Mansion Global shares the four pillars every investor should consider, from the first-timer to the seasoned investor.
As a recent Mansion Global article outlines, the rewards of investing in overseas real estate are many. It affords an opportunity to learn more about other cultures while diversifying your portfolio and accruing gains over time. Yet with the benefits comes a more complicated transaction process of navigating unfamiliar ownership laws, tax codes, and more. In addition to consulting local investment, tax, and real estate professionals, Alanna Schubach outlines a few critical factors to consider “to take the temperature of foreign markets and rest assured that your investment is a smart and safe one.”
Foreign Ownership Laws
Undoubtedly the first consideration when looking into foreign investment is ensuring you fully understand the local laws because “foreign ownership regulations can run the gamut, from actively encouraging foreign investment, to restricting homebuying to citizens only.” As Michael Valdes, global vice president of international servicing for Sotheby’s International Realty tells Mansion Global, there are several key markets not available for foreigners, for instance, including Kuwait, Bahrain and Oman, among others. In addition, the laws within a country can vary by region. In Switzerland, for example, Valdes says “there are very few cantons – Swiss member states – in which foreign investors can purchase property.” In addition to performing your own research regarding foreign ownership laws, it’s crucial to consult with a foreign real estate attorney with a demonstrated local knowledge.
Knowing the stability of a region’s government is another key before investing. As the article describes, investors should stick to areas categorized “very safe” in terms of “political stability and government policies that assure private property rights.” It is recommended that you contact the U.S. State Department for reports that evaluate both the current climate and its recent history. As Valdes tells Mansion Global, “Cuba is very in vogue now, but the risk/reward scenario may not make that a viable investment. There’s risk involved politically and economically.”
Because “a buyer’s country of origin and the country he or she is purchasing in will impact the tax consequences of the investment,” it’s critical to consult with a tax professional prior to making a purchase. “The United States has tax treaties with many nations in order to prevent American citizens who have invested in foreign property from double taxation,” but U.S. citizens are required to “pay American taxes on earnings from foreign investment properties,” in addition to potential local taxes which can add up and cause financial distress when one is not prepared for the fees.
To ensure your foreign investment will pay off in the long-term, it is important to analyze the market and determine whether the economy is measurably growing. “Finally, buyers should keep in mind that they won’t be alone in seeking out promising overseas markets to invest in – and brace themselves for some competition,” a factor we are seeing in the Puget Sound region as foreign investors flock to opportunities within the Emerald City.