Breaking the Comfort Zone: Investing Internationally

22 Replies

With real estate markets throughout the US continuing on the tear they've been on for quite a while I wanted to create a post about a topic I don't think is covered enough on Bigger Pockets, investing internationally.  Personally, I have been looking at investing internationally for the past 5+ years but didn't pull the trigger until recently.  While I had done extensive research on investing in countries from Central and South America to Europe and spoke with people to help facilitate investments in certain countries, there was always an excuse or domestic opportunity that stopped me from doing it.

This year I partnered with two brothers on a mixed-use 100 unit development in Peru, Aire Simbal.  While still early in the project, to say the numbers are staggering when compared to what I would be able to do in the States on the same level is an understatement.  Building and labor costs are a fraction of what I have found in the states (not to mention quality laborers are easier to find and more efficient in my opinion). In regards to rentals, we are using the short term rental model since the market is almost non existent in the area and have had to limit stays to 3 nights on the 2 units currently rentable since they are booked solid.  


Would love to hear from other members about their successes (or failures) investing outside of the United States.  What countries and what strategies were used?  Personally it feels like half the people we compete with for properties here in the US couldn't spell Real Estate if you gave them the letters and they have only contributed driving property values higher and higher.  Would love to hear your thoughts! 

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I have invested in Mexico and the ROI is very good, especially compared with investing in the U.S. It is a matter of doing a lot of research and taking time to build connections on the ground. Happy to discuss with anyone who is interested.

@Lien Vuong so I can obviously only speak to my personal experience but I'll do my best to answer best I can. I used personal funds to finance my entire investment (although some of those funds were from an LOC I have on a property here in the states). I do know from some of my research that there are countries that will lend to non residents but I would be sure to understand the financing structure and interest rates you will be paying. For example in Peru where my project is rates for loans are often times higher than 20%. With that being said, I do know certain European countries have much more favorable rates and loan structures for non resident investors.

In regards to your question on cost of building it is significantly less.  The reason behind that is labor costs are significantly cheaper than here in the states and also at this point in time way more hungry to work than what I have been able to find here.  We completed the first build of the development which was a 3k sq ft, 3br, 3ba, house with a pool for $68k.  If we were to list that home it would probably price in the $200-250k price range and the rental numbers we have seen would more than justify that as a cost.  

Keep in mind my situation is unique as I have partners from the area i'm investing in but I am also looking at purchasing on my own in Costa Rica as an investment property sometime in the near future.  Hope this helps! 

@Ariela Herzog Exactly! Research is priority number 1 and building a solid team locally to help is imperative.  It's definitely a step outside many people's comfort zone but I think it's worth more of a look than many people give it.  Do you mind me asking where you have invested in Mexico and seen success?

@John Flanagan I invested in Tulum.  It is a fast-growing area with lots of tourism.  There may eventually be an oversupply of rentals, especially one bedroom and studio condos, so it takes time to figure out what investments are worth pursuing.  We built a one family short term rental so I think we are very well situated to continue to make a nice profit into the future.

We have done a couple of short term rentals in Scandinavia and it's been great. In Denmark, for example, we get a loan with negative interest rates (I'm not kidding!) and the rentals there are just doing really, really well.

Originally posted by @John Flanagan :

With real estate markets throughout the US continuing on the tear they've been on for quite a while I wanted to create a post about a topic I don't think is covered enough on Bigger Pockets, investing internationally.  Personally, I have been looking at investing internationally for the past 5+ years but didn't pull the trigger until recently.  While I had done extensive research on investing in countries from Central and South America to Europe and spoke with people to help facilitate investments in certain countries, there was always an excuse or domestic opportunity that stopped me from doing it.

This year I partnered with two brothers on a mixed-use 100 unit development in Peru, Aire Simbal.  While still early in the project, to say the numbers are staggering when compared to what I would be able to do in the States on the same level is an understatement.  Building and labor costs are a fraction of what I have found in the states (not to mention quality laborers are easier to find and more efficient in my opinion). In regards to rentals, we are using the short term rental model since the market is almost non existent in the area and have had to limit stays to 3 nights on the 2 units currently rentable since they are booked solid.  


Would love to hear from other members about their successes (or failures) investing outside of the United States.  What countries and what strategies were used?  Personally it feels like half the people we compete with for properties here in the US couldn't spell Real Estate if you gave them the letters and they have only contributed driving property values higher and higher.  Would love to hear your thoughts! 

