Why Should You Invest Offshore? | Downsides and Benefits.
Why would someone want to invest offshore? There are many reasons. As with all real estate investments, you have to decide what is right for you as well as identifying what is a good deal for your money.
Here are a few reasons an investor might opt to buy real estate offshore:
Portfolio Diversification
It’s always a good idea not to put all your eggs in one basket. Getting your “eggs” into international baskets can really help diversify your portfolio. If the U.S. market crashes, you may be protected by having your money/property in other markets.
Furthermore, foreign real estate has the potential for capital appreciation as well as the ability to generate cash-flows in a foreign currency from rental income. Having money in a different currency also helps with diversification.
Move Savings/Wealth Abroad
Owning foreign real estate moves your savings and wealth offshore and therefore outside of the immediate reach of your home government. Unlike with an intangible financial account (currency or paper accounts), it would be hard for your foreign real estate to be seized at the drop of a hat by your home country, without a literal act of war. It never hurts to keep at least part of your portfolio “untouchable” to the greatest extent possible!
Could Provide You With Other Residency/Citizenship
Obtaining real estate in a foreign country often provides you with some sort of residency and sometimes a shortened path to citizenship. This could provide you with a coveted second passport and visa-free travel to other countries.
Owning foreign real estate can also provide you with a second home, potentially a place to retire, and an emergency "bolt-hole" that you could, in an instant, always escape to in case of trouble in your home country.
Tax Benefits
Certain countries have very favorable tax rates compared to the U.S. Additionally, certain expenses related to searching for, purchasing, and maintaining foreign real estate are tax deductible by Americans. Consult your tax professional about other potential tax benefits.
Fund your lifestyle
Many people invest abroad because it allows them to legitimately have a business trip as a vacation. I know quite a few resort investors in Belize who do just that. They make a nice return on their investment and get to have tax-deductible trips to check on their investment.
For example, my parents own a home in Spain. In 2000, they decided to retire there. When their grandbabies started to be born in the United States they wanted to spend most of their time in the US and visit Spain for 3-6 months a year. Now, they have a place in Spain and a place in Los Angeles. When they are in one country, they use the other home as an Airbnb rental. In this way, their properties help pay for themselves and fund their international lifestyle.
Participate in New Markets
Not all markets are good markets and not all markets are good all the time. Markets go in cycles. At certain times in a cycle, it’s a good time to buy. At other times in the cycle, it’s a good time to sell. We will discuss how to find a good market in Chapter 8, but the point to remember here is that outside of the United States there may be great markets to tap into that are at the perfect point in the cycle to buy.
Downsides to Offshore Investing:
Of course, there are downsides to investing in foreign real estate just as there are to any type of investing. However, offshore downsides may be a bit more complicated than those associated with investing in the United States. Things that may be a hassle for you include:
- 1. The amount of paperwork usually required
- 2. illiquidity of your assets
- 3. Carrying costs
- 4. Country/market specific risks
However, when those risks are weighed against the benefits, for many people owning foreign real estate is one of the best ways to diversify financial and political risk.
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