After a decade of building my property portfolio and making mistakes along the way, I’ve found that the best way to build a property portfolio in a safe and fast way, is to find countries where you can use the “BRRR” strategy.
Previously, I shared about why Singapore isn’t the best country for property investors and how property investors can use the “BRRR” strategy to build a portfolio.
In this article, I’ll share the best countries you can invest in properties, in 2021. I compare popular countries among property investing using the following:
6 Advantages that all Property Investors must seek
So, to achieve the BRRR successfully in residential real estate, we need to operate in countries which have the following characteristics:
1. Cashflow positive at 75% LTV
To achieve this. you’ll want net rental yield to be at least three percentage points above mortgage rate, and interest only mortgage should ideally be available.
Which countries do best?
On average, net yield in UK is about 7 – 8% if you know how to find the right class of properties. Mortgage rate is 4 – 5% interest only.
Singapore’s is 2.5%, mortgage interest 1.5% but it is a repayment mortgage. At 75%, it is usually negative cashflow. The more you buy the poorer you get.
Australia does not allow interest only mortgage now. The net yield is around 4.5%, which is almost the same as the mortgage interest.
In New Zealand, the net yield is around 6% outside Auckland and 4% in Auckland, and the mortgage interest around 3 – 4%.
We don’t have to talk about China, Thailand, Vietnam and all the exotic third world countries because local mortgage is not easily available and if they are, the interest is well above net yield.
2. Capital appreciation > 5% per year
Singapore fails this test again because the government usually slaps on anti-speculative measures once it rises above 3% per year.
UK achieves around 5 – 7% per year. The rest of Europe hits 6 – 10% per year but mortgage is NOT easily available for foreigners.
New Zealand, especially Auckland achieves an incredible 10 – 20% per year. Australia 4 – 7% per year, but mortgage terms are difficult and you are expected to buy only new and sell to locals.
3. Tax friendly
Every country has their unique tax laws, you should be familiar with them before you invest.
On this front, Singapore isn’t the most ideal country. Property investors are slapped with Additional Buyer Stamp Duty from the second property onwards. LTV is greatly reduced.
UK has capital gains tax, stamp duty of around 3.5%. But if you treat your portfolio as a business and incorporate a UK limited company, you can enjoy tax savings that are designed to attract businesses.
New Zealand and Australia have conducive tax regimes as well. New Zealand doesn’t tax on capital gains beyond a certain holding period. But at the point of writing, New Zealand is going to implement tax changes where you will be taxed for rental, at the gross level. Mortgage interest will not be tax deductible for existing properties.
4. Ease of Equity Release
Singapore has a Total Debt Servicing Ratio (TSDR) calculation which requires you to return money to CPF before equity is released. The LTV drops to around 45% for your second property as well. These conditions make it less ideal for property investors.
UK on the other hand, allows for easy equity release.
In Australia and New Zealand, lending to foreigners is getting more difficult.
I’m not even going to mention China, Japan etc where mortgage to foreigners is non-existent. If you wish to buy a property fully with cash in these countries, you will definitely do better by investing in their ETFs or largest market cap stocks. Less hassle and lower taxes!
5. Strong Rule of Law
Singapore passes this test, in fact most first world countries would meet this criterion.
You will not have problems with land titles, corrupt and unprofessional solicitors, agents who misrepresent information, or poorly maintained condos, apartments and townhouses.
Avoid third world countries like India, Philippines, Malaysia, Cambodia at all costs.
6. Ability to Add Value and Buy Below Market Value
These are perhaps the most important factors.
You cannot “force” capital appreciation when you buy from a developer. The developer has earned all the capital appreciation. In fact, when you buy from a developer, you are often paying above the market value. Hence, you will take twice as long to release mortgage or get capital appreciation. Australia is out for this reason.
I’ve found that property investors can force a limited amount of capital appreciation by buying old apartments, refurbish to make the kitchen and toilets more modern. (Hence my “BRRR” strategy.)
But an even better way to certainly force a lot more capital appreciation is by adding square footage to an old house. You can do this in most of Europe, the US, UK and even Malaysia.
My record winning move was when I managed to “force” about 20% capital appreciation within 7 months by buying an old house in Glasgow, refurbishing and selling it brand new to a couple.
The Best Countries to Invest in Property
Currently only UK and maybe the US or New Zealand can provide the desired advantages I’ve listed above. Singapore, China, Malaysia, Australia and the rest fail.
Personally, I will be focusing my BRRR efforts on the UK for now. Where would you focus on?
I hope Singaporean property investors can overcome the “home-bias” effect and look beyond our island.