We invested in a small 1 bedroom penthouse in South Korea a few years ago in an area called Sinchon, which is surrounded by prestigious colleges. It's a very trendy area and very close to SK's excellent public transportation system. My wife grew up in Korea and so she knows how things work over there. Our current tenant is a professor and we've had to put in zero work in managing the place. He pretty much takes care of everything and we hardly hear from him and he always makes payment on the 1st of the month.  This is par for the course when it comes to renting in South Korea as I've had other rentals there too. Imagine what your dream tenant would be and that's pretty much what you'll get over there. We typically sign a two year lease and then we don't hear back from the tenant till the two years are up.....upon which they vacate the property at pretty much the same condition as when they moved in. It's without a doubt the easiest place to rent. I would own more rentals, but they don't make it easy for foreigners to own multiple properties.

@Tony Kim thanks for the information! I honestly haven't looked into investing in Asia much but it sounds like at least from a tenant standpoint it's well worth looking in to! Just out of curiosity how exactly does South Korea make it difficult to own more than one rental? And is there financing options available? Thanks! 

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I have invested in developed land in Merida, Mexico and have been seeing properties appreciate around 25% year over year. Loans for foreigners are a challenge but lots of developers do sellers financing with no interest up to a certain period of time. 

@John Flanagan

Congratulations on taking action and great idea to bring the subject! I hope the project goes well. I'm almost investing exclusively internationally because I have a competitive advantage there and I'm not suggesting everybody should do the same. However, I think that anybody who has the means should consider investing internationally for diversification purposes.

As usual, investors have short memories. They forgot the last property crash and global financial crisis. Many think it was caused by subprime mortgages and therefore won't happen again. This is short sighted. The last crisis was actually caused by rock-bottom interest rates, money printing by the central banks and real estate prices totally disconnect from reality (rents). Subprime mortgages were just the trigger and the result of this causes. Guess what? These factors are present again in many places in North America and Europe. Is a crash or correction coming at some point? No one has a crystal bowl but the current situation could go on for years given some offsetting positives like interest rates and the lack of inventory. However, it might not be a bad idea to diversify. After all, when real estate was crashing in the US and some European countries in 2008, it was booming in other places like Brazil for example.

Each country is different though. Given that I have been a big proponent of international investing here, it might sound unusual to some here that I adopt a cautionary tone here because people leverage all their US properties to buy in Peru. The cautionary tone isn't for you since you've done 5+ years of research; it's for those who haven't. What you've done sounds great but you might have glossed over the huge risks involved. Even though it's great that we are positive about what we're doing, I think we should never hesitate to mention the risks and negatives of what we do. As you implicitly seemed to acknowkledge, it would be very difficult/risky for anybody who doesn't have your connections to do anything similar or any development overseas for that matter. Even in your situation though, the risks are still very big, given the country in which you decided to invest.

Investing is different in every country. My first criteria is that I won't invest in countries in which I'm treated second class as an investor because I'm a foreigner. As much as I think that Latin America can be a great place to invest, Peru is regrettably not one of those countries. Moreover, the politics in Peru have rarely been conducive to foreign investment and it could get much worse with the election of a new president that some label a communist. If you ever have to go to a Peruvian court against a Peruvian citizen or entity, you might still lose even if you think you have the law on your side.

In my not so old previous career as an international banker, I was lending hundreds of millions of dollars to Latin American (and European) banks (hence my competitive advantage in terms of knowledge and contacts when it comes to international investing). While the bank was more than happy for me to splurge tens of millions of dollars in countries like Mexico, Colombia, Brazil or Uruguay, my bosses didn't even allow me to utter the name "Peru" during the sessions of our credit committee, as they were afraid it'd undermine our credibility. As a Canadian, we knew all too well that some of the biggest foreigner investors in Peru are Canadian mining companies and that it's not unusual for the Peruvian government to try to change the terms of mutually agreed contracts. So, unsurprisingly, there are plenty of US and other foreign real estate investors buying properties in countries like Mexico, Colombia, Brazil or Uruguay but not many in Peru. So you might be a bit of a trailblazer :-)

I'm not in any way suggesting that you should stop your activities in Peru. After all, there are many businesses that are and will be successful there irrespective of the politics and legalities there. Never forget that you're a foreigner dealing with Peruvians within their own country so they have the upper hand, regardless of how many years of research you have done. Hopefully this will work well for you but I'm not sure the it's the ideal destination for the newbie real estate investor though.

