Currency Overseas

If you are intending on investing in Overseas Investment Property, you will almost certainly be paying with foreign currency. And if you plan to rent that investment property out, you will have foreign income as well as any bills that will need to be paid with foreign currency

This means foreign currency movements can turn a good investment into a bad one.

It's not just long term either. Exchange rates are moving constantly, but by keeping a keen eye, or (as we would recommend) having a professional be vigilant for you, and buy or sell foreign currency at the right times, you can reduce potential costs or maximise the value of your income (in sterling).

If you are buying abroad there are some important decisions to make from word go. You will more than likely need a foreign bank account, but choosing the right one can be tricky. Be aware that using the bank, either in the UK or Overseas, to make currency exchanges is not likely to be the most cost effective method.

If you intend to finance your Overseas Investment Property by way of a loan, you must decide whether to borrow in the UK, the country where your property is situated, or even somewhere else. If you decide to borrow in the UK you are accepting a currency exchange risk – if the exchange rate moves, the sterling value of your property and your income from that property will change, but your mortgage repayments will not. Also during the buying and selling processes you will have large amounts of money to exchange from sterling into a foreign currency and back again when sold. You may end up paying way over the odds for your Overseas Investment Property, simply by not properly considering the best method of doing so.

If you decide to borrow overseas, property price movements, and the value of rental income, running costs etc will be together. However some investors see this as "putting all your eggs in one basket". It may be possible to borrow in a third country. But this would mean you are taking a much higher risk and incurring additional costs – Sometimes this ends up paying off very well, however other times this could turn out to be a property investment disaster. The point being, if you aren't up on foreign currency and its potential advantages/pitfalls, we would recommend using a professional to save you a lot of time and heartache!

*Tips for efficient currency exchange*:

• Plan ahead – make sure you know who you will use to effect the exchange and allow a time window so that there is some leeway on when the exchange should be made to gain best advantage.

• Decide your attitude towards risk. If property purchase is risk enough, do your utmost to reduce currency movement risk to a minimum, if necessary by reserving rates in advance.

• Don’t deal in small amounts. It is more cost effective to exchange larger sums. So budget for some months ahead.

• As a general rule, don’t use a bank for your currency exchange, the costs are likely to be higher.

• Keep a watch on rates, or have somebody do it for you. With substantial amounts of money even very small fluctuations can make a substantial difference.

• If you are not an expert in currency exchange or are not prepared to spend the time to become one, consult a firm that knows about these things.

*Top tips & information provided by "Smart Currency Exchange" & "Fly to Let"

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