The Advantages and Disadvantages of Buying International Real Estate

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As more people in the U.S. become discouraged with falling real estate values, a faltering economy and higher taxes it is reasonable to surmise that the increasing trend of U.S. citizens purchasing property in foreign countries will continue. Certainly, there are many great opportunities available for the buyer of foreign real estate, however, it is extremely important that the investor performs the necessary due diligence and research before deciding on a country and a property. A short article of this scope could never cover all of the intricacies of purchasing foreign real estate but I will try to cover some main issues to consider along with a few of the advantages and potential pitfalls.

Advantages of Buying Foreign Real Estate

  1. Tax Havens. Many real estate owners in the U.S. have been slammed with higher property tax bills because of the real estate bubble that pushed property values. Unfortunately, when prices fell, real estate taxes didn’t fall as quickly. Many real estate owners are now paying taxes on assessed real estate values that don’t accurately reflect the market value of the property. Thankfully, there are actually many places in the world to invest where there are no property taxes at all. One of these places is the country of Ecuador. Many people will find it hard to believe but a U.S. citizen can actually travel to Ecuador and legally purchase an investment home and not pay any annual real estate tax at all.
  2. Lower Cost of Ownership. Many property owners in the U.S. have found that it can be extremely expensive to properly maintain their investment or residential real estate. This is primarily due to the high prices of labor in the U.S. Many countries around the world have a surplus of highly qualified construction workers who are paid wages lower than here in the U.S.
  3. More for the Money. Even though the U.S. Dollar has a lot of value during the last five years there are still many countries in the world where the investor can buy more with their U.S. dollars than at home. Researching exchange rates and local real estate prices is key to finding a suitable place to invest.

Potential Pitfalls of Buying Foreign Real Estate

  1. Political Instability. It is important to carefully research the current level of political stability in the country where you are looking to purchase real estate. Many countries around the world have unstable political environments that can adversely affect a real estate investment. In extreme cases, governments have been known to seize the property owned by foreigners without offering fair or any recompense.
  2. Economic Instability. In many parts of the world economic instability can lead to demonstrations and crime. The added cost of having a full time security guard to patrol your property can seriously affect your bottom line. In addition, you may not feel safe in a country with a high level of crime.
  3. Local Real Estate Laws. It is extremely important that anyone who is considering the purchase of foreign real estate understand the local real estate laws. The best course of action is to hire a local real estate lawyer who can help you navigate the local legal system. Real estate laws can be very complex in foreign countries and you need to be sure that your rights are protected.

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9 Comments

  1. This is an excellent article. I would like to add another advantage: many of the foreign markets are seeing strong appreciation as they transition into the mainstream of the world’s economy and from the demand for retirement to warm and exciting and cheap locations. The Washington Post reports that over seven million US and Canadian citizens now live abroad.
    I would also like to emphasize the pitfalls if a Buyer is not careful. Often I will see a Buyer purchase property with no idea of the laws and customs in the area. Your suggestion of using an attorney is good; however, it is not nearly enough. I have seen attorneys tell clients that properties are good values when they aren’t and even go so far as saying that title insurance is not necessary because they have looked at the documents.
    Due to these problems, I have developed an approach which I feel is beneficial in Latin America. It should work anywhere, but I try not to overextend.
    I spend time with my clients to find their preferences and expectations. Then I refer them to good professionals in the location where they plan on purchasing. I do the research and have the contacts to be able to select excellent real estate agents, lenders, attorneys and title companies throughout Latin America.
    Throughout all the stages of the purchase: looking for the property, negotiation, financing and finally closing, I stay in touch with all parties and act as a consultant and oversee the parties. If someone does not really watch out for the client, I replace them (per my referral contract).

    This has developed into an exciting and interesting business for me and I feel it is instrumental in saving many of the retirees and investors that I meet.

  2. I would also like to emphasize the pitfalls if a Buyer is not careful. Often I will see a Buyer purchase property with no idea of the laws and customs in the area. Your suggestion of using an attorney is good.

  3. In many emerging markets there’s no MLS and market data is not readily available from property institutes or central bank databases. It’s hard to know if you’re getting good value without reliable comps. We’re trying to fill some of this gap in Central America – putting more data in the hands of consumers.

    Claudia Gonella’s last blog post: Finding good value in international real estate – now that’s a high value problem to solve.

  4. Claudia – That’s great! Without good data, it is hard to know if you’re getting a buy or ripped off. Now, all someone has to come up with their own international listing service that is comprehensive. Not as easy as it sounds.

  5. Joshua – You are right on target with the idea for an international real estate listing service. We did a lot of research on a service for Mexico and considered building one for all of Latin America. Even had many of the contacts and some key people interested – but the start up costs are huge.

    If anyone knows a deep pocket investor, we could definitely start phase one by building Latin America and even have some contacts who would be glad to help as it expands to the rest of the world.

  6. Agreed an international listing model is what is needed. The problem though with targeting brokerages is the lack of exclusive listing arrangements in many Central American countries. Most brokers and agents work as buyer brokers rather than listing agents. Our way into the data gap is to start with real estate developments and put their prices online in a comparable format. Would love to collaborate to develop this out further.

    Claudia Gonella’s last blog post: Finding good value in international real estate – now that’s a high value problem to solve.

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