Listen to this articleExperienced real estate investors may be interested in going abroad. Investing in other countries can be highly profitable if it is managed correctly. David Ebrahimzadeh, a real estate and investment professional, explains the best six ways to make sure international investing is done right.
1. Understand What You Are Getting Into
When you are investing in international real estate, you need to be realistic about your prospects. It can be challenging to invest in an area where you do not speak the language and don’t understand the local culture. Keep in mind that real estate is not a liquid asset and that you may not be able to sell right away if you find out that international investing is not for you.
It is vital to make sure that your investment is solid enough to last many years. You need to make sure that your property and location are desirable for many years into the future, regardless of shifts in the global economy.
2. Comparing Global Prices
In the United States, it is easy to calculate the price of your real estate investment. When different currencies are involved, it can get complicated fast. Using the dollar cost by the square meter or square foot is an excellent way to compare different properties.
You need to consider not only the exchange rate but the relative stability of the economy and national government in the country where your investment is located. Otherwise, you could encounter unexpected problems with inflation or deflation. Many countries list their real estate in US dollars, but others will require some math on your part.
When looking at international real estate, it helps to have a solid grounding in the entire market. You will then be able to determine whether a property is overvalued or undervalued compared to the neighborhood, city, and country.
3. Understanding How Real Estate Works Abroad
Taking price differences into consideration, would-be investors also need to be sure that they understand the general economic conditions in the country in which they want to invest. The real estate market is a vastly different place in Europe, for example, than it is in the United States. In Europe, people tend to stay in one house longer, sometimes handing them down over generations. Historically, the land was owned by wealthy merchants or members of the nobility. In the United States, individual land ownership has been prevalent since the colonial period.
The structure of the real estate business abroad is different from the American way. Since there is little background for frequent real estate sales and few national databases, you will have to depend on a real estate agent and their team of local mediators. Every person involved in your sale will take some of the profit. This is in contrast with the American system, where the profits are given directly to the agent and seller.
In European countries in particular, it is always a seller’s market. It may be difficult to get deals through, but lucrative profits await the successful investor. This is why it is best to avoid countries with “golden visa” programs where large numbers of foreign investors are brought in to drive up prices.
4. Understand the Culture and Location
You will need a working understanding of the culture where you want to buy real estate. Find trusted helpers in foreign countries who will help you with the language barrier and cultural clashes. Unfortunately, there is a great deal of dishonesty in real estate deals, and you have to be ready to cope with this in the context of your sale.
It is even more important to understand the location of your property. Your building may look great, but the real estate agent may not be telling you that it is located in a dangerous neighborhood. This is another reason why it is a good idea to have friends in the area. Local residents will be more honest with you about the problems in the neighborhood once you get to know and respect them.
5. Deal with Taxes
One of the most complex areas when it comes to international real estate investing is the tax situation. In many cases, properties held by foreigners are taxed at higher rates. This calculation should be part of the profit-loss analysis of your property.
You will also need to be aware of the requirements to declare an international property on your United States income tax. The profit and loss must be reported on the non-resident tax forms. You will need to keep excellent records, or you could be facing tax penalties.
6. Invest in Top Areas
You may be tempted to invest in a “fixer-upper” in a distressed area. Your real estate agent may be touting this property as a sure winner and encouraging you to purchase. It is far better to invest only in “class A” properties. Buyer’s remorse can happen quickly in international real estate, and it is hard to unload a property with serious problems. It is likely that you would have to sell it at a loss.
Foreign Real Estate Investment Can Work
If you are careful, you can make a significant profit with international real estate. Make sure that you are getting the best deal by understanding the local market. Try to break cultural barriers and have trusted friends and agents, if at all possible. David Ebrahimzadeh advises international investors to be cautious, but to hope for good returns if his advice is followed.
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