A practical guide to buying and investing in property abroad based on your own experience in 2023!
A property abroad can be an excellent investment opportunity. But at the same time, there is much more to such a case than finding a rental property investment. How can you keep up with cross-border investment? And is it even worth buying property abroad?
There is little advice based on real experience for people who want to invest in property abroad as opposed to the local market.
Whether you are looking to buy a house for yourself, investing to gain citizenship or creating another source of income, buying a house abroad can be a great idea. In this article, I summarise the advice you will need when it comes to investing in international property.
Foreign investment can sound scary at first. How can you be successful? It really just depends on who and what you know.
My team and I have worked with real estate experts all over the world. A large number of our clients have invested in abroad, so we've gained a lot of experience, and we want to make it easier for those who come after us. In this article we will cover the following topics:
- Property abroad: renting or buying
- Owning property in your own name or in a corporate structure
- COTI - the 4-point test
- How do we manage our property abroad?
Property abroad: renting vs buying abroad
For many people who are primarily interested in travelling the world, property advice is the last thing they are looking for. They want to explore the world and enjoy a perpetual travelling lifestyle. This lifestyle certainly has great appeal. I lived that way for a long time.
But I never thought of my travels as just a holiday. Everywhere I went, I looked for opportunities. And everywhere there were opportunities. So when I decided to actually start investing in real estate abroad, I knew that only the best places to buy property were worth buying and, more importantly, that I had to look locally in order to get the best deals and the most benefits.
It's important to remember that, like renting, buying has both advantages and disadvantages, whether you live in Hungary or travel the world. Here is a quick comparison of the main advantages and disadvantages of each approach.
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THE RENTALS PROVIDE FLEXIBILITY
I started my first business as a young adult. At this point in my life, I rented the places I lived in. At the same time I was constantly looking for good investment properties abroad.
At the time, hiring worked for me, because I was just starting to build this new business, OrderOffshore, and I wasn't sure where we were going.
I occasionally helped people who asked questions, but that was all I did at first. At that time, OrderOffshore was still in the process of turning from a hobby into a business.
By renting during this time, I got more for my money. I remember that when people came to me for advice, they often asked for my opinion from much wealthier people, which gave me a greater and broader experience.
Abroad, there are some destinations where property is very expensive, but others where it is cheap, even less explored, with fewer services, so these areas require more research, as do rents. In some places rents are high, but in others they are very affordable and it is the ratio of these that will tell you where you should buy rather than rent.
Initially I rented because it suited my financial situation at the time and I wanted the flexibility of renting. I wasn't sure how long I wanted to stay there. I still wanted to travel or maybe move somewhere else. So I decided it was not time to buy a house yet.
Payment of rent and other costs (logistics)
Ez idő alatt rájöttem, hogy én személy szerint miért akarok egy nap házat venni, ahelyett, hogy továbbra is albérletben laknék. Az egyik kérdés egyszerűen a logisztika volt – nehéz volt kifizetni a lakbért, kauciót. Mára ez megváltozott, de néhány évvel ezelőtt a fintech cégek – mint pl a Wise – elindulása előtt ez nagy költséget és problémát jelentett. A bankok brutálisan levesznek egy külföldi pénznemben denominált kártyás tranzakcióval, illetve az atm felvételek is erősen limitáltak, ugyanis sok esetben 3, 4 vagy akár 5 havi bérleti díjnak megfelelő összeget kell felvenni. Hozok egy példát most 2023-ból. A napokban elfogyott a forint készletem. A világ különböző pontjain vannak cégeink, ezekről a helyekről kapok fizetést is, így volt is pénzem meg nem is. 