As many of you who follow me on Instagram already know, I recently took an overseas trip to China and Japan. (Follow me here)
While I was traveling in Japan, I got to thinking - what if I could mix business and pleasure? What if there was a way to invest in real estate abroad, but also enjoy it for myself?
If you want to combine a love of travel with a love of business and create a flexible working environment for yourself, then have property abroad to go to any time you want, can be a real asset.
Many people are put off by the idea of investing in property abroad, as it can conjure up some images of things that they may have seen online or in the news about property building projects going bust, social or political instability, crime, riots, etc.
It's not all doom and gloom when it comes to property abroad. It can be very simple to make this part of your portfolio if needed, as well as treating yourself to a second home or vacation rental.
Investing abroad is no different than investing domestically. Really, if you think about it, to the people living there, it is domestic.
The way to avoid investing in a disaster abroad is by doing your homework. That, and following a few investment rules. If you are unsure about the market abroad and want to know more, then keep reading.
Don’t Reinvent the Wheel
In the United States, a lot of us invest in cities and towns where we think there will be good, solid growth. We might pass over core housing markets to speculate in secondary or tertiary markets.
While this might work for us here, it may not be a good play when you're investing in another country.
There are so many more unknowns and risks when investing overseas, that we need to mitigate other risks to reduce overall risk. So, I believe it's better to focus on core urban areas of well-established cities in major countries. Think about it, without local knowledge, how do you know it will do if you come to sell or rent out?
So, it's better to stay conservative when you’re first getting started investing in property abroad. The prices may be cheaper than other areas, but there is obviously a reason for that.
As the old saying goes with real estate, it is best to have the worst house on the best street then the best house on the worst street. I think it's the same for countries. I'd rather have a small condo well-developed country where the risk of, say, social collapse is lower than a mansion in a small developing nation. Plan for the future and think about safe options for the location of a property abroad.
That being said, you need to set yourself some clear goals about why you are going to invest abroad.
Is it because you want to travel more and see the world? Or are you looking to get a little more for your money? If you’re not too sure, then investing closer to home may be your best bet.
Plan For Taxes
All of the countries in the world have different tax laws and codes. Also, being an American, you have to recognize that your overseas income is still taxed inside the US. So you will need to have a clear understanding of it all before you go ahead and buy; ignorance is never going to be an excuse.
There can be things like stamp duty or land tax or their country’s equivalent.
Some countries have this amazingly horrible concept called the VAT, where the taxes get tucked inside the price so the consumers never know they are being taxed (hey, we rebelled over things like that!)
You'll also need to decide what kind of property you will buy. Many progressive countries have higher taxes on luxury properties, so if you’re going to be buying a penthouse and then renting it out, you might get hit with some burdensome taxes.
So do the math, and figure out all of what it is going to cost you to make this investment abroad; is it going to be worth it?
Of course, when it comes to buying property in a different country, there is going to be what's known as exchange rate risk.
You might hear people say that the exchange rate is really good, so investing there can sound appealing.
But there can be fees for transferring money, especially for large amounts. So it could be worth consulting with a transfer specialist, as you’ll want to make sure that you are going to be getting the best possible deal.
Aside from the actual transfer of money, there is risk associated with how currencies fluctuate as compared to each other over time. You may invest in a country and find the property is appreciating, but their currency isn't doing well against your home currency. So, your appreciation is lost to exchange rate losses.
Use Local Knowledge
Get an attorney in the local country unless you have strong relationships there already. Even if you do, it's probably a good idea to get an attorney anyhow.
You want someone who truly knows the law of the land.
They will be able to guide you through the ins and outs of buying over there. They'll also have local relationships and contacts to help you out.
You can also contact people who specialize in selling property to foreigners.
They are likely to have people within the company with the local knowledge that you are after. They are likely to be more pricey, but if it is going to make sure that you get a good deal and understand all about the country, then it can be worth it.
I'd rather pay a few points in fees to a local expert than learn those lessons with losses due to buying a bad deal.
Check on Previous Work
Another popular way to invest abroad is buying condos in larger developments. There are many developments abroad that you may be interested to invest in.
It may be to invest in the whole development through something like a syndication., or just a few condos.
Regardless, you'll want to see the developers track record. You'll want to see previous developments, completed work, and a history of creating positive returns.
If they don’t have any to show you or are reluctant to do so, then it could be a concern.
Don’t invest in a development with someone that you know very little about. Don't invest with a developer without a track record.
Make Correspondance Clear
With investing abroad, you'll probably do a lot of correspondence via email or skype.
It's important to keep a good record of every conversation. This is especially true if you are dealing with another language and need to check and verify things.
Keep everything that you have and also write down the phone calls that have taken place, such as the date, time, and what was talked about.
Check The Deal With Renting
If you are planning to invest in property to have for yourself, then this won’t be an issue. If you will have tenants then you need to think about this.
Before renting a property, make sure you learn the laws of the country. There is nothing worse than buying a property and you can't rent it out!
In some places, you cannot comingle the property use. For example, you cannot live there for 6 months and rent it for 6 months. You need to decide if it's a rental or a vacation home. So things like that will need to be checked.
Can you imagine buying a property and then finding out you aren't allowed to rent it out? That actually happened to my friend over at FinanciallyAlert.com but it happened to him in the US.
This kind of thing needs to be thought about before you complete anything or sign anything away on the dotted line.
So have a clear understanding of the purpose of investing.
Don't just buy it and hope for the best.
A business plan is as important here as it would be with any other kind of business.
Check on the Deeds or Title
In some places around the world, a property could be put up for sale without having the actual deeds or title to the property in place.
I know that sounds pretty crazy, right?
Whether investing your money in a property at home or abroad, you need to check on this. To make the whole process legal, then this is something that you will need to hire an attorney to oversee.
In the US, the system is pretty safe and problems still pop up. It still happens from time to time that a property transfers without proper title or interest in the property to do so. This risk is magnified when investing abroad.
This is something that your legal help can check with, which is why having someone that knows about the local area can be a big help.
The same things go for a new build development or property. You need to check that there are actually deeds to the properties so that you can actually buy them. If not, you will be wasting time and a heck of a lot of money.
So, you've decided that you are going to buy the property abroad so that you can rent it out. Now, having a plan about how to find tenants is going to help you get tenants as and when you need them.
Local real estate agents or property managers are the first points of contact. But of course, they will have a fee for handling all that is involved with tenants and having them in the property.
If you have good relationships in that area, you can try word of mouth as well. You can also try using online sites like Airbnb if you are looking for seasonal renters.
There are so many considerations when investing abroad and I'm just starting to dig into it all. If you've ever bought property overseas, I'd love to hear your story!