Geographical asset diversification is a popular trend in the modern world. We must admit that our freedom of movement has been limited over the recent times due to the COVID-19 pandemic but when things are back to normal, we are going to return to an open world. Many wealthy individuals like to have real property in more than one country and so they buy houses, villas, apartments, and other types of real property abroad.
Some people choose popular tourist destinations and purchase property in Italy or France, while others opt for such exotic places as New Zealand or Uruguay. How should you go about choosing what offshore property to purchase? Please read on to find out about the process of buying offshore property. You are also welcome to request a personal consultation with our expert who will be happy to help you make the best choice.
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Purchasing offshore property: pros and cons
If you are seriously thinking about investing in a piece of offshore property, you should weigh all the pros and cons that this move can have. The arguments for becoming the owner of a house or a villa abroad may look obvious but there are also some arguments against buying offshore property. Below please find an incomplete list of advantages and disadvantages of owning offshore property.
Pros and cons
Advantages of owning offshore property Disadvantages of owning offshore property Comfortable vacations and a passive income: Many investors buy offshore property in resort countries to have a place to stay on vacations. When they are not using the house or the apartment that they have in a foreign country, they let it on a lease. This is one of the most popular ways of using offshore property.
Geographical asset diversification: Investors seek to diversify their assets by buying various stocks and by purchasing property in different geographical locations. Especially if the investor lives in a country that does not have a stable economy, putting money into property located in a more prosperous country is a reasonable move indeed.
Earning opportunities: There are Real Estate Investment Trusts (REITs) that allow clients to use real property as a money making instrument. They try to purchase real estate when the prices are low and sell it when the prices peak. In this way, you can gain some capital after owning your offshore property for a few years.
Safety net: Some people buy offshore property in order to protect themselves from possible political/ economic crises in their home countries. Empires have always risen and fallen and economic development in a particular country may well have a cyclic nature. It is nice to have a piece of property in a foreign country that can serve as a safety net if things go nasty in your country of residence.
Additional bonuses of having offshore property: Some additional advantages of owning a house or an apartment abroad include, but are not limited to, the following ones:
· A comfortable place where you can retire and spend your golden years;
· Protection against your national currency inflation;
· A source of income in a foreign currency;
· An opportunity to change your tax residency and make use of some tax benefits in a foreign country;
· A legal foundation for applying for a residence permit or even full citizenship of a foreign country.
You need extended knowledge or professional assistance when choosing offshore property: You have to conduct a resinous market research before you decide what piece of offshore property you are going to invest in. Otherwise, you have to apply for professional assistance in the matter, which also costs money.
Risk and restrictions for foreign owners of property: Economic fluctuations, corrupt Government officials, restrictive laws (some countries allow foreigners to own property but not the land where it sits, for example) — these factors may make choosing the offshore property a more difficult task. You might end up making an unsafe investment.
Property owner’s nationality: Some countries prohibit foreign nationals to own real property on their territories. The only way around this restriction is hiring a local person to serve as the nominee property owner or setting up a company in the country and making it the owner of the offshore property.
Disinvestment opportunities: Legislations of some countries allow foreigners to buy real property on their territories but they make it virtually impossible to sell it! Buying a piece of non-liquid offshore property is not what you want to do in all likelihood.
Mortgage opportunities: Foreigners often do not have the same access to bank loans as local people do. Banks in some countries do not give mortgages even to legal residents but only to full citizens. In other countries, the foreigner applying for a mortgage has to make a larger initial payment or he/ she will be offered a higher interest rate on the mortgage. That means that you may have to obtain a mortgage in your home country or simply use your own money to purchase offshore property.
Buying offshore property on an impulse should be out of the question
When you come to a beautiful resort somewhere on a tropical island in the Caribbean, for example, you may fall in love immediately and decide to buy a house or an apartment there on the spot. Well, it is typical of people to make purchases on an impulse but this sort of ‘shopping habit’ cannot be relied on when buying offshore property, of course.
This kind of decision is comparable to marrying somebody that you have met today. Such things happen in Las Vegas, for example on a regular basis. Well, this probably can be explained by the abundance of free alcohol in casinos and hotels in the city of sin where anything is allowed.
