Investing in property abroad

[Ben Kirchner]

Does anyone have property in a country they do not live in?  This interests me for several reasons.

1. My wife is from Brasil.  She currently has land in her name, and will ultimately own a house there (shared with her siblings) in years to come.  I really know nothing about the rental market in Sao Paulo, Brasil, so I'd have to do my research.  However, my wife will be faced with the option of selling the house, or renting it out down the road.  Keeping it as a rental has it's perks, listed in #2.

2. If we owned property in Brasil, I believe we could travel to visit family there and have a tax write off with it, as long as part of our trip was to tend to business matters in regards to the house.  How would these tax write offs work?

3. I've thought of living abroad in the future.  There are a handful of countries that my passive income in USD from rental property would stretch quite far.  

4. On topic of stretching USD further in another country, I've thought of future options of buying housing in another country to rent out , if rental rates were favorable, obviously.

So my questions for those who own property in a country they don't live in - Do you have a property manager?  Do you manage yourself with a list of vendors near the property?  Anyone who invests in a country outside of the United States, where have you invested, and what kind of % returns are you seeing in relation to purchase price and monthly rent?

[David Maswary]

@benkirchner

Ben

I'm building a website on literally this very subject - how to be a foreigner in Brazil

I live in Rio, I'm from NY, and I was about to ask questions on investing in Sao Paulo when I saw your thread. I can answer a lot of your questions on Brazil. I'm an interpreter/translator down here as well as an MMA fighter. In short, I know the neighbourhood.

Say we are renting the house, and my wife and I travel to the house in Brasil once per year, and spend $5000 a year, for round trip airfaire, hotels, and rental car. How would this effect our tax return, is 100% tax deductible? Are MY travel expenses deductible even if my name isn't on the house?

To start, what sort of a house is going to be built? If your wife is the Titular on a terreno than it sounds like she's constructing a house on a lot and then allowing her family to live there as well. ZThat is virtually impossible in Rio or Sao Paulo so I'm assuming you're discussing a smaller town. Unless you have 4 tenants, you won't be making more than a hundred dollars. If you decide to scale up, you can of course, make great money.

How you rent out the property once it's built will be a major factor in lucrativity.

If that's the case, consider whether you want to rent through AirBnB, agencias de temporadas, or find a long-term tenant. Chances are at least one of you can deduct travel expenses. I'm not a CPA but I fail to see how that isn't a business expense.

Regarding other questions:

How familiar are you with the foreign countries rental laws?
How fluent are you in the foreign countries language?
Is there a time-zone issue? Will you be asleep during normal times that the tenant may call you?

I personally don't own property abroad - but I would hire a property manager if I chose to do so.

To answer your tax related questions - You may potentially be able to write off the travel.
An expense has to be ordinary and necessary for it to be deductible. It is ordinary and necessary to visit your properties to see how they are doing in the real estate business.
The deduction would go on schedule E as travel costs.
If you are traveling to look at properties - the answer it different.

Another reminder is that you may need to report to the IRS any account balances held abroad that is in excess of $10,000 during the year.

Laws are immensely skewed in favor of tenants. Ridiculously so. If you have a property in an area where you can command a Copacabana type rent, I would at the very least have a property lawyer draw up an iron-clad rental agreement. Evicting bad tenants is a nightmare. AirBnB is an amazing gambit in Brazil and temporada agencies are underestimated. Still. a good tenant who will pay property taxes (IPTU) and condominium taxes (monthly property tax) is something that is at the top of your concern list. Find someone who can really understand this for you

If you need a professional business interpreter/translator - pm me

Time zone isn't a horrible issue.  The most variation between Brasilia standard time and Eastern Standard Time is 3 hours. I wouldn't be worried. 

YES! To a property manager. There are three major methods I've cited to renting your property, but a property manager and real estate law specialist will be the difference between failure and success. I can refer several services.

Regarding foreign tax. I'm working very hard on this myself. Brazil has one of the highest tax fe schedules in Latin America and is poorly ranked in terms of doing business. Having said that income tax is far worse than capital gains tax. You will have to check with a US CPA on how to remit taxes and whether they will be taxed twice; once by the receita federal and again by the IRS.  The law you need to know is FATCA. Once again there are speciality expat investment services that deal almost exclusively with this so please do the due diligence.

I would advise you against forming a CNPJ in Brazil, that's their version of an LLC. It takes several months and a fortune to initiate and it takes legendary amounts of time to close

Brazil isn't a retirement type country. You can get a retirement visa on a 2,000USD$ pension but unless you live in a sleepy little town, work is hard to come by, it's difficult to earn a living if you follow the law (caixa 2) and Rio de Janeiro is far more expensive in cost-of-living than Albany. If you're looking for a place where your dollar goes far check out Kathleen Peddicord's Live and Invest Overseas newsletter. My experience is that the very best in Latam is Panama by a country mile and Colombia is trailing behind as is Equador.

Brazil is great if you love Brazil and it's a great country for big business opportunities. 

The current election between Fernando Haddad and Jair Bolsonary will say a lot about how far the currency goes. If the worst case scenario comes about, and I don't believe it will, the dollar to real will be around 3.2 to 1 and inflation will mean that your basic cost-of-living is expensive.  If Haddad wins expect a currency crisis and the dollar heading to 5 to 1 the day after the election.

I'm nearly sure Haddad won't win meaning expect a Bolsonaro mandate and a USD that starts at 3.5 to 1 and moves upwards to 3.7-3.8 or higher based on developments. There is a chance that everything will go great and the dollar will hit 2.5, Brazil's economy will rebound and everyone will be happy.

For reasons to long to go into in depth, but summarized here, expect the following: Bolsonaro will be disconnected from his very talented economic ministers and opposed in Congress from the PT. Economic reform will be sluggish and mostly symbolic creating oscillations. I expect the dollar to hang from 3.5 when investors are unreasonably optimistic and I expect (hope) it will hit a 4 to 1 ration when Bolsonaro is unable to carry out economic reforms, especially pension, and investors are spooked by his autocratic tendencies.

Overall, there are a lot of questions to be answered here but a lot of chances for lucrative investing. PM me and I'll help