlord tax, there’s a lot to learn. In this guide, we’ll show you the ropes of managing rental property from abroad.
Let’s get started.
Vacation Rentals – the Exact Opposite of Real Estate Right Now
Throughout the pandemic, property sales activity has been brisk. But with fear and travel restrictions galore, the vacation rental business has been ice cold.
Even with vaccines, times remain tough. Through much of 2021, hotel occupancy rates in Mexican resort destinations have struggled to breach 50%. While vacation homes offer greater privacy, there’s no reason to believe their situation is much better.
Because of this, the business environment in the vacation rental space is extremely competitive. So you can’t just slap up an ad and expect a quality tenant to show up the next day.
Photo by Dim Hou on Unsplash
To succeed at managing rental property from abroad, you need to play this game hard. You need to communicate your unit’s unique advantages, mind every penny, and anticipate problems before they happen.
Below, we’ll share five tips that won’t just get warm bodies into your condo – they’ll increase your odds of finding top-quality tenants.
Minimize Losses on Sending or Accepting Payments From Abroad
As a foreign vacation property owner, you should probably expect that most maintenance expenses will be payable in the local currency. But there’s a problem, one you might not have anticipated – foreign exchange.
The exchange rates and fees that your bank charges are excessive. But most people never question it – they assume their institution makes money through fees, and that the rates they pay are legit.
They’re not – the more money involved in a transaction, the more your bank is ripping you off. For example, let’s say your unit is in Playa del Carmen, Mexico. Each month, your local property manager charges 3,000 MXN as a retainer for their services.
Now, most banks in America don’t share their foreign exchange rates publicly. But on average, they observe an exchange rate margin of around 3%. That means that of this writing, many of these institutions will offer USD/MXN rates of 20.7752.
That means to pay your property manager each month, you would need to send them 145 USD, plus your bank’s international wire fee. Depending on the institution, you may be paying as much as 50 USD a pop – ouch!
Now compare that against the interbank rate. As of late November 2021, the USD/MXN interbank rate was 21.4026. At that price, you’d only have to send 141 USD. Not a big difference at first glance, but together with the wire fees, it can add up over time. In case you are accepting payments in cryptocurrency and want to exchange it later you would need to be checking the BTC to USD rate.
Unfair exchange rates can also impact your potential profits. For example, whenever you accepting payments from abroad, your customer’s bank will charge a rate that will yield less money on your end.
But by accepting payments from overseas for cheap via an online money transfer provider, you can get more. How? By collecting payments from customers in their currency (e.g., GBP). Then, you exchange that currency at a super competitive rate (i.e., NOT the bank’s rate).
Photo by Ranjith Alingal on Unsplash
Hire a Reliable Property Manager
When managing rental property from abroad, it’s impossible to fix broken toilets yourself. So before renting out your unit for the first time, you’ll need to hire a local property management firm.
But to ensure everything goes well, you mustn’t select your property management firm sight unseen. So the first thing you should do is contact the real estate agent that found your property.
They do more than sell condos and houses – they also know reputable people in the local property management business. Why would you take shots in the dark when you already have a subject matter expert on the ground?
But even after they offer some recommendations, put boots on the ground and meet them in person. By doing this, you’ll get to ask questions, tour their facilities, and get a sense of who they are.
Lastly, draw up a professional services contract. This document will lay out everything expected of your new contractor, and in doing so, will give you legal cover should things go south. It should lay out whether or not they’ll collect the rent, the onboarding process for new tenants, the services they’ll provide to tenants/the unit, and so on.
Market Your Property Effectively
As mentioned earlier, it’s a tough economy for vacation rentals. So when it comes to promoting yours, you’ll need to put your best foot forward.
First things first – you’re probably not going to attract the average vacationer. These folks are the kind that book their annual winter holiday six months in advance. But, since we’re still in a pandemic, travel rules can change in an instant. And since your average person hates uncertainty, they’re out.
So, you’ll have to target travelers who want to learn how to rent a property abroad during COVID. You may bristle at this thought, and justifiably so, as younger travelers fall into this category. While not all in this group are irresponsible, many are, a fact which poses damage risks.
Fortunately, there is another group whose ranks have swelled recently – remote workers and digital nomads. These travelers tend to be older, more responsible, and have disposable income to spare. And most importantly, they know how to rent a property abroad during COVID.
Photo by Elena Popova on Unsplash
Also, as their name suggests, they work from home. So by offering them a “home” in paradise, you’ll have a compelling proposition to make in your listing.
Next, consider the property itself. Is it near the beach or a fair distance away? Is your unit in a modern building, or is it in an older structure? Aspects that may appear to be a disadvantage can be turned into a selling point. Units off the beach could be great homes for remote workers or introverts. Older units offer those with a modest budget an opportunity to experience paradise on the cheap.
Finally, craft your listing and put it up on multiple sites. Don’t forget to take photographs, as rental listings with photos get 94% more views than those without.
Protect Your Assets – Form a Company for Rental Property
Nobody likes to think about it, but it happens. A tenant slips in the shower, injures themselves, and decides that it’s your fault for not providing a bath mat.
So they call up their lawyer and hit you with a lawsuit. If they win, you could lose ALL your entire life savings – scary!
Before you get into the vacation rentals business, do two things: one, get insurance, and two, form a company for rental property. There are several structures, but the limited liability corporation (better known as an LLC) is most popular. In short, this legal structure protects your personal assets from being targeted in a legal action.
Should a tenant (or any other entity) decide to sue you, they can only seize the assets contained within your LLC. In this scenario, your bank accounts, your home, and other personal assets would be safe.
Photo by Elena Popova on Unsplash
Foreign Property Owners – Beware the UK Overseas Landlord Tax
Despite our nasty breakup in 1776, today, the United Kingdom occupies a special place in the hearts of Americans. So much so that some of us have bought property over in the UK. But if you have been renting it out during the pandemic, you may soon get an unexpected letter from HM Revenue & Customs.
If you don’t already know, the United Kingdom charges an Overseas Landlord Tax on landlords that live abroad. The test for determining your eligibility is simple: if you haven’t resided in your unit for six months or more in a tax year, AND you are renting it out, then you owe the UK Overseas Landlord Tax.
This tax on overseas property rental income is assessed at a flat rate of 20%, regardless of how much you earn from your unit.
Being an International Landlord Isn’t Easy – But You Got This
Owning vacation rentals offers enviable flexibility. You can reside in them whenever you choose and by accepting payments from abroad when you aren’t, you can make passive income.
But like anything worthwhile, managing rental property from abroad isn’t easy. But by taking the tips in this guide to heart, we’re confident you’ll avoid the pitfalls that ensnare many newbies.
Cover photo by Susan Flynn on Unsplash
