The Benefits of Owning International Real Estate

Real estate is far more than just a roof over the head. It can become a part of your legacy. From asset diversity to a change in lifestyle, owning international property can broaden your financial horizons significantly. 

But the process is indeed complex and might feel like too big a bite, especially if you’re a first-timer in the world of investing. It can be difficult to make the right decision and with real estate, every minute counts. 

We’ll explore the key benefits of owning international real estate, providing you with the essential knowledge to make the right decision and hopefully, maximize your returns. This guide truly cuts through the noise and gives you straightforward insights you need to confidently step into the world of foreign real estate.

You’ll Diversify Your Portfolio – And Your Lifestyle

Any seasoned investor will tell you that the key to wise investments is diversification. It means spreading your investments across various asset types, industries, and geographical locations. Why is this strategy so crucial? Long story short, it’s about risk reduction. 

For example, there’s been a downturn in tech due to some regulatory changes, and now your tech stock has dropped. If your portfolio includes investments in other sectors, such as healthcare or, you guessed it, real estate, you can count on them to do well and counterbalance the losses from your underperforming stocks.

Moreover, diversifying your portfolio through foreign real estate can be an opportunity for you to explore different economies, with different dynamics and market trends, and to potentially benefit from them. Each investment brings with it a slew of new data points and learning opportunities for you to make use of. 

Another layer to consider is lifestyle diversification. Owning property in different parts of the world means you can enjoy various climates, cultures, and experiences. Imagine spending your summers in a Mediterranean villa and your winters in a cozy ski chalet in the Alps. 

So, when you diversify your portfolio, think of it as also investing in your personal growth and the start of a more varied lifestyle.

You Can Earn Money via Rental Income

Leasing out your property is a great way to ensure passive income. This cash flow can significantly offset the cost of the property upkeep, and you can also save up quite a big chunk of local currency. You can then go ahead and put these funds towards your mortgage - the property will literally pay for itself. 

But how do you ensure your investment is profitable? It all starts with choosing the right property in a desirable location. Think about what tenants look for—proximity to schools, public transport, shops, and amenities.

For example, a beachfront property in a popular tourist destination can command high rental prices, especially during peak seasons. On the other hand, a property near a university or business district may attract long-term tenants, providing steady income throughout the year.

Beyond the basics, consider the local rental market's specifics. In some countries, short-term rentals via platforms like Airbnb are highly lucrative, particularly in tourist-heavy regions. 

And there's more to it than just monthly checks.  Your property can also increase in value over time, potentially giving you a significant return on your investment if you eventually decide to sell. 

Additionally, consider the currency factor. If the local currency appreciates against your home currency, the rental income you earn could be worth more when converted back

You Can Protect Your Assets and Enjoy Government Insurance

International real estate investments also serve as a strategic shield to protect against political and legal risks. Owning real estate abroad reduces the chances of getting targeted by frivolous lawsuits, especially in the U.S., because the complexity of pursuing assets across borders will pretty much always put off unwarranted legal action. 

Plaintiffs are required to engage with foreign legal systems, which always comes with significant financial and logistical barriers and, let’s face it, no one on God’s green earth is looking forward to those. 

Foreign property can also protect you from political instability at home. During periods of crisis, having assets in more stable regions can preserve an investor’s wealth. This can explain the influx of property purchases in Vancouver by Chinese investors, for instance. 

It’s apparent how versatile foreign real estate is. Besides a way of portfolio diversification, it also acts as a critical tool in navigating legal challenges and geopolitical risks. 

You’ll Be Subject to Tax Benefits

Another way investing in foreign real estate can be a game changer for your finances is the tax benefits it unlocks. Let’s take a look at some.

You Can Maintain Privacy Over Your Investments

Foreign real estate is one of two financial assets you’re not required to report on Form 8938 under FATCA, which keeps the detabils of your financial life more discreet. This is likely the case because the IRS wouldn’t be able to seize or enforce the sale of your overseas property, whether it’s your home away from home or if you’re renting it out. 

The same goes for any individuals who might want to make claims on your foreign property (ex-spouses, lawyers, friends). International borders are like an added layer of difficulty and limitations over an already complex process of claiming assets.

All of the above only applies when you hold the property directly in your name, though. If you hold the property through a corporation, partnership, trust or estate, then you’ll have to report the interest in the entity on Form 8938. 

