Investing in real estate rarely has any downsides. Of course any investment brings some risks, but real estate is one of the safest choices. The nicest part about it is that you can also look internationally when deciding to invest in property. There are countries that have some nice advantages when it comes to investing.
Over the years, buying property in foreign countries has become more and more popular. When investors understand the advantages, it only makes sense to make the decision to invest abroad. In this article, we will go over some of the pros and cons to investing abroad.
Cons of investing abroad
Let’s start with the downsides of investing abroad so that people can understand what they are getting into.
One of the biggest hurdles in foreign real estate investment is navigating the legal and regulatory landscape of another country. Each country has its own set of laws and regulations when it comes to buying, owning, and selling property. These laws can be wildly different from what investors are familiar with in their home countries.
The paperwork alone can be much heavier than what investors are used to and can take a while to understand. There will be lots of translations needed, papers certified and stamped and plenty of other bureaucracy involved. There are also visas to procure to be able to even consider buying a property which can include mandatory foreign health insurance.
One of the biggest risks about investing abroad is finances. For instance, when you are dealing with foreign currency whose value can change at any time, this can cause you to be put in a bind financially. Even if the property itself appreciates in value, you could still end up losing money when you convert it back to your home currency.
Another risk factor is related to financing. Getting a mortgage for a property abroad can be more challenging than in your home country. Banks might be cautious about lending to foreigners, or they may charge higher interest rates.
The cultural differences can also affect your investment in unexpected ways. Every country has its own way of doing things. What’s considered normal and acceptable in one country may not be the same in another. For example, the pace of business transactions, the formality of communications, or the usual working hours can all vary.
Pros of investing abroad
There are a lot of good reasons that should make you consider investing abroad.
High return potential
Many countries that have growing economies have low cost of living areas. This means that property costs are going to be much lower. This presents the opportunity to make more of a return if there are circumstances that help you in that area.
For instance, if you are going to buy in an area with a burgeoning tourism industry, then this can translate into some nice returns. The high cost of property in the US could limit how much you could make making this a very attractive area to invest in.
Here’s an example. A beachfront villa in a tropical country might fetch higher rent than a city apartment in your home country.
New markets to grow
As economies in different parts of the world develop, their real estate markets often follow suit. This means you could get in on the ground floor of a booming property market if you keep your eye on global economic trends.
An emerging market is a very exciting thing to invest in and could see your investment returns explode very quickly in the right circumstances.
Look for emerging economies in which the government and private entities are investing into infrastructure. This is a sign that the conditions are right to take advantage of the low costs and get in early before things take off.
Potential tax benefits
Depending on the country in which you’re investing and the specifics of its tax laws, you could save a lot of money over the long term. Some countries offer tax incentives to attract foreign investors, which could make your investment more profitable.
For instance, some countries might not tax rental income from property or may have lower property taxes compared to your home country. Others might have a treaty with your home country to avoid double taxation.
Another tax benefit could come from the cost of maintaining and managing your property abroad. Expenses like travel costs to visit your property, property management fees, and repair and maintenance costs might be tax-deductible.
Investing in real estate abroad is an exciting venture that comes with its own set of rewards and challenges. If you’re willing to embrace the challenges and are excited by the potential rewards, investing in real estate abroad could be a worthwhile addition to your investment portfolio.