🙂 Az történt, hogy miután elfogyott a forintom és néhány hétig még Magyarországon tartózkodom, így szükségem volt forintra, ráadásul aznap kellett készpénzben kifizetnem valamit. Odamegyek az automatához beütöm az összeget, megkérdezi, hogy a forint összeget terhelje-e a számlára vagy az EUR-ot. Ismerve a bankokat, azt választottam, hogy inkább a forint összeget, várhatóan a saját bankom kultúráltabban fogja átváltani az összeget. De az OTP automatája jelezte, hogy ebben az esetben sajnos nem fog működni a pénzfelvétel. Egészen konkrétan a külföldi banki költségek nélkül, a magyar bank által felszámított váltási díj az összeg 10%-ára rúgott, amihez természetesen még a kinti díjak is hozzáadódnak. Hogy a kép teljes legyen, át akartam utalni a WISE számlámra és azzal a kártyával felvenni, de az ehhez szükséges token épp nem volt nálam. Mindent összegezve egy ilyen tranzakción simán veszíthetünk 10-12%-ot. Ez a problémakör ma már a világ jelentős részén megoldottá vált, de korábban ehhez komoly logisztika volt szükséges. Néha az ingatlanokkal kapcsolatos tanácsadás, amire szükséged van, szintén inkább a logisztikáról szól, mint a tényleges befektetésről. Itt egy másik logisztikai probléma a bérléssel kapcsolatban: ha olyan helyen telepednél le, ahol nem rendelkezel bevándorlási státusszal, vagyis nincs tartózkodási engedélyed és nem váltál állampolgárrá, sokkal nehezebbé teszi például a közüzemi szerződések megkötését vagy akár bankszámla nyitását. Bevándorlási státusz nélkül valószínűleg nem tudsz majd bankszámlát nyitni az adott országban, ami megnehezíti többek között a közüzemi díjak kifizetését. (Bár bizonyos esetekben bankszámlát is kaphatsz, ha van ingatlanod, ami egy másik okként jelenik meg, amiért érdemes lehet megfontolni a vásárlást a bérléssel szemben).
A friend of ours, who is a serious architect, is moving to Germany. He is an educated professional and a specialist, but he is having problems with the fact that he has to submit all the necessary documentation, including a bank statement, before he can view the property he wants to rent. But since you don't yet have an address, you can't open a bank account there. Obviously, these are solvable problems on the one hand, but on the other hand, in a property market like the German one - where there are far more tenant applicants than rental properties in the more up-and-coming places, so property owners can pick and choose their tenants as they please - you will not be the one to be picked from the pile.
For another example, in Malaysia you cannot pay your electricity bill online. You can use cash, but if you travel for months, it's an expensive option. Overall, if you are renting abroad, paying rent, signing contracts and using local services can be a hassle.
Look carefully where you buy your home.
I remember when I was very young, I rented my first apartment and I was so excited to be in my "own" apartment. Little by little, I was arranging my home, beautifying it step by step. I made it so that I felt comfortable in it. I don't need a luxury home to feel good, but I do need a tasteful one, and that's always unique.
It's a proven fact that you're more productive when you have an environment that supports your productivity. You'll perform better in both your business and personal life because you feel good about yourself - that is, you'll perform better if you feel good about where you are.
This is partly why I don't like staying in Airbnbs. Many apartments are too sterile, with white walls and wiring on the floor - and then there are these nicer apartments. Many Airbnb apartments for me are cold and dark - I don't feel comfortable there. I like to be able to shape my own environment. Of course, these experiences depend a lot on the location, and the supply is luckily evolving year by year, but in many places it's a cultural given. Depending on where you are abroad, the landlord will have different priorities. In some countries, particularly in Asia, landlords are very conservative.
If you're from the US, you're probably used to renting an unfurnished apartment, so you bring your own furniture. In contrast, many rentals in Asia are furnished. This can be great, because you don't have to buy most of the furniture and move it around, but it's also worth bearing in mind that often the furniture in the apartment isn't the best and may not reflect your tastes. The first apartment I lived in had very mediocre furniture. It is often the case that if you rent a cheap apartment, you can expect to end up with ugly furniture.
Property advice abroad: buy or rent
By buying instead of renting, you can create the environment you need. You invest in your lifestyle, your happiness and your productivity.
One of the contributing factors that made me buy my own house was that I wanted to create a great environment for myself. This may not sound like real estate advice from an investment perspective: once you realize that the way you invest in yourself, your environment, and your lifestyle has a profound impact on your happiness and productivity - it's easy to see the correlation.
When you invest in your own property, you can take control of creating an environment that feels like home. You have no such control when you live in a sublet, hotel or Airbnb.
