When considering diversification regarding your investment portfolio, real estate is an asset that never goes out of style, and going beyond the US market is a way to achieve that goal. When choosing real estate, it’s similar to buying a house – location is of utmost importance. Generating passive income through a profitable long-term venture overseas is a smart way to invest your hard earned capital. One of the most common mistakes investors make when expanding overseas is leaving out due diligence. Understanding what affects the real estate value and prices, such as culture, tourism, transportation etc., is acknowledging that it directly mirrors with the return on investment. So before even considering an overseas investment, be sure to study closely these five expert rules.
- Minimizing Culture Shock
The general idea is to spend some time in the area where your next investment will be located. When investing in a foreign country, it’s important to consider the culture, geography and local customs, otherwise you’ll be up for a rude awakening. Getting a sense of what drives the local life and gaining an opportunity to get the lay of the land could help in determining profitability in the long term. Future potential development should be one of the main factors in decision making and could be located amongst the locals and their culture, so pay attention.
- Keeping it Legal
Coming to terms with the locally enforced laws and understanding the legal guidelines is the second most crucial step, after acquiring the location for your new overseas destination. The rules and regulations of foreign land ownership in another country have to be taken into serious consideration when planning an overseas capital transfer. The regulations vary depending on the country, so some restrictions may apply to the location you have chosen. For example, some countries need special governmental permissions to buy property over a certain acreage or some countries may allow foreigners to buy houses, but not buildings etc.
- Allocating Carefully
When buying real estate for the first time overseas, less is definitely more, although it may be tempting to invest a large sum of money into some foreign real estate solely based on return potential. Being careful is a smart move, so it is advisable to start small, despite the great comparative value in foreign countries. If a misstep does happen, the damage won’t be massive as it might have been if you went big. If the initial investment proves to be lucrative, the next logical step is to invest bigger. Also, be sure to keep in mind to avoid being too heavily weighted toward overseas assets.
- Consider Multiple Financing Options
One of the key decisions regarding overseas real estate investing revolves around where the capital is coming from to finalize the purchase. The aforementioned laws also imply the size of your mortgage, so this is why cash is considered king. In addition to these laws, there could be differing banking rules abroad and it’s possible that you’ll have to pay a much higher interest rate, depending on the county and the bank. This is why paying cash is considered the best payment option in order to avoid these regulations/high interest rates headaches.
- Size the Tax Impact
When reporting additional investment gains, adding a foreign real estate to your investment portfolio can toss more tax your way. Before going into the transaction be sure to have a crystal clear understanding of the tax implications solely concerning the investment itself. Specifically, keep a keen eye on transfer, income and capital gains taxes, as those are the ones that usually vary greatly, depending on the country. Fiscal planning goes into the crucial things to consider when investing in property overseas, because if not done properly it can take a huge toll on the overall return of your international investment.