- \n
- Portfolio and currency diversification<\/li>\n<\/ul>\n<\/td>\n
\n - \n
- Legal and regulatory complexities<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n \n - \n
- High potential returns<\/li>\n<\/ul>\n<\/td>\n
\n - \n
- Cultural differences and political instability<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n \n - \n
- Tax benefits (e.g., tax incentives and lower property taxes or capital gains taxes)<\/li>\n<\/ul>\n<\/td>\n
\n - \n
- Fluctuations in economic growth, employment, and inflation<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n \n - \n
- Can bring residency perks (e.g., obtain a permanent residence permit or citizenship)<\/li>\n<\/ul>\n<\/td>\n
\n - \n
- Currency risks and fluctuations<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n \n - \n
- Portfolio growth<\/li>\n<\/ul>\n<\/td>\n
\n - \n
- Distance makes it hard to conduct thorough due diligence<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
<\/p>\n
Factors You Must Consider When Investing Internationally<\/h2>\n
Investing in real estate in a foreign country can be a lucrative opportunity. However, it comes with its challenges that make it more complex than investing in local real estate. If you\u2019re considering investing in property abroad, the following are several factors you must keep in mind:<\/p>\n
\nFactor 1: Market Analysis & Research
\n\t\t\t\t<\/h6>\n![\"expand\/collapse\"](\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\")
<\/div>\n\nInvestors should conduct comprehensive market research to make informed real estate investment decisions. This includes analyzing local real estate markets, economic indicators, demographic trends, and infrastructure development.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 2: Local Rules & Laws
\n\t\t\t\t<\/h6>\n<\/div>\n\nForeign real estate investors must familiarize themselves with local laws and regulations that can significantly impact property acquisition, management, and sale. This includes property laws, zoning regulations, taxes, and other legal requirements. By understanding these, investors can feel prepared and knowledgeable, reducing the risk of legal complications.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 3: Eligibility
\n\t\t\t\t<\/h6>\n<\/div>\n\nBuying property in certain countries can be complex due to explicit prohibitions or severe restrictions on foreign nationals. For example, owning land in Thailand is not possible for foreigners, unlike in Italy, where there are no restrictions on property ownership. For more information about global property rights, read the section below, which discusses the differences in property rights internationally<\/a>.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 4: Financing Options
\n\t\t\t\t<\/h6>\n<\/div>\n\nObtaining financing for international real estate investments can be complex due to the reluctance of local banks to lend to foreign investors and the strict lending requirements of international banks. To overcome this challenge, investors should consider exploring various financing options, such as international lenders or private financing. To learn more about the financing options, check out our Ways of Financing Your International Real Estate Investments discussion below<\/a>.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 5: Currency
\n\t\t\t\t<\/h6>\n<\/div>\n\nKnowing the risks of currency fluctuations between two economies when purchasing property in another country is important. Every real estate transaction abroad can result in significant losses or gains. Therefore, staying informed about the exchange rate from U.S. dollars to the local currency is vital, making foreign investors cautious and aware of the potential risks. Read our discussion on the Effects of Foreign or Currency Exchange<\/a> below to learn how currency rate fluctuations affect international real estate investment.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 6: Political Stability
\n\t\t\t\t<\/h6>\n<\/div>\n\nInvesting in physical assets outside of your home country may expose you to political risk, also known as geopolitical risk. You might suffer damages or losses if your property is located in a country with an unstable economy or due to changes within a country.<\/p>\n
<\/p>\n<\/div>\n
\n\nFactor 7: Property Management
\n\t\t\t\t<\/h6>\n<\/div>\n\nInvestors looking to invest in foreign real estate must understand that effective property management is critical for their investment\u2019s success. Consider how the property will be managed, including tenant relations, maintenance, and legal compliance.<\/p>\n
<\/p>\n<\/div>\n
\nDifferences in Property Rights Internationally<\/h2>\n
Understanding how property rights vary worldwide is essential when searching for international real estate investment opportunities. It\u2019s not just about knowing but also researching the laws that govern private property, especially for non-citizens. This is critical because it determines what you\u2019re buying.<\/p>\n
For instance, some countries allow foreign property ownership, but there may be limits on the type or location of properties available for purchase. Several countries also require foreigners to obtain special permits or undergo additional legal procedures. Therefore, it is vital to consult with qualified real estate professionals and legal advisers familiar with the specific country\u2019s property laws.<\/p>\n
Below are some examples of different types of ownership rights in other countries:<\/p>\n
- \n
