Owning property in different countries can be an advantage. With access to different economies and incentives, foreign investment can be an excellent complement to domestic properties. David Ebrahimzadeh of Corniche Capital explains how international investments can benefit property owners. He also shares the top considerations that property owners should be aware of when buying overseas.
By investing internationally, you and your money are no longer tied down to one country. If the country you live in experiences a recession or government instability such as the Brexit issues experienced in the United Kingdom, it is good to have a hedge against your investments there. In most cases, diversification can increase your profits and secure your investment.
Some countries have typically higher returns than the United States. This is especially true in developing countries like Cambodia, where 7 to 10 percent returns are possible. These developing countries are in periods of growth and economic expansion.
Protecting Your Assets
Having international real estate can protect your money from economic problems at home. In the case of the current recession, not all countries have experienced economic upheaval. Having property abroad means that your wealth will be protected.
Reducing Your Tax Burden
American citizens know how difficult it is to legally reduce their tax burden. Surprisingly, international real estate offers a tax shelter to its owners. You can buy a property and wait for it to appreciate, all without paying any United States taxes. If you rent or sell the property, it will interfere with your tax-exempt status.
One of the best benefits for foreign property owners is the lack of capital gains tax when it is used as a primary residence.
Another good way to reduce your taxes is by performing the 1031 exchange. This exchange involves swapping one property for another property of “like kind.” This will help to reduce capital gains tax as well.
Considerations for Success
Before investing internationally, property owners should consider these points. While investing in an international property can be beneficial, it is important to understand the differences between your home country and the country in which you want to buy.
It is wise to look into the particulars of your property before buying. You may be surprised by certain considerations like transportation, tourism, and culture. When investors skip this step, they run the risk of making an unprofitable investment.
Understanding Local Culture
Another facet of due diligence is understanding the local culture. You will need to know how people live their lives and what factors affect their ability to do business. It is a good idea to spend time in the area where you want to invest and to get to know the neighborhood before you buy. You may have cultural or language barriers, so having an excellent local agent can help you with these problems.
Each country has different laws governing real estate and investments. It is necessary to comply with all of them to avoid expensive fines and the possibility of prosecution, as well as the loss of your property. Some countries like Bulgaria allow foreigners to buy buildings, but not land. In Thailand, there are complex laws regarding real estate acquisition and restrictions on land purchasing and condominium ownership.
Before making a huge investment in international real estate, it is wise to start small with a single property. You will quickly find out whether the extra considerations that come along with a foreign property are worth it to you. If you make a mistake with a small property, you will not lose as much money.
Be sure that you balance your portfolio between international and domestic ownership. It is never a good idea to weight your portfolio heavily with foreign investment, especially at the beginning.
Tax planning is an absolute necessity when buying any property, but especially an overseas investment. You will need to be sure that you are paying the right taxes at the national and local levels. Foreign investments will also make your U.S. tax return more complex, so it is a good idea to have a professional with experience in international issues to do your taxes.
In particular, pay attention to capital gains, transfer, and income taxes in foreign countries. They may be very different from the regulations you are accustomed to at home.
Real estate is not a liquid investment. You cannot easily get to your money without selling the property, and when the international angle is added, you may be in for a complex situation. If you need your investment capital to be accessible, consider investing in a real estate investment trust or REIT. These trusts give investors the ability to cash out quickly if necessary.
The same tax benefits can apply to foreign REITs as with individual property ownership. Returns are generally good, in the 8 percent range.
Use Local Professionals
When you are investing in a foreign country, you will need qualified local help. You should consider building a local team with tax, mortgage, property management, and sales agent expertise. These professionals will be able to handle your concerns with care and to help you manage changing conditions.
It is especially important to find a qualified certified public accountant in the local area since tax considerations are likely to be challenging with foreign ownership.
Understanding Financing Options
It is important to know that you may have more difficulty getting a mortgage in a foreign country. You should be familiar with the country’s economy and its interest rates and common payment terms. In some cases, you can get a mortgage in your home country and buy foreign property, but this is a complex situation.
Making International Investments
Your international investment will help you stabilize your portfolio as well as providing tax advantages. When you are careful to arrange the purchase in accordance with local laws, you will be able to reap the benefits of foreign investment. David Ebrahimzadeh recommends that all investors look into the benefits of international real estate.