If you’re looking to buy international real estate, there are opportunities in all corners of the world – many offering great returns. We are sharing some important international property investment principles and how to navigate the real estate investment landscape wherever you go in the world.
Can You Legally Buy International Real Estate?
With more than 195 countries in the world, you can buy international real estate in any number of places offering true wealth-building opportunities. However, this is not an area that the average or even above average investor should leap into without solid advice from a reputable attorney. While you can invest in international real estate, restrictions may apply. These can be exciting investments with much higher earning potential than you will find in the United States. But a word of caution before you buy international real estate, there are no global laws and regulations governing these transactions.
For example, Mexico does not allow foreigners to own property within 62 miles of an international border or 31 miles off the coast. However, it’s easy to work around these restrictions by using a Mexican Land Trust or Mexican corporation. Also, land granted to Mexico’s Indigenous people cannot be owned by foreigners. The point is that you can legally own foreign property, but you must follow the laws of the land.
If you want to buy international real estate, don’t immediately give up the thought just because unfamiliar rules apply. Investing opportunities are everywhere with many promising great returns. There are opportunities in emerging markets like Cambodia and Georgia that have been growing consistently over the past ten or twenty years, and they’ll likely keep growing well into the future.
Different Countries Have Different Buying Rules
Brazil. In general, foreigners have the same rights and follow the same laws as nationals regarding real estate ownership. However, as with many countries, there are security restrictions when it comes to land near coasts and borders with other countries.
The Bahamas. Foreign ownership is relatively easy, but ownership must be registered with the Foreign Investments Board. Also, special permits are required for some investments such as commercial developments, rental properties, and if the property is five acres or more.
France is preferred by many who buy international real estate because foreign owners are treated the same as French citizens. However, be familiar with the taxes and fees that you’ll have to pay because they are almost certainly different from what you expect in the U.S.
Italy. Much the same as France – no restrictions on foreign ownership but be sure to understand the local laws, taxes, and fees.
New Zealand. There are restrictions, but not very daunting. Restrictions apply to what is referred to as “sensitive” land. This includes more than half an acre of coast land along with special reserves, some islands, lakes, and property with historical or heritage significance. Even many of these can be owned by foreigners with approval by the Overseas Investment Commission and in rare cases by a Minister. A determination on sensitive land is typically made in about a month.
The bottom line is that it’s legal to buy international real estate in many countries and very possible as long as you are familiar with local requirements. Along with a reputable local attorney, the U.S. Embassy in the country may also be a resource for laws regarding the purchase of foreign property.
If you buy international real estate, you’re making possibly one of the biggest moves towards diversifying possible. Not only is real estate an alternative asset, but owning it on an international level adds geographical, political, and lifestyle diversification. For one thing, land ownership can be a cornerstone of multi-national citizenship. That can become a security blanket if your worst nightmares come true or your answer to a daydream for an international lifestyle. If your goal is diversified investments, real estate is a good answer, but international real estate may be the best diversification strategy of them all.
The potential higher earnings cannot be overlooked. Most fully developed countries have dependable but relatively low rates of return on real estate investments. Double-digit rates of return in the U.S. may be consigned to the years gone by. Developing countries with a decade or two of reliable economic performance offer some of the most promising real estate earning growth for the coming years. Of course, risk and reward are always intertwined.
Asset protection can also be enhanced if you buy international real estate. In our litigious society, frivolous lawsuits are much harder to pursue across international borders. Claims against them must be filed and litigated in local jurisdictions. Few if any frivolous lawsuits are going to be pursued internationally. Of course, a Solo 401k already offers strong protection against lawsuits. Holding your assets in a Solo 401k with an LLC is also a good idea. Plus, international real estate provides yet another layer of protection.
Begin deciding if you want to buy international real estate by finding the right metrics to become familiar with. GDP per capita and the rate of increase in the cost of living can be good metrics to begin understanding foreign economies. But you also need to be able to compare multiple properties from around the world with each other. In some developing countries, most real estate transactions are conducted in U.S. dollars which can be helpful. This makes “dollar cost per square meter” a starting point to determine property values. However, many more comparisons must be made such as densely populated metro areas versus low-density country land. The value can be there, but you must have ways to make comparisons.
Deciding to buy international real estate can be a smart investment for both financial and personal reasons, but how do you decide where to buy it? There are several important things to consider, including foreign ownership laws, financing options, tax liability, and associated costs such as surveying fees that may be required as part of the buying process. It’s also worth thinking about how a foreign property purchase fits into your overall financial plan. Here are a few more countries worth considering.
The Cayman Isles
These are one of the closest Caribbean destinations to the United States. It’s fairly straightforward to purchase property here. There are no restrictions on foreign ownership if the property is for personal use, but it gets a little more complicated when you consider it for rental purposes. Foreign investment in real estate is commonly achieved through the formation of local limited liability companies, foreign companies, and trust arrangements. It must be licensed with the Trade and Business Licensing Law and the Local Companies (Control) Law. There is no income, capital gains, inheritance taxes, or property tax.
It has one of the fastest rates of economic growth in the region. The country’s political stability and its use of the U.S. dollar as the national currency make it an attractive choice for international real estate. Both urban property and agricultural land. Foreigners may not own property within six miles of international borders, as well as on some islands, and in certain waterfront areas. Otherwise, there are few restrictions on non-citizens buying real estate. Other reasons to consider Panama include low taxes, stable prices, and a low cost of living, as well as direct flights to the United States.
