Quick Guide to Foreign Real Estate Investing
Getting into foreign markets can be a gateway to wealth. And an industry that does it best is the real estate industry.
Foreign real estate is all about investing into foreign markets. Not only can this turn out to be highly profitable, but there is also the option for passive income.
As with any real estate investing, the possibilities are endless. Thus, we decided to give you a quick guide into foreign real estate investing.
Don’t go anywhere as we will start the guide right now.
Test the Ground
In essence, foreign real state is all about buying property in a foreign country. Unless you happened to understand the culture of this country, you will need to do some learning. The biggest mistake you can do is start investing without previously testing the culture, customs, and geography of this new country.
How would you know what drives the local market or what drives people to rent and buy properties? You’ll need to really test the ground and see what sticks.
This will give you a better overview as to how to approach the issue and how to come on top.
Understand the Legal Side of Things
It might come as a shock to some of you but foreign markets have different legal guidelines. You have to really do some digging with this one as certain legal restrictions might prevent you from doing business.
Understanding what you can and cannot do as a foreigner when buying property in a foreign country can minimize a lot of risk. For example, certain countries might only allow foreigners to buy land, not buildings. Another example is that you might be allowed to buy property, but you also have to acquire certain permits to rent it.
There are bound to be some restrictions, as no one expects the road to be fully paved. It’s better to be prepared than fail spectacularly.
When investing into foreign real estate markets, there is always the temptation to buy more depending on the prices. It might be affordable to purchase more property or land but that doesn’t make it the right move.
Even going as so far and doing the math and determining that the potential return on your investment is jaw dropping. However, there is always the underlying fear in the back of your mind that says “What if it’s a mistake?”
If you do make a mistake, which is completely normal with foreign real estate investment, the potential losses can be suffocating. However, if you invest on a smaller scale than the losses won’t seem as serious.
Starting slow reinforces one of the core beliefs that clearly states you should always test before you fully invest. And starting slow gives you the chance to both test the ground and minimize losses.
Spread the Wealth
A rather obvious mistake that foreign real estate investors do is focus on a particular region or country. This is a mistake that can be potentially crippling.
What experts suggest you should do instead is focus on spreading the wealth. By this, they mean investing into multiple countries spread over different regions.
Now you might think that this can turn into a potential logistical nightmare, and that can certain happen. But what you’re gaining by doing this is safety. Since foreign countries, and especially those in development, can suffer from all kinds of turmoil, you are minimizing risk by investing in multiple countries as opposed to one.
If you invest all of your money into real estate in a single country, you are exposing yourself to unnecessary risk.
Understand the Tax Implications
Much can be said about adding new, foreign properties to your real estate portfolio especially when we talk about tax.
But foreign real estate can potentially add more in terms of tax when the time for paying it comes. Thus, you should always have a clear understanding of the tax implications when investing in a foreign market.
Some of the factors that can seriously add a huge chunk to tax time include capital gain taxes, income taxes, transfer taxes, etc.
Seek Professional Assistance
You might be a professional yourself, but you are a complete stranger to foreign markets. Purchasing real estate might be your bread and butter, but that’s not exactly easy when you have to do it in another country.
These countries might well allow you to do business there, but that doesn’t mean you’ll be given the right to live and work there. Some countries have highly complicated processes for foreign real estate ventures.
And if the particular country is like this, then the first thing you should do is seek professional assistance from someone that understands the country’s laws and regulations.
The professional you should get in contact with is a local property attorney. This is the sort of person that knows the ins and outs of the legal side of things. Another type of person you should consider hiring is an international real estate agent.
Unlike an attorney, this person knows the ins and outs of foreign real estate property buying and management. And if there is anything that this person knows is how the market works as well as guide you through it.
It might cost you money to hire these two people, but it will be worth it in the end.
Consider Your Financial Options
Whenever entering a foreign market to buy property, you have two main options to finance the move. First off you can pay out of your pocket using hard cash, or you can secure a mortgage loan.
The latter options is rarely the one foreigners go for since it asks for a larger deposit and higher interest rates. If a real estate investor has the money, then they should pay the money. And so should you.
Not only do you pay less by paying in cash, but you save yourself a lot of time by speeding up the process. Even if you don’t have the cash to pay for it, then there are other options out there. For example, certain countries might offer foreigners favorable terms for developer financing.
Regardless of which route you go down, you should always consider your options.