Investing in real estate abroad can be a lucrative way for you to both increase your immediate cash-flow and secure your future through capital appreciation. While the dollar remains strong, there’s a wealth of opportunities across the globe that provide a much bigger bang for your buck than the domestic market, and many investors are quite rightly tempted to make the leap abroad. However, as with any type of investment, where there are bigger returns there’s a bigger risk, and when you consider some of the horror-stories heard along the grapevine, suddenly, that cottage and vineyard in Bordeaux loses a little of its magic.
However, with the right preparation and counsel, there’s absolutely no reason to be intimidated, and anyone can build a solid portfolio of real estate investments abroad. Whether you are a first-time investor looking for a low capital opportunity, or you are a seasoned house-flipper looking for your next project, it’s always a good idea to be aware of the dangers you might face on your journey. From dealing with shady locals to navigating an alien bureaucracy, here, we take a look at four common pitfalls for anyone interested in investing in real estate abroad.
“Falling in Love with the Place”
Everyone’s heard the story; the couple who spend two weeks in some idyllic destination only to “fall in love with the place” and decide to relocate wholesale and begin a new life. However, love and money rarely go hand-in-hand, and basing your investment strategy on your limited experiences of a place over a short period is just asking for trouble. Anyone considering investing in real estate should thoroughly research the country, its property laws, and the tax system. Making multiple trips to your chosen destination is also advised although not always necessary.
Not Checking Your Location
When you begin researching overseas property investments you’ll probably come across broad statements such as “Panama is the new Costa Rica”, or “Forget Panama, Turkey is where the money is at!”. Now, while these statements may have some basis in fact, you should remember that the location within any country is just as important as the country itself. For instance, investing in Panama City is probably a wise move, trying your luck on anything outside of the capital, however, is likely to be a dead end. When searching for property to invest in, always check, and double check the location and its potential for appreciation in relation to the rest of the country.
Sidestepping the System
As pointed out in this excellent guide to purchasing property in Costa Rica, some deals are just too good to be true, and there’s plenty of horror stories doing the rounds that warn of what happens if you don’t stick to the rules. Naturally, the way the real estate market works in any given country differs, but as a general rule, handing over large wads of cash to a shady local offering the deal of the century is likely to end badly. Today, you will almost certainly find plenty of brokers willing to help you navigate the system and land a good deal that won’t come back to bite you.
Forgetting to Factor in Exchange Rates
There’s always a lot to think about when budgeting for your investment overseas. From the initial price of the land or property to a variety of new and exotic taxes; plus a few hidden expenses that may not present themselves immediately. However, forgetting to factor in exchange rate as you make your purchase can be a costly mistake. When you take into account the fact that you’ll probably be changing tens or hundreds of thousands, if not millions of dollars into another currency, you might find that your budget is blown wide open very quickly and unexpectedly. Ensure you factor in upper and lower exchange rates, since those numbers are likely to fluctuate during the purchasing process. This way your budget will be flexible enough to cover all your expenses.