Real Estate Overseas – Pros & Cons of Purchasing
As a high net worth individual, purchasing real estate overseas is one of the best ways to diversify your investment portfolio and get the opportunity of a second citizenship and the second passport that comes with it.
Most countries who offer a program like this have purchasing minimums, but since the amount can be as little as $100,000 in some places, there’s options for almost any investment amount you want to make.
And while purchasing real estate overseas is one of the best ways to immigrate (in my opinion), it’s still not perfect. There’s definitely a list of pros and cons to consider, which we’ll go over in this post.
Cons (Downsides) of Purchasing Real Estate Overseas
Let’s go ahead and start with the bad parts about investing overseas.
No, this isn’t the most enjoyable part of this post, but it will help educate you on the reality of purchasing foreign real estate so you can know with 100% certainty if it’s the right decision for you.
- You have to watch out for title scams.
At times, the person “selling” the property isn’t always the owner, so even if you “buy” a property, you might not legally own it.
Other times, you will be “sold” a property for a certain price, only to find out later that there’s three other owners of that same property, and you don’t have the full decision-making power over what to do with it, and selling your part of the ownership can be rather difficult.
These scams are much less common in government programs that allow investments in exchange for residence or citizenship, but you still need to make sure you investigate your opportunities properly so this doesn’t happen.
- You can’t sell right away if it’s a bad investment.
One of the benefits of buying real estate in your home country is that if it turns out to be a bad investment, you can sell it and cut your losses as quickly as possible.
But if you’re buying through a government investment program for second citizenship, you’ll often be required to hold onto your initial investment for a number of years before you’re allowed to sell it—even if it is a bad investment.
- You have to maintain it even if you don’t live in it.
This means you either have to make frequent trips to the property yourself, or you have to hire a third party you can trust to take care of the property for you while you’re gone.
This isn’t a disadvantage if you know you can trust the third party you’ve chosen or you plan to live in your property, but it is something to think about.
- You might have to pay taxes to both countries on the same property.
For the most part, if you own a property, you only have to pay property tax to the country where that property physically sits. But in some cases, especially if the property is generating an income for you, that’s not the case.
For example, if you’re a citizen of the United States who owns property abroad and you earn money from it, you have to pay taxes to the IRS from the money you earn from that foreign property.
Before you make the decision to invest in real estate abroad, talk to a financial planner about your tax responsibilities in your home country first.
- You need to hire a lawyer before you start shopping.
This isn’t necessarily a con, but it is an expense you’ll need to bear while you go through the process of choosing a property to invest in so you can avoid or minimize the other cons listed above.
If you already know which country you want to purchase in, choose a lawyer who specializes in that country so she can help you navigate the buying structures of that country without getting ripped off.
Pros (Advantages) of Purchasing Real Estate Overseas
Reading through the list of disadvantages wasn’t that bad, was it?
Now you’re aware of the potential pitfalls so you can make better decisions.
But now let’s talk about the good part: all the great reasons for purchasing real estate in another country for investment and immigration purposes.
- It’s an opportunity for a second passport.
Lots of governments have programs that help high net worth individuals become citizens or permanent residents by making an investment in their country… and a popular way to make that investment is through real estate purchase.
As long as the property you’re buying meets the minimum currency amount, you can usually do whatever you want with the property (rent it, live in it, let it set empty) until your pre-set time limit is over and you can either sell it or continue owning it and turning a profit from it.
- If done through reputable programs, you can avoid lots of pitfalls.
Reputable programs, like investment-for-residence programs offered by governments, have vested interest in making sure investors don’t get ripped off with bad title scams.
This is a huge relief for investors who aren’t familiar with the local real estate market.
- Portfolio diversity.
Adding diversity to your investment portfolio is one of the best ways to guarantee its success and return on investment over the years.
By buying property overseas, you’re purchasing something that can be a nearly guaranteed source of rental income for years to come. It’ll also help stabilize your portfolio’s income-producing investments if the market in your home country tanks and some of your investments start losing money instead of earning.
- Continued source of income.
Particularly if you purchase a property in a popular vacation destination, you can rent it out to tourists and have a nearly constant income stream… and even higher incomes during peak travel season.
It’s part of the reason why real estate investing in general is such a great idea, but this is particularly great if you’re nearing retirement age and want something that brings in predictable income without a lot of extra work on your end. (And provides “free” accommodation in your favorite vacation spot.)
- Tax benefits.
Tax law can be both a disadvantage (as I discussed above) and an advantage when you purchase real estate overseas.
Depending on your home country and the country where you purchase the property, you may not have to report the ownership of that property when filing taxes in your home country, and you may even qualify for some tax rebates.
It’s too much detail to get into in this post, but we’d be happy to answer your questions about this if you get in touch via the form below.
- It’s a perfectly legal form of offshore investing.
The term “offshore investing” often gets a bad reputation because sleazy corporations will use it as a way to hide their profits and avoid paying the taxes they owe to their home country.
But as long as you follow the rules set in place, investing in a piece of foreign real estate is a perfectly legal and non-sleazy way to invest your money offshore without ripping anyone off.
Want to purchase a home or business property overseas?
If purchasing real estate abroad—especially in exchange for the opportunity of a second passport—sounds like the perfect investment for you, we’d be happy to walk you through the different investment programs offered by the eleven countries we work with.
Get in touch using the button below to tell us a little bit about yourself and your desire to purchase real estate overseas, and we’ll be back in touch by the end of the next business day for a free consultation call with our Logistics Director.