Diversification of Wealth
Diversifying your assets is another obvious piece of advice that every good investor will give you. But how do you apply it internationally? To reduce risk, you can buy property in different parts of the world.
Today, in 2023, with access to a global real estate market, diversification and risk reduction can often simply take the form of investing in different investment markets. If you run a cash flow business or have a cash investment portfolio, it's a good idea to invest your money in real estate globally, as it provides wealth protection by diversifying what you have.
One of our clients bought property in Malaysia, signing the contract when the ringgit was almost at its lowest level against the US dollar. We watched it fall and timed the purchase to get a good deal.
The ringgit has since come up again, then dropped back down, but it was never as low as when we bought the house. I felt at the time that the Malaysian ringgit was undervalued and many others in the financial sector agreed with me. Although Malaysia was a bit overbuilt, it was still half the price of Bangkok. I thought that once the supply problems were sorted out in the next five to ten years, property would start to appreciate and the market would level out.
If you already have liquid assets that are freely available, diversifying into foreign real estate offers great risk mitigation. By investing in real estate, you can protect your money and get a new property. In some cases, property investment can lead to immigration benefits. In some cases, buying property can help you to settle in a simplified way or even get a second citizenship. If you end up living elsewhere, you can see owning property as an opportunity to earn money and invest it in a property you can enjoy.
As a landlord, your return may only be 4%, but at least you own an asset with some capital growth potential. Of course, property prices don't always rise, but you can always find a property that is undervalued or has excellent yield potential and get other benefits. Moreover, my philosophy here at OrderOffshore is that growth markets are the ones to invest in. If you study the market enough to feel comfortable when buying property, it will be a super activity for you that always provides some challenge and adventure.
Another colleague of mine has been studying and travelling in Colombia for several years. She studied the numbers, the metrics and where the government is headed in the long term, told super news stories and always felt exhilarated. This helped him feel comfortable investing in Colombia.
Real estate investing is the best way to diversify your wealth in emerging markets abroad. ETFs (exchange traded funds), on the other hand, don't offer nearly as much correlation with the market. Apart from real estate investments, there are not many ways to get diversification benefits in Colombia, for example, unless you want to start a business there or buy Colombian government bonds.
In addition to financial diversification, property investment also offers lifestyle benefits. For me, having safe havens and homes around the world is very valuable. You can also diversify your funds according to where you keep your money. It is a network that allows you to always go where you are treated best. Plus, it's much more convenient to travel with a small carry-on than with big suitcases.
If, for some reason, the country where my home is located decides to apply a draconian tax policy to me, I can always decide to use that home as a holiday home and move to another home. I have created a network of places where I like to live and where my business contacts are nearby.
Problems with buying and selling property abroad
Buying and selling is the biggest challenge in international real estate investing. Selling can be difficult because many real estate agents are simply not good enough. They will always try to undervalue the property, so you have to be very careful about what price you are willing to buy a property for and sell it for when you want to get out. My most poignant personal experience was when an agent from a large real estate network tried to overcome his own weakness by trying to undervalue the property by almost 40% compared to the asking price and even sent you an itemised statement of why he thought the property was worth that much. Of course, I myself was able to sell the property at the desired price.
What is your goal in the foreign property market?
The first and most important thing is always to define the goal precisely, because this will determine the whole process later on. Share your goal with us and we will tell you how we can help you achieve it:
- Tax cuts in the Offshore World
- Create a global B-Terv
- Diversify and Protect Wealth
- A dream to have a house in a certain place
But buying is hard - if you just go online and Google properties, you'll pay more. I can't tell you how many times I've had to pass this experience on to hopeful investors.
I spoke to someone who was looking for an apartment in Lisbon on an English-language website. All the apartments he found were asking €3000 a month. He had heard that there were plenty of properties for as little as €1000 a month and was confused as to why all the properties he found were priced so high. And lo and behold, just a week earlier our local colleague had rented out exactly the property this guy was looking for for €1000 a month. As the example shows, if you search the English language websites on the internet, you will pay more. If you do things remotely, without local knowledge and help, you will pay more.
