There Are Some Cases When Overseas Property Investments Make Sense

Category: Finance, Real Estate.

Here are two propositions for you- you decide which one you like better.

Proposition Two: Put your money into a rental property investment far from your home, in a country where you don t speak the language, don t know anything about the laws or the government, and can only get to with two days of travel at a cost of more than$ 1, 00 The first proposition sounds a lot better, doesn t it? Proposition One: Invest in spectacular real estate in an exotic location like Bulgaria or Ireland, or even a condo on a cruise ship. But these are actually just two different ways of looking at the same deal. The" head" aspects, which go much further to determining if you will recover the cost of your original investment, or earn a tidy profit, aren t mentioned. Sales pitches for overseas property investments focus on the" heart" aspects of the proposed deal- the glamour and status of owning property in a place your friends have never even heard of, much less ever visited. On a purely rational basis, investing in your own country usually makes much more sense than investing overseas.

I am writing from the perspective of an American investor, so if you don t live in the United States, the same conditions apply- but in reverse. Overseas investments only make sense in certain very special cases, for a small percentage of investors that meet certain qualifications( which I ll describe later) . I think American investors usually should invest in the United States, for common- sense reasons. It will certainly be less risky on every level. (I am also not singling out any particular overseas area as bad for investment. On the other hand, if you live in Europe, a Bulgarian investment probably makes much more sense than investing anywhere in the United States. I picked these examples at random, but they are all heavily promoted for property investment. ) The added risks in overseas investing come because you must rely much more on the honesty of both the property seller, and the property manager. (For most overseas investments that are promoted heavily in the US, the seller and property manager are partners, or even the same company. ) Consider: your first job in evaluating a deal is to look at the area surrounding the property. If you are buying vacation property, you want a relatively undeveloped area that is becoming" hot" , with a stable local and national government, and very good, good travel options weather.

If you are buying year- round rental property, you want the area to show strong job growth, because job growth is the single biggest indicator in predicting future growth in real estate values. If the potential deal is in your country, you have options to make an independent review. You can even look up complaints and comments about the seller and property manager. You can find stories about the area in local and national media, read up on the local government, and even call local experts. With an overseas investment, you may not be able to find newspapers and web sites that cover the area and report in your language. Long- distance property investors should always visit the areas where they are investing. And good luck calling a local official or expert for information!

There should be at least one visit before the first deal is made, and another visit every six months to a year afterwards to make sure the property is being managed and maintained properly. Consider that you can get from one corner to the other of the US for less than$ 400 at almost any time of the year. Just the travel costs of these visits make many overseas investments financially unworkable. On the other hand, going from Boston to Kuala Lumpur, costs, Malaysia$ 2, 300- minimum. Faced with these added costs to the bottom line, many overseas investors simply choose not to visit their investments, before or after making the deal. And the cheapest flights take nearly 42 hours each way.

Once again, they must rely on the honesty of the seller and the property manager. Investors often shy away from certain cities in the US because they have ridiculously biased landlord- tenant laws. Even if the seller and property manager are honest, overseas investors may run into huge problems because of legal and accounting issues. They simply don t know which overseas locations have the same laws or worse. If you have a special connection with an overseas area, you will be much more likely to make a smart investment. There are some cases when overseas property investments make sense. That is, if you are from a certain region or country, or have other reasons to visit there frequently, you ll know the area far better than other potential investors will.

In addition, because you are visiting the area regularly anyway, the travel costs of going there won t be a" real expense" associated with the property investment. You probably speak the language and have friends who can answer your questions, or even visit your property in your absence. You may well decide to record that expense against the income from the investment, but you were planning to go to Bulgaria or Malaysia or Costa Rica anyway. It s important to remember that many foreign countries are showing remarkable economic growth, much higher than the United States. Even if you don t have this local connection, there is another potentially good reason to make that overseas investment. For that reason, an overseas investment in one of those countries may promise annual returns in profit plus increased equity that are far better than you ll get in most American cities. Or, here s another way to look at it- why not use some of that extra money to mitigate some of the extra risk?

That means that if you are the kind of investor who doesn t mind taking a lot of risk for potentially a lot of reward, an overseas investment may work well. Suppose an overseas investment promises you$ 15, 000 per year in positive cash flow, against an up- front investment of$ 100, 00Spend$ 5, 000 of that money doing extra due diligence to make sure the property deal works well, and will continue to perform well. You ll still get a 10% return, but with far less chance of losing money. Make another trip, and do some, find another expert additional research.

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