Foreigners have the same rights and protections as Costa Ricans when it comes to buying property, including being able to hold title to land. Prices in Costa Rica have been rising recently but are still below those in North America and Europe. Property taxes remain extremely low and there’s no tax on capital gains.
Portugal is rapidly growing in popularity with visitors and investors. This country is one of Europe’s best values for real estate purchases, with a strong potential for high rental yields. The Algarve coast has some of southern Europe’s most beautiful coastline at reasonable prices. Mortgages are available to non-residents.
Determining you want to buy international real estate can be a very profitable long-term venture with passive income. But never skimp with your due diligence. You must understand what can affect real estate prices and values, such as tourism, transportation, culture, etc. These can greatly affect your return on investment.
Many U.S. banks won’t lend to investors who want to buy international real estate – so, what are some alternatives if you buy international real estate? Cash is always king, but you already know that. As a word to the wise – paying cash is appropriate only if the property is already built – and not in the pre-construction stage.
Some U.S. banks do offer international mortgages but only in certain countries. Start by checking if they support your chosen country. Stay aware that you are making an international transaction. Be sure you fully take into consideration the foreign ownership laws; tax rules, foreign exchange fluctuations, etc. You will still need to be aware of these even if you use a foreign financial institution. It’s important to choose a lender that understands the local laws and has international experience in the country you want to buy in. Preferably a bank with a department that specializes in international real estate transactions.
One advantage to financing through a foreign bank could be having payments in the local currency. This might help you better manage foreign exchange fluctuations. But remember, currency fluctuations work both ways. The U.S. dollar could weaken in relation to the foreign currency. You may qualify for developer financing if you purchase a lot, home site, or pre-construction property in a development. Sometimes, developer financing is interest-free.
If you do use a foreign lender, you still want to have an independent lawyer and translator to protect you from fraud.
If you do want to make an all-cash purchase, one option is refinancing U.S. properties to use that money to pay for a property abroad. If you have the cash, such as in a Solo 401k, be aware of additional costs that can be incurred when you buy international real estate. These include international bank transfer fees, tax and legal fees, document translator fees, and ongoing costs to maintain the property. It will cost you more than $110,000 to buy a $110,000 property.
Also, be aware of required deposits or down payments. For instance, a deposit for a Spanish property can be around 30% to 40% of the property price for non-residents. In some countries, deposits may be non-refundable for non-residents.
What Do I Need To Be Aware Of Before I Buy International Real Estate?
Location, location, location. You can fix almost anything else with enough time and money, but you can’t fix the location. And then consider the other costs, such as tax and insurance, closing costs, as well as the risks involved when buying overseas. In the U.S., you receive the title to the property; ownership may not be as clear in other countries.
Learn about the neighborhood. Everything from public transportation to what is available in the local market and more. If you’re planning to rent out a condo or villa, these amenities will be important to your renters. And know about zoning laws. If you are buying a high-rise condo two blocks from the beach with a gorgeous view of the harbor, you don’t want to find out there is another high-rise planned in the vacant lot between you and the beach. Some places, like Ecuador, don’t impose zoning regulations. Also, you want to know the details of the condo building such as general appearance, paint, the pool, grounds, elevators, and facilities.
You may have bad past experiences with HOAs but when you buy international real estate, HOAs can be your friend. Be sure to look closely at the HOA financial statements. Make sure short-term rentals are allowed if you’ll be catering to tourists or other short-term tenants.
Whether it is a community development or a condo, one thing to take note of is how many units are currently for sale. If it is a fully developed community with a lot of units for sale, there might be something going wrong. Another tip worth heeding is looking at the quality of the cars in the parking lot and neighborhood. Newer, high-quality cars are a better indicator of prosperity than old junk heaps.
Once you know everything that you should know, put pen to paper to calculate the total carrying costs. Not just the property taxes; include utility costs, internet, cable, property management fees, HOA expenses, etc.
Buy International Real Estate With A Solo 401K
A Solo 401k offers a lot of advantages if you buy international real estate. You may be considering using a custodian-controlled IRA but then your custodian is going to need to know every detail that you know and probably more. It will be months after your find a foreign property before the custodian approves the deal (if ever). But with a Solo 401k, you can close the deal as soon as you are satisfied with your due diligence. Timing can be almost as important as the location. You are the Trustee of the plan. Only you can sign and approve the deal on behalf of your Solo 401k.
In the back of your mind, you might think to buy international real estate as an “escape hatch” if you have serious political or economic concerns. Of course, you can’t use Solo 401k property for personal use because that would be “self-dealing.” But it would give you peace of mind if things came to the point that escaping became more important than IRS rules. Also, there are ways to convert a retirement property into a retirement home when the time is right. One is with a Roth Solo 401k because all of the assets can be withdrawn tax-free.
Or, maybe when you buy international real estate, you decide this is the time when you decide to go big. It could be an investment that you want to make with a partner. Your Solo 401k can easily do that with an LLC Partnership. This keeps you and a trusted partner in control of your investment.
The Solo 401k comes with many tax advantages and wealth-building opportunities. One of those is international investing. A phone call with one of our experts makes it extremely easy to do. We can set it up in no time. You can diversify in many ways including alternative assets and owning property in another country.