Hot Property - buying abroad

Money Doctor September 2007

Consider a 35 acre, award winning vineyard in Romania, complete with mini-castle and winery for under €460,000, a productive 10 acre organic olive grove with villa on an unspoilt Greek island for €275,000, a yacht charter business
based in the Mediterranean and generating a gross annual profit of €150,000 for €500,000, a successful seaside restaurant with living accommodation and sunny terrace on Majorca for €650,000, a small, popular bar in Marbella withstudio apartment for €95,000, a 700 acre equestrian centre – including private airstrip and plane – in New Zealand for €1.2 million or even a motel with a stunning 1930s swimming pool and development potential in Miami for €1.9
million.

One of the many benefits of our booming economy and buoyant property market is that lifestyle businesses overseas now
represent incredible value for money. For the price of a relatively modest suburban home in Dublin you can buy a fantastic – and lucrative – lifestyle business in any number of desirable locations elsewhere in the world. With a slightly larger sum you can afford something truly stupendous and potentially even more profitable. There’s so much choice, too. It is possible for you to make that move abroad – to a warmer, drier climate – and enjoy running the business yourself. Or, stay here in Ireland and employ someone else to manage it for you. Opt for a venture that allows you to work from home (bearing in mind that that ‘home’ could well be a dream property) or keep the two separate.

Identifying lifestyle business opportunities in foreign climes is anything but difficult. Thanks to the internet and Google it took me less than fifteen minutes to search out the opportunities above. Nor need funding be an issue. Finding the money to invest in overseas property is both easy and relatively inexpensive. You could use equity built up in an existing
property, capital held elsewhere or possibly borrow on the strength of the business itself. All you need do is talk to your financial adviser. Nor, in these days of budget air travel and low-cost communications, need moving abroad mean losing touch with family and friends.

So, what are the main considerations for anyone attracted by the idea of a business place in the sun? For some, the first question will be what sort of business to buy, for others it will be the location. Either way, you need to weigh up:

• Your interests and skills. If this is going to be a proper lifestyle business then you need to pick something you will enjoy doing.

• How you feel about the local culture. The thrill of owning, say, an Austrian ski-resort hotel might be somewhat dulled if you aren’t that keen on life in Austria.

• Whether the business will produce sufficient returns for your needs. This is particularly relevant if you want to employ other people to run it.

• The potential for capital gain. It clearly makes sense to purchase something which – regardless of annual profits – is likely to increase in value.

One area to be especially mindful of is over-capitalising certain types of business. Take, for instance, someone who buys a large, period property in, say, France and over several years turns it into a successful restaurant with holiday accommodation. When it comes to sell the combined value of the property and the business may be so great as to make it difficult to find a sufficiently well off buyer interested in running this type of venture. Not that it doesn’t make much more sense to opt for a business incorporating a freehold property. Yes, it might be fun to run a leasehold nightclub in

Ibiza – but you’ve less to sell should you ever get bored with being surrounded by an endless stream of young, beautiful people intent on having a good time.

Other key factors to weigh up when making an overseas business investment include:

• The tax climate. Watch out for higher stamp duty, income tax and capital gains tax. Also beware of death duties. Always take professional tax advice before you commit to anything,

• The legal climate. Not only can ownership be less clear-cut in other jurisdictions (even within the EU) but also many countries have different inheritance rules. Again, take legal advice before you commit to anything.

• The regulatory climate. Ever tried to get a business license in Spain? Or a work permit in Malta? Or even something as simple as planning permission in France? Make sure you will be able to do what you want with your business
  (and that you know what you are letting yourself in for).

• The work climate. Your grand plans for a business may come to nothing if you can’t find the employees and contractors you need to make your dream come true.

• Language. Hardly a problem if you opt for an English speaking country – but elsewhere? There are some places – Holland and most Spanish coastal resorts, to name two – where you can get away without a word of the local language. Otherwise, you should either speak – or plan to learn to speak – the lingo.

• - Employment and residency issues. As an Irish citizen you can move anywhere you want within the EU. Many other countries, including the USA, will welcome you with open arms if you are making an appropriate investment.

Once you have found a business you are interested in, then it is important to get an independent, reliable valuation. What can seem a bargain when compared to Irish prices may not be so much of a bargain to locals. Pay special attention to the history of the business; its current performance (sales, turnover and profit); its financial situation (cash flow, debts,

expenses and assets); and why the business is being sold. Once you have agreed a price don’t hesitate to get ‘due diligence’ – the process of checking that everything you have been told is true.

Is it sensible to invest your cash in a lifestyle business overseas? Bear in mind that you are taking a double risk. Firstly, that the business itself is sound and that you will be successful running it. Secondly, that the country where you are buying it won’t experience a downturn. This said, we may well be at the top of our economic cycle, whereas many suitable locations may be near the bottom of theirs. This type of diversification could, therefore, make excellent sense.

Before making any financial decision you should always take professional advice.