An Overseas Property Portfolio

Noreen Hynes, FCA, of Aquarius Properties talks to Accountancy Ireland by Daisy Downes

A former Chairperson of the Leinster Society of Chartered Accountants and a former ICAI Council member, Noreen Hynes, Managing Director of Aquarius Properties, is well known to many readers of Accountancy Ireland. Two years ago, she realised that the market for overseas property was changing and, in response, she and her husband (fellow Chartered Accountant, Declan Hynes) boosted their property sales team. They have recently launched the Build Your Overseas Property Portfolio concept.

Covering over 25 locations worldwide Aquarius Properties is constantly researching overseas property markets for new opportunities so Noreen is well placed to offer some tips on which locations offer the best value and growth potential at the moment.

Best Investment Locations for 2007

"Aquarius Properties have carried out due diligence on several markets in 2007 and we have turned down some markets like Berlin where unlike many in the industry we don't believe there is significant value for clients in residential property," says Noreen. She believes the new locations to watch in the next year or two are North East Brazil, the Dominican Republic, Panama, Turkey - despite the political situation - certain cities of Poland, Sofia in Bulgaria, the higher up ski resorts in Bulgaria like Bansko, Morocco, Dubai and especially the new waterfront development, Southern Italy, Montenegro, and upmarket city developments in the US like Chicago and Miami.

What about falling property prices in Spain - is that a concern?

"I believe now might be a good time to buy a Spanish property for lifestyle as prices have dropped. In Marbella they are not currently granting any more building permits. They are focusing on cleaning up the bad practices that caused all the troubles in the first place but the weather and lifestyle is still good there," Noreen explains.

A concern for investors is the fact that overseas property investment is unregulated. I asked Noreen how potential investors can protect themselves against risk.

"There are many people operating successfully in the overseas property business in Ireland including overseas property marketing companies, auctioneers, financial advisors, accountants, and others -not all of whom have the depth of knowledge you would like in the markets they are operating in. Some agents are handling client money when they are not supposed to and recently there have been some high court cases on this matter. In my opinion agents who handle client money should be bonded and should have a real estate licence. They should also be members of an organisation like the Federation of Overseas Property Developers Agents and Consultants (FOPDAC) or the National Association of Estate Agents (NAEA). The public need to understand that it is important to deal with companies that are members of these organisations."

Aquarius Properties are members of FOPDAC and Noreen is a strong believer that investors are entitled to expect accountability. She advises that purchasers should always deal with companies that operate under a strict code of ethics.

Building Your Property Portfolio

Having recently launched the "Build an Overseas Property Portfolio" concept, I asked Noreen why potential investors would choose a company like hers.

"We are totally independent of developers and can locate properties in the best locations internationally. The big benefit for clients is they can get launch discounts of up to 25% on pre launch properties and this can be significant when building a property portfolio. We tend to focus mainly on fully managed properties which are hands off because people are just too busy with their day jobs to be worried about leaky pipes or signing tenant leases. Of course purchasing property off plan is not without risk and clients realise this and take the proper advice to ensure their purchase contracts incorporate the necessary clauses to minimise the risk," says Noreen.

Choosing Property

According to Noreen, the list of criteria to use when choosing properties for your property portfolio include location, management, rental income growth potential, and resale value.

"The rental income should be sustainable, and the price of the property should be comparable with similar properties in the location," Noreen adds. "Where you are purchasing in an emerging market in order to achieve higher capital growth it is important to talk to an independent lawyer who can ensure your contract protects you to the maximum extent possible," she advises.

Before locking in on a particular property Noreen also recommends that clients talk to an independent mortgage advisor to ensure they get the best financing deal possible.

"This is a critical factor in building a property portfolio. I have seen clients being able to add two properties to their portfolio with no additional cash outflows by clever financial engineering. This is what portfolio building is all about," explains Noreen. Aquarius Properties carry out a due diligence on all the properties they put into their portfolios. This includes a financial due diligence which Noreen explains is the backdrop for their confidence that their expected rental yield calculations are reasonable based on the market in that area. They also use an independent lawyer who carries out a detailed legal due diligence for their clients ensuring that all the legal aspects of a purchase are in order.

Noreen explains that her company chooses both Chartered Accountants and legal professionals on the basis of their knowledge and expertise in the overseas property market, but she stresses that all of the professionals involved, including developers, are independent and no commission is paid to Aquarius Properties.

Professional Advice

A Chartered Accountant herself, Noreen stresses the importance of buyers understanding the cost implications and filing obligations of owning property abroad. "For example tax returns have got to be made in the country of purchase as well as in Ireland. You need to understand the implications of double taxation agreements between the country of purchase and your home country and what other taxes apply including tax on rental income, capital gains tax and inheritance tax. Also in some countries it is wise to set up a company and purchase through that company and it is important to know this prior to completing the sale. For this reason we recommend that you take advice early from a firm of Chartered Accountants who will carry out these services for an agreed fee negotiated with you up front. One important fact about taxation is that if you are an Irish resident you are liable for taxation on your worldwide income wheresoever generated. Sometimes clients do not understand this," Noreen explains.

Equally, it is important when you set up a property portfolio to check that your rents are being lodged to your accounts regularly and that all utility and repair bills are paid. Again, Noreen recommends that clients appoint a firm of Chartered Accountants to oversee this administration.

On the legal front, no matter where you are purchasing, it is essential to obtain independent legal advice.

Keeping track

Noreen says it is important that investors keep records of all their properties and document them appropriately with all the relevant information. This will enable them to assess quickly what equity they have in their portfolio so that they can borrow more money to invest further. By continuously using up free equity investors can build up a substantial portfolio over time. In some cases it may be that properties are not self funding initially but this can reverse over time.

Conclusion

So is overseas property the way to wealth?

"It is very important to build your property portfolio in a structured way over time using professionals you can trust. There is work to be done if you want to become a property millionaire. Be prepared for this and success and wealth may be yours!" concludes Noreen.

Accountancy Ireland June 2007 Vol.39 No. 3 |65