It goes without saying that you should think carefully before investing money into offshore property because it does cost money! You will be well advised to rent a place in the area that appeals to you and spend some time there before buying a piece of real property in the foreign country. Haste makes waste, as you know and you should invest time and effort in getting to know the local infrastructure (shops, restaurants, transport, etc.) before you invest money in a piece of offshore property.
Investments in real property abroad have made some people rich while others have gone broke by making poor investment decisions. If you are considering purchasing offshore property, you should approach the issue with a clear sight and a sober head. Cold calculus is what you have to do.
Key criteria of choosing offshore property
When deliberating an investment in offshore property, you have to sit down with your family or simply with your own self and consider the following issues with great care.
- Your goal: You have to understand why exactly you want to buy offshore property. There can be many reasons to do that and besides, you may decide to purchase offshore property for a combination of reasons. Below we list the main reasons why people buy real property in foreign countries:
- They want to relocate to a foreign country and find a job there, start a business, or otherwise continue working from home. A well-developed western country will often be their choice.
- They want to lessen their tax burden. Purchase of offshore property is often a part of tax planning efforts. If this is the main goal, you should choose a low-tax jurisdiction that gives tax residence to the foreign buyers of real property. Uruguay can serve as an example of such jurisdictions.
- They want to live their ‘golden years’ in comfort. Many people buy offshore property when they retire. Pensioners often look for a country with a better climate than the climate in their home country or a lower cost of living. American retirees, for example, often relocate to Panama.
- They want to have a place to stay when they go to the foreign country for vacations plus they want to have a possibility to obtain a source of passive income. In this case, people will normally choose to buy offshore property in a resort country or on a tropical island.
- They want to immigrate to a foreign country by investing in its economy. Some countries offer legal residence to the foreign buyers of real property on their territories while other countries even grant full citizenship to them. You can acquire second citizenship if you purchase offshore property in Grenada, Saint Lucia, Saint Kitts, Antigua, Dominica, Turkey, or Montenegro. You can acquire a ‘golden visa’, that is, a legal residence permit by investing in real property in Portugal, Spain, or Greece. We must note at this point that a golden visa to Portugal is one of the most popular products in the immigration market.
- They want to start a business venture in the foreign county. Apart from purchasing residential accommodations, you can also put money in commercial offshore property such as a store, an office building, a warehouse, or agricultural lands. In this case, the foreign investor will choose a country with a favorable business climate and good business perspectives.
- The price: Naturally, your choice of offshore property will be limited by the amount of money that you are prepared to invest. If you would like to obtain foreign citizenship by investment, for instance, you have to be prepared to spend US$ 200,000 when buying offshore property (this is the lowest required investment amount available in Antigua and Saint Kitts but administrative costs need to be added to this amount).
- Property location: This is one of the most important factors that will affect your final decision. The quality of offshore property will be different depending on the country where it is located and the city in the country. Moreover, there can be totally dissimilar pieces of property for sale in one and the same city! The choice is wide and you have to consider the following factors:
- The country: Developing countries offer property at lower prices but their economies… are still developing. A resort island offering a low cost of living, a lot of sunshine, and crystal clear water will make you invest a bit more in a similar piece of property. Houses and apartments in well-developed countries of the west will be even more expensive.
- City/ rural area: Offshore property in large cities will normally cost more but it is going to be easier to sell it if you want to and the city infrastructure is incomparable to the infrastructure in the countryside. At the same time, some ‘golden visa’ programs, for example, offer serious discounts on the required amount of investment if you choose to purchase real property in the rural areas rather than in a big city. So this issue needs some serious consideration.
- Property type: Most investors buying offshore property choose to put money in residential accommodations. However, some will purchase commercial property and use it to earn money in the foreign country. In Montenegro, for example, you can make an investment in the agricultural sector (that is, you can buy agricultural lands) to qualify for citizenship by investment but this option is rather unpopular. The type of offshore property that you want to buy will depend on your goals, in the first place.
- Investment method:
- You can make a direct investment in a piece of offshore property (using a mortgage if necessary) becoming its rightful owner.
- Otherwise, you can make an investment via a REIT. If you would like to diversify your assets geographically but you cannot be bothered with the property management, this option is worth considering. The REIT can act as an intermediary in the purchase deal and in addition to that, undertake the property management task. Investments into REITs usually bring good dividends.