- Owning land in the Philippines<\/strong><\/a>:<\/strong> In the Philippines, foreigners cannot own land but can own a residence, such as in a condominium complex, provided Filipino citizens or companies own 60% of the building or project.<\/li>\n
- Leaseholding in the <\/strong>United Kingdom<\/strong><\/a> and <\/strong>Singapore<\/strong><\/a>: <\/strong>A significant portion of real estate is sold as leasehold in these countries. This implies that the buyer owns the property, not the land it is built on. The lease is valid for a specific period, ranging from decades to centuries. After the lease expires, ownership of the property returns to the landowner. In the United States, most real estate is sold as freehold, which grants permanent ownership of the land and its buildings.<\/li>\n
- Mexico\u2019s restricted zone<\/strong><\/a>: <\/strong>Foreigners are not allowed to own land within 100 kilometers of the Mexican border and 50 kilometers of the coast directly. However, they can invest in nonresidential properties by holding the property through a fideicomiso, a trust held by a Mexican bank or a Mexican corporation.<\/li>\n<\/ul>\n
\n<\/span>\n<\/div>\n\nFor more comprehensive information on property rights internationally, read the International Living\u2019s Global Property Ownership Rules and Restrictions<\/a>.<\/p>\n<\/div>\n<\/div>\n
Tax Implications for International Real Estate Investing<\/h2>\n
For U.S. citizens who purchase real estate in foreign countries, it\u2019s important to be aware of the tax implications that come with it. You\u2019ll be required to pay property and capital gains taxes in the foreign country where the property is located and report any foreign property you own on your U.S. tax returns. <\/p>\n
This may also subject you to the Foreign Account Tax Compliance Act (FATCA) requirements. The following are the FATCA requirements for individuals<\/a>:<\/p>\n
- \n
- Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS generally using Form 8938, Statement of Specified Foreign Financial Assets<\/a>. The aggregate value of these assets must exceed $50,000 to be reportable, in general, but in some cases, the threshold may be higher<\/a>.<\/li>\n
- The Form 8938 must be attached to the taxpayer\u2019s annual tax return.<\/li>\n
- U.S. taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.<\/li>\n
- You may also have to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)<\/a> PDF.<\/li>\n
- This comparison table<\/a> will help you figure out whether you need to file Form 8938, the FBAR, or both.<\/li>\n
- You should review the instructions for Form 8938 to determine if an exception to the reporting requirement applies.<\/li>\n
- Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty of up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40%. Criminal penalties may also apply.<\/li>\n
- See frequently asked questions (FAQs) for Form 8938<\/a> for information on real estate, foreign assets held in U.S.-based financial accounts, foreign pensions, valuing certain assets, and more.<\/li>\n<\/ul>\n
To avoid any potential changes in your tax obligations, it\u2019s highly recommended that you consult with a tax professional who fully understands the tax laws of both the foreign country and the U.S. For more information about FATCA requirements for institutions and governments, check out the Internal Revenue Service (IRS) website<\/a>.<\/p>\n
Effects of Foreign or Currency Exchange<\/h2>\n
Currency exchange rate fluctuations can greatly impact the profit or expenses involved in owning a property in a foreign country. The change in exchange rates between your home currency and the foreign currency will influence the initial purchase price, maintenance expenses, taxes you pay as an owner, and the profit you make from selling or renting the property. A stronger home currency can make the investment more affordable, but if the value of the home currency drops against the foreign currency, your expenses will increase.<\/p>\n
\n\n
- Leaseholding in the <\/strong>United Kingdom<\/strong><\/a> and <\/strong>Singapore<\/strong><\/a>: <\/strong>A significant portion of real estate is sold as leasehold in these countries. This implies that the buyer owns the property, not the land it is built on. The lease is valid for a specific period, ranging from decades to centuries. After the lease expires, ownership of the property returns to the landowner. In the United States, most real estate is sold as freehold, which grants permanent ownership of the land and its buildings.<\/li>\n
- Owning land in the Philippines<\/strong><\/a>:<\/strong> In the Philippines, foreigners cannot own land but can own a residence, such as in a condominium complex, provided Filipino citizens or companies own 60% of the building or project.<\/li>\n
- Distance makes it hard to conduct thorough due diligence<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
- Portfolio growth<\/li>\n<\/ul>\n<\/td>\n
- Currency risks and fluctuations<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
- Can bring residency perks (e.g., obtain a permanent residence permit or citizenship)<\/li>\n<\/ul>\n<\/td>\n
- Fluctuations in economic growth, employment, and inflation<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
- Tax benefits (e.g., tax incentives and lower property taxes or capital gains taxes)<\/li>\n<\/ul>\n<\/td>\n
- Cultural differences and political instability<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
- High potential returns<\/li>\n<\/ul>\n<\/td>\n
- Legal and regulatory complexities<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
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