Buying property online may work in the US, UK, Australia or other developed countries, but even in these markets it is likely to be more expensive from a distance. In Australia, a real estate agent told me that prices found online are always 25% higher. Most properties advertised online in English are specifically for foreigners.
Also, when a client bought property in Bogotá, he got a good deal by working with local Spanish-speaking agents. This required cultural adaptation and a relationship with a lawyer who did the due diligence before we worked with them. This is also at the heart of real estate advice to investors: local sellers are often better than an American or Brit entering a market and going into business. Local sellers will charge less, although it is also true that they are sometimes more difficult to work with because of cultural and language differences. Questions to consider: do you want to pay more on the buy side? Do you want to pay extra for a website with beautiful pictures made by a person from your culture? Or do you want to work with a local lawyer, possibly someone like OrderOffshore, who will do the groundwork and find you the best business opportunity available?
You might want to invest in Dubai and decide it's worth paying 20% more just to make it easier. But personally, when it comes to buying a $300,000 property, I don't want to waste $60,000 on amenity fees.
I am planning to buy property in Egypt. I immediately found an agent to help me, I got good advice on many things. But when I started to ask about taxation, he told me that it was not necessary because nobody pays taxes, it is paid in cash every year or every six months. When I indicated that I didn't want that, he told me that a flat 5% personal tax would have to be paid afterwards. As soon as I started looking into this information, it turned out that this was not true. What is the testimony? 1. At home, you may be willing to break certain rules because you know the system, the culture, the relationships and can assess the risks. But you can't do that with foreign property and it's good to know that if someone wants to be regulated, it won't be the local, it will be the foreigner. Always look for an expert who has no interest in you buying that particular flat or house. Know the local rules and follow them.
When you buy a property to obtain citizenship or a residence permit for investment purposes, you might buy something with a 10-30% commission built in. Personally, I prefer to rely on my lawyers to put me in touch with people who can offer good deals and help me through the whole process.
Ownership of real estate in own name vs. corporate structure
Do you have to own property abroad in your own name?
If you've decided to buy rather than rent, you need to ask yourself this question: is it better to own the property in your own name or in a corporate structure?
I will not and cannot give you a general answer. Sometimes investors who ask me for advice on international real estate want me to simply say yes or no, but because there are hundreds of different countries and individual cases, I cannot give you a simple yes or no. It is important that the investor is aware of the pros and cons of each side and can make an informed decision. Instead, I'm going to give you a four-item test (COTI) that you can apply to your own situation and that will help you get your own answers or at least see the situation more clearly. Before we look at the COTI, however, let's address some common concerns I hear from investors looking for foreign real estate:
The United States has a very litigious culture, people sue each other all the time. If you slip and fall on the sidewalk, they try to sue you for millions of dollars. While some of this can be solved with insurance, setting up an LLC (Limited Liability Company) for investment property in the US can provide extra protection. An LLC can own as little as one property or as many as several properties at once. This type of litigation is not common in countries other than the United States, so a corporate structure is not necessarily necessary.
On the other side of the coin, there are those who want to hide their property ownership to protect themselves against certain government actions or even prying eyes. We are not talking about hiding property here. Everything we do at OrderOffshore is in compliance with the law. Plus, if someone is a US citizen or has a green card, they don't have to report property owned abroad.
With those concerns allayed, let's look at my four-point test.
THE FOUR-POINT TEST: COTI
Our four-point test for determining whether to place your property in your own name or in a corporate structure is called COTI, which stands for Complexity, Operating Cost, Taxes and Immigration. Let's look at each of the points:
C stands for complexity. Does more complexity make your life easier or harder? Will it solve any problems or provide reassurance about the level of complexity it creates?
O as operating costs: A complex structure, a company costs more to run/operate.
Let me give you an example. I have a property in Montenegro. If we want to own a property in Montenegro in a company, there may be certain tax implications. In Montenegro, there is no difference between a commercial company that sells gadgets and a company that aims to own a property. If you set up a company to own a property, you, as the director of the property, have to pay yourself a director's salary, which is taxable, including social taxes. This minimum wage is quite low - around €300 or €400 a month - but taxes can run into thousands of euros or a little more a year, and you have to file ongoing reports. You also have to keep books and submit accounting reports, which increases the cost of operation. Of course there may be other offshore companies that own real estate, but these may not be accepted in certain countries. Some countries may only allow a local company to own the property, in which case the offshore company must have a subsidiary or representative office under which there is a local subsidiary.
