When selecting a real estate investment, it’s often said that location is everything. International properties tend to be particularly lucrative ventures that can generate a passive stream of income in the long term and even represent a great opportunity to diversify your portfolio. However, foreign investments can also pose a great risk, especially if you fail to do your research. In order to ensure success, you have to understand the different aspects that can affect the values and prices of foreign real estate. To that end, here are some of the most important rules to follow when investing in international real estate:
Be mindful of the culture
If you decide to invest in a distant country without learning about its culture, customs, and geography, you might be in for an unpleasant surprise. This is especially true for Asian countries, for example, as their cultures tend to drastically differ from our own. For that reason, it’s recommended to research the country you plan on investing in, or even spend some time there physically to get a better idea of the local life. This can also present a great opportunity to see how the market currently stands and gauge the potential for improvement and future development, thus enabling you to estimate how profitable your investment will be in the long term.
Focus on the legal aspects
Before purchasing real estate overseas, it’s also crucial to understand the legal aspects of this process. Start by learning more about the laws regarding foreign land ownership in the country or region where you plan on investing. Every country, state, or even city can have different rules and regulations, which is why it’s essential to know whether there are any restrictions in terms of the location and property type you can buy. For instance, some countries might allow foreigners to buy buildings but not land, or vice versa. Similarly, you might need to acquire special permission from the local government to buy property over a certain acreage.
Broaden your horizons
International real estate can improve your asset mix, but it’s essential to have an open mind when selecting properties. Only focusing on one region and country will restrict you to a narrow field of real estate cycles and unnecessarily subject your portfolio to potential risks such as political and natural circumstances. If you decide to invest in Europe, for example, look beyond the typical UK and French properties. Consider Montenegrin real estate for sale as well, representing the perfect opportunity to diversify your portfolio. Exposing yourself to several geographic areas in this way can allow you to avoid any issues when it comes to economic cycles and global real estate.
Consider the tax impact
Including international real estate in your portfolio could potentially present new issues when reporting your investment gains at tax time. That is why you should enter each transaction with a clear understanding of all the tax implications pertaining to the investment, especially when it comes to income, capital gains, and transfer taxes, as they could significantly vary depending on the country. Financial planning is key to successful international investments, and not doing your due diligence could have a huge impact on the total return of your real estate investment.
Compare financing options
The capital used for buying property is one of the most important factors that can affect the outcome of international real estate. As each region has its own laws, they will also have unique rules regarding how much you could mortgage. In addition, the banking regulations for acquiring a loan could greatly differ from what you are used to as well. Depending on the overall environment in the country, it may even be necessary to pay significantly higher interest rates. With that in mind, paying in cash might be the best solution, if at all possible, allowing you to avoid the common problems that slow down the investment process.
Try to take smaller steps
It can often be tempting to make larger investments based on their return potential. However, less might actually be more when investing overseas, especially if you’re buying your first real estate. Even though comparative value can be great in foreign countries, it’s always advised to start small. In case you make a mistake along the way, which is common throughout this process, your loss likely won’t be quite as drastic. Deciding on a smaller investment can be a good tactic for testing the local market, and it will empower you to make larger investments down the road if the initial one is successful. Always keep asset allocation in mind.
While investing in international real estate might be a complex process, it gives you a chance to tap into interesting markets and capitalize on profitable opportunities. Just follow the advice above to streamline this procedure and ensure success.