More Diversification Benefits

By investing in foreign real estate, you can make use of any advantageous tax regimes in your chosen location. Many countries boast exceptionally favorable tax policies for property owners, such as low property tax rates, which are designed to attract foreign investors. This translates to lower ongoing costs and allows more of your rental income to remain in your pocket.

Furthermore, some destinations have no inheritance tax. You could leave your property to your loved ones knowing that the local government won’t trim most of its value down via taxes. 

This is particularly advantageous if you're looking to create a lasting legacy for your family. Portugal, for example, has no inheritance tax. The stamp duty does apply, though, at a flat rate of 10%.

Foreign Tax Credit

The Foreign Tax Credit serves to safeguard you against double taxation of the same income by the U.S. and a foreign government. If you already pay the taxes on the income generated by your foreign property to the local government, you can claim this credit on your U.S. tax return. This reduces your U.S. tax liability by the amount of tax you’ve already paid overseas. 

Just make sure you maintain spotless records of the foreign taxes you’ve paid. This documentation is crucial when claiming the Foreign Tax Credit, as the IRS will require proof of the taxes paid abroad.

Capital Gains

When you sell a property for more than its purchase price, the profit you make is considered a capital gain. Different countries have different rules regarding capital gains taxes on real estate, and some offer significantly lower rates for foreign investors. In fact, certain countries might not tax capital gains at all.

For example, the following attractive locations have no capital gains tax:

• Monaco

• New Zealand

• Switzerland

• The UAE

• The Bahamas

Another way you can defer paying capital gains taxes on property is by investing the proceeds into another foreign property, a strategy called a like-kind exchange. 

This only applies if the property was used for business or held as an investment for other business purposes. Like-kind exchanges can be particularly advantageous in preserving your investment's value and allowing you to reinvest in another lucrative property without the immediate tax burden.

You Become a Citizen of the World

In many countries, purchasing property can qualify you for residency, setting you on a path toward full citizenship. For example, countries like Italy, Portugal, Spain, and Greece offer Golden Visa programs, where investing in real estate above a certain value can grant you residency. This residency often includes the right to live, work, and study in the country, and in time, you may become eligible for citizenship.

With residency, you gain access to the country’s healthcare system, education for your children, and any other service otherwise reserved for the locals. If you’ve chosen the location wisely, buying foreign property can significantly upgrade your quality of life based on these social services alone. 

In the Caribbean, countries like St. Kitts and Nevis or Antigua and Barbuda offer citizenship-by-investment programs. By purchasing approved real estate, you can directly qualify for citizenship. 

Things to Keep in Mind

Real estate financing is a dynamic process, with a lot of moving parts. If you want to make the most of your investment, there are a few things to consider.

Understand the Landscape 

Diversifying your portfolio through foreign real estate is a smart move, but it requires careful research. Different markets have varying levels of stability, so it's crucial to understand the country that you’re buying in, namely its political and economic situation. 

Mind the Tax Laws

While it’s true that many countries offer tax incentives for foreign investors, don’t get too comfortable, since international tax law can get quite complicated. It’s wise to consult with a tax advisor who understands both U.S laws and the laws of the country you’re planning to buy property in. 

Study the Residency Requirements

Programs like Golden Visas can be appealing, but they come with specific obligations. For example, to qualify for residency in Greece, you need to purchase a property worth at least €250,000, or have a minimum of €400,000 invested in Greek companies, government bonds or mutual funds. 

Enlist Expert Help

It’s smart to get a mortgage broker, especially if you’re navigating a foreign market. A good mortgage broker can help you find the best financing options, understand local lending practices, and navigate the legal and bureaucratic hurdles that come with buying property abroad.

Moving Forward

Investing in foreign real estate offers significant benefits. You can diversify your portfolio, establish a stream of passive income, enjoy some tax benefits, and even become a cosmopolite in the true sense of the word. 

However, these opportunities come with challenges, not the least of which is finding the funds for your international investment. Neglecting to do your due diligence, which is likely to happen if you’re a first-time investor, can result in missing out on the best financial options and some costly consequences in a foreign market. 

Kredium is here to help you make the most of your investment. As an international mortgage and real estate broker, we’ll help you secure the best deal and make the entire process, from financing to purchasing, as seamless as possible. Let us be your trusted partner as you embark on this journey, get in touch now.

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