- Property liquidity: There are no exchanges where apartments and houses are traded in a way that stocks are traded at stock exchanges. This circumstance makes selling your offshore property more difficult than selling shares of a company. Finding a buyer may turn out especially hard if you purchase property in a rural area. Evidently, selling resort property or an apartment in a large city is going to be easier but these cost more. So again, you have to think hard and take this aspect into consideration.
- Tax burden and transactional costs: When choosing offshore property to buy, you have to take the transactional costs into account such as the stamp duty, the duty for the transfer of property rights, the realtor’s commission, the lawyer’s fee, the notarization and translation services, and so on. Besides, you will have to incur some costs when selling your offshore property. The size of the transactional costs will vary depending on the country where you are buying foreign property. Property-related taxes are also different from one country to another. For instance, owners of luxury property in some countries have to pay a wealth tax while they do not have to do so in some other countries. The capital gains tax, the annual property tax, the rental tax, and the municipal duties are also different in different jurisdictions.
- Property management: If you do not intend to live in your foreign house or apartment, you will have to hire a management company that will take care of the property maintenance. You will have to pay for the services even though the expenditure can be compensated by the rent that you will receive if you let your offshore property on a lease. There are companies that can find renters for you in many countries.
- Property security: If you are going to use your offshore property for vacations and on occasional visits only, you have to think how to make it secure while you are away. How do you protect your property from a burglary or a leaking pipe? You may have to buy an insurance policy or install a ‘smart home’ system or take some other protective measures.
- Market dynamics: It is important to make an investment in offshore property at the right moment. Property prices fluctuate and of course, it would make much more economic sense if you buy a house or an apartment in a foreign country at the moment when the prices hit the bottom and just start growing again. Real estate markets in different national states show different dynamics and this is one of the issues where you certainly need some professional advice.
Other important factors to consider when choosing offshore property
- The financial side of the matter: If you need a mortgage to buy offshore property, you had better come to a preliminary agreement with the bank before signing the purchase deal and making the initial deposit (that is usually non-returnable in case you are unable to pay the rest of the sum).
- The legal side of the matter: Laws governing sales of real estate are different in every country. To be on the safe side, you should hire a local lawyer who will ensure that the purchase agreement that you are signing is legal and fair.
- Independent property assessor: Being a foreign national, you are rather easy to deceive. Please use the services of an independent assessor who will make sure that the property has no hidden incumbencies and that the price that the seller is asking is a fair market price.
- Mind the currency exchange rate fluctuations: When you are buying a house or an apartment in a foreign country, you normally have to pay for it in the local currency, not in the currency of your home country. The fluctuations of currency exchange rates are usually small but they may have a bearing on the overall cost of the offshore property, on the mortgage payments, or the rent income. You will be well advised to consult a foreign exchange broker who can tell you how to avoid losing money because of an unfavorable exchange rate. For example, in some cases, you can agree with the seller on a fixed exchange rate before signing the purchase agreement.
- Rent income/ capital gains: We recommend that you take the developers’ assertions about the rent opportunities and the prospective growth of the property value with a pinch of salt. They will tell you anything that will help them sell the apartment or the house. Please remember that purchasing offshore property always involves certain risks. It is true that investments in foreign property have brought considerable incomes to some people but a ‘housing bubble’, for example, may cause the property prices to slump at one point. So take your own counsel instead of blindly trusting the developers.
- Open a foreign bank account: Please bear in mind that in many cases you will have to open a bank account in the country where you are buying real property. Some national legislations require that the payment for the house or the apartment should come only from a local bank, not from a bank in another country. Besides, you are going to need a local bank account to pay the utility bills, property taxes, and other property-related fees. A failure to pay the taxes can have extremely unpleasant consequences in some countries and in Western Europe in particular.
A free personal consultation on choosing offshore property
Whichever goal you have, purchasing offshore property can be a very good decision if you approach the task in the smart way. Probably, you will be able to find a suitable piece of property in your home country by searching the Internet but when it comes to choosing foreign property, you may well select the wrong piece while overlooking the right one.
InternationalWealth team has partners in a number of national states who are professional realtors. They know the local real estate markets very well and they can draw your attention to the most promising investment options. Please apply for our assistance in buying offshore property by filling out the form below.
You are welcome to apply for a free personal consultation on choosing offshore property by writing to firstname.lastname@example.org or using a messenger of our live chat to contact us.
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