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For many investors, purchasing real estate abroad is desirable. International investment property can be a good way for investors to diversify their portfolios, take advantage of favorable foreign tax structures and costs of living, and maximize growth potentials. Not all aspects of global property investment are positive, however. In some situations, investors will have to pay tax both to the country where their property is situated, as well as to their own country, and tax burdens and paperwork are often more complicated for foreign property owners. The costs of foreign management and property upkeep, the implications for inheritance and title transfer, and travel expenses can also surprise the unprepared foreign investor.
There are pros and cons to almost any investment, and international investment property is no exception. In most instances, the pros are more immediately obvious. The cons sometimes take more research to fully realize and understand. Having a firm grasp on both the pros and cons is likely to make any experience in property investment abroad more profitable and less stressful.
Cost benefits usually appear near the top of any international real estate investor’s “pro” list. Depending on the investor’s residency, investing abroad could come at significant cost savings. Property in countries with lower costs of living and comparably inexpensive land can allow investors to own homes and buildings abroad that are significantly bigger and more advanced than anything they could build or purchase for the same price back home. This is true for both corporations who are looking to invest in office buildings or business spaces abroad, as well as for individuals or families who are looking for vacation or rental homes in foreign locales.
Tax benefits are also often a driving force behind the decision to make an international real estate investment. If an investor’s home country exacts steep property or business taxes, it may be beneficial to instead purchase land and buildings in a country where tax rates are lower, or nonexistent. Investors also frequently look for international investment properties where land seems likely to appreciate in value over time. Although land values in most places appreciate, entering a market when prices are quite low to begin with can be a good strategy for purchasers looking to hold onto their properties for the long term.
Investment appreciations are almost always of interest to taxation authorities, however. Even if the country where international investment property is situated does not tax land or capital investments, an investor’s home country almost certainly will. Some countries offer tax credits for taxes already paid abroad, but not all do. In most cases, investors look for ways to structure their international investment property holdings to escape tax ramifications at home. Often times, this involves consultation with investment advisers or international accountants.
Professional investment services come at a price, but it is one many investors are willing to pay to be sure that the money they are sinking into property abroad has a strong likelihood of producing a favorable return. Investment professionals often give advice about foreign countries’ tax structures, any unusual inheritance or transfer laws, and tax consequences of foreign land holdings. They can also prepare investors for the day-to-day realities of owning property abroad, including the cost of local maintenance, estimated expenses of travel back and forth over time, and costs that could accrue or issues that could arise with renting property, if applicable.
The pros and cons of international investment property can almost always be balanced against each other. Evaluating each often requires a bit of research. For an investor who is aware of the risks and costs and enters into the international property market seeing the potential pitfalls, investing abroad can be a rewarding, if not lucrative, experience.
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