Property Investment Finance

Financing your property investment must be one of your main considerations when considering buying property. Not many people can pay for a property with cash, so they usually have to borrow extra money from somewhere to make up the difference between the full price and the deposit. Your goal must be to borrow that money as cheaply as possible. You do not want to buy a property at a good price, and then pay above normal prices to finance it.

Where Can I Get A Deposit?

You haven't got a lot of spare cash just at the minute? Not many people do - but what you can do is to look for other ways to raise the money. A very common practice in this age of multiple home ownership. One common method is to release capital tied up in your own house, which may well have appreciated since you first took out your mortgage. By increasing the mortgage on your own house you can release the capital needed for the deposit on a second home.

Another option is to buy the villa with another friend or family members, sharing the cost of the deposit. This has advantages as two or more capital gains tax allowances will be taken into account when you sell the property. Whichever method you choose, it is important that you don't overstretch yourself financially and consider the process carefully. Many people can make it happen with a little imagination.

Income Tax

Two important points about the tax implications of buying an investment property abroad:

	You must be open and honest with the tax authorities at home and abroad in all your dealings. If you try to hide your income you may be found out, and you will have to pay the original tax plus penalty charges, if not time in prison. If you enter the world of property investment with a view to evading taxes you will find problems you had never dreamed off. Don't do it!
	Find out what the tax relationship is between your home country and your investment home before you start the purchase process. You need to talk to an accountant who is familiar with these transactions. You will not be the first person locally to have bought a property abroad, and the advice of an expert will be invaluable.

If you make a profit on the running of your investment property, for example through letting it, you will have to pay tax on the profit. This tax is normally paid in the country where the property is located, however you may also have to pay tax at home. If the tax paid at home would have been greater than the tax paid abroad, you may have to pay the difference to the tax authorities at home. The good news is that tax is paid on profit, so you can usually set expenses against income, for example repair and maintenance, management and insurance and interest costs.

Capital Gains Tax

You will have Capital Gains Tax to pay on profit from your property when you eventually sell it. Two suggestions regarding Capital Gains Tax:

	The amount of tax you pay is often reduced depending on the length of time you own the property. The longer you own it, the lower the rate of Capital Gains Tax, up to a maximum discount. This is known as Taper Relief and the principle applies in many countries. Verify this before you buy your property. Keep your property longer for maximum tax relief.
	Individuals usually have a personal Capital Gains Tax allowance each year. This is an allowed amount of capital you can acquire without paying tax on it. The more people, for example in your family or group of friends, who buy a property, the more the profit on selling is spread among individuals, and the more personal tax allowances apply.

What Size of Deposit is Best?

Where the value of properties in the area is rising rapidly you may want to use your available cash for more than one deposit. In this case, your deposit will be as small as possible and you will be buying as many investment properties as possible. The important thing to remember here is that you will either have to sell the properties before the finance for completion or closing is due, or be able to pay the mortgages from your own income or from letting the properties. If you rely on income from letting, be very careful not to be over-confident regarding the occupancy rates.

The other option is to maximise the deposit by finding as much cash as you can. The first obvious benefit is that you will have a smaller mortgage and monthly bills will be smaller. A second benefit is that you may get preferrential treatment by the mortgage companies. This could be either by offering you a lower mortgage rate, or by being less demanding regarding proof of income etc. This often happens wher the deposit is 30% of the value of the property.

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