Since you asked us to share our successes, I'll take the example of Mexico, who has had a very different attitude towards foreign investors. In contrast to what I wrote above, Mexico has been rolling the red carpet for us for decades and made massive investments in infrastructure to attract foreign investment. Like many other Americans and Canadians, I'm buying short-term rentals in Mexico's most popular beach towns.

That's something pretty much anyone can do, at least as a first investment overseas and they can enjoy their property as well. The main issue for many is financing. It's not necessarily that easy to get and it's expensive, although nowhere like in Peru. What many people don't realize is that, oftentimes, your ROI is higher on property in Mexico paid for 100% in cash than on a like US property financed with a mortgage! And, sometimes, the price of the property in Mexico is less than the downpayment of the like property in the US. When you have a high ROI, you can actually still use leverage since you can afford the high local interest rate. Still, many would-be buyers/investors don't have the needed cash so I'm doing my small bit to try to improve the local lending conditions :-).

@Mike Lambert appreciate your insight! I think that just about every you point you make is extremely valid.  First, I 100% agree that too many people don't fully comprehend that last property crash/financial crisis and every time I hear United States real estate referred to as a "recession proof investment" or current prices as "the new bottom" it makes my stomach turn.  Personally I believe too many people are getting in WAY over their heads under these misguided premises.  That's not me saying I believe the US market is due for a correction or recession, I just believe too many people are unprepared for it should it occur.

You make some very good points that I may not have been clear about in some of my initial posts.  If it weren't for my partners (and my relationship with them) there is absolutely no way that Peru would have been my country of choice to begin international investing.  Are there plenty of opportunities to make money in Peru? Absolutely, but it is not the place I would recommend for someone without the right relationships.  For example, my partners are both Peruvian, successful business owners, and are very well connected locally both politically and socially.  Ideally we are trying to create a model through our developments that is more enticing for international investment but there is a lot that needs to be worked through before that becomes a reality.  But too your point, at this point it makes me more of a trailblazer and that may work in my favor or it may not only time will tell.  

@John Flanagan

I agree 100% to all that you wrote and I kind of had guessed/understood your situation is vis-à-vis Peru and commented accordingly, frankly more for the benefit of everyone else.

Aside from the risks, what you're doing sounds really exciting and you're gonna learn a ton at the very least and hopefully have fun in the process. I'm sure you didn't bet the farm on that project and I'm 100% with you on going after a special opportunity you could take advantage of. Why not do it? And there's nothing wrong about "having" to travel to a place like Peru for business and get the cost off your taxes :-).

@Mike Lambert Great insights all around!  There is a lot of great opportunity abroad but you have to proceed cautiously, as you should do in the U.S.  It can be much harder to get good data on short term rentals abroad and it's a steeper learning curve but in my experience totally worth it.

@Ariela Herzog

Yes, It took us a long time and a lot of work but we've created our own way to get reliable data (it helps to work with a great engineer).

Mind you, if you have a really good deal, common sense does the job and the data isn't an issue. I'm going to take an absurd example just to illustrate my point. If my break-even nightly rate is $50 and equivalent short-term rentals at the same location go for $200 a night, I don't need any more data to tell me I have a great deal.

There is also an interesting development in places like Mexico you're probably aware of. With the work from anywhere trend gaining in importance, there are more and more people looking for long-term rentals and there are places where there is a shortage of them. The rates of long-term rentals are much easier to find out and they're very high in many places to such an extent that many owners can be profitable with long-term rentals alone! Basically, you can sometimes get US-level rents on a property you bought at Mexican prices. You can even do a combination. You rent short-term during the highest season and long-term during the lowest season. Mind you, I still prefer short-term rentals because I want to maximize my income and there is high demand for short-term rentals all year round if you rent the right property at the right price.

Originally posted by @John Flanagan :

@Tony Kim thanks for the information! I honestly haven't looked into investing in Asia much but it sounds like at least from a tenant standpoint it's well worth looking in to! Just out of curiosity how exactly does South Korea make it difficult to own more than one rental? And is there financing options available? Thanks! 

It's primarily through taxes upon exit. In their efforts to contain their real estate bubble, they've started to impose a lot of tax on folks who own multiple properties.  This applies to their citizens as well, but the rates are even higher for non-citizens.

Of course, like a lot of government policy, this seems to have had the opposite of its intended effect. Even well before the pandemic, this policy led to a reduced inventory and drove up prices even more.

Financing is available.