Company structures always involve additional costs. I'm not saying it's never worth the extra cost, because sometimes it is, but avoid unnecessary expenditure. I might recommend spending more money on one thing, but I won't recommend something that is an ongoing expense and basically provides no real additional value. With a corporate structure, you not only have to account for the start-up costs, but then monthly, annual filing obligations, registered agent fees, registered address and there can be a whole host of other costs that add up to liabilities.
When someone is involved in the establishment and sale of companies or trusts, the aim is to acquire as many clients as possible and to ensure that the clients acquired will maintain the company for many years. Every month, quarter and year they will charge more and more and more fees. The reason why the fees are low to begin with is because once you have acquired a client, from then on you are required to pay the fees regularly. Their goal is to sell you as many companies and services as they can.
When it comes to property ownership, the complexity and operational costs will be higher if you use such a structure, but there are individual situations where this is unavoidable.
In addition, in countries where a foreign company may acquire real estate property, you may encounter additional costs such as having to register a branch or representative office, associated fees and legal costs or even certified translator and certification fees. These can all make it more costly to buy property abroad in a corporate structure, but as I wrote, there are situations where this can be justified.
T - TAX: Taxes
I will describe the biggest pitfall of buying a business property. In most countries, you can sell your property tax-free after holding it as an individual for some years. This is e.g. 5 years in Hungary, but only 3 years in Croatia. This means that for tax purposes, if you sell the property you have bought in Hungary within 5 years, the difference between the purchase price and the sale price is taxable income.
If you are a private individual and you are liable to pay personal income tax on the income, you can of course deduct some of your expenses, thus reducing the tax you pay. In the case of company property, you will be liable to tax on the remaining profits and then when you take it out of the company as an individual, you will also be liable to tax there (regardless of the title).
Dubai is a very good exception to this. In Dubai you are tax exempt as an individual and income from property is taxable where the property is located. At the same time, there are good returns to be had. Many people buy property in Dubai today for this very reason. Whether it is outsourcing part of a company's business to Dubai, where it can be taken as a salary tax free and spent locally, the subsequent returns can be enjoyed completely tax free. If the property is sold, the capital gains are also tax-free.
We once bought a house in a company structure that was registered only as a plot of land. I ended up having to pay VAT on the sale of the property because of a simple tax code. As the owner is a company, regardless of the fact that the company was VAT exempt and bought the property without VAT, as it was undeveloped land it could only be sold subject to VAT. So even if we sold at cost, the VAT payable would be a quarter of the value of the property.
It also shows that I have made mistakes, mistakes - there is no secret shell that makes me immune to making mistakes. But the more I work in the offshore world, the more I learn first-hand what not to do, I share those experiences - I help you know what to avoid.
Taxes are an issue to consider when deciding whether to put the property in your own name or in a corporate structure. In a corporate structure you will often have to pay a higher rate of tax on the income, the income may be subject to VAT, you will usually have to pay more capital gains tax, and when you sell the property you will have fewer exemptions and may even pay VAT on the sale of the property. The most important thing is to see the goal clearly and plan ahead with this in mind to make it as optimal as possible.
I - Immigration: immigration is often a great opportunity
Not everyone who is considering buying property abroad thinks about immigration benefits. However, there are great opportunities to take advantage of certain resettlement, residency and citizenship programmes.
In Turkey, for example, you can qualify for citizenship by buying a property worth usd 400,000, but in Dubai you can only be issued a residence permit. There are many citizenship programmes in the Caribbean, including some that can be activated by buying property. But I'm not selling you a bargain, usually these properties are not the best, or rather there will always be a part of the project that is a compromise. While in Turkey you can become eligible for citizenship immediately by buying a property, in other countries you can only get a residence permit first and then become a real citizen after 2 or 5 years.
Although there is no uniform standard, in my experience, owning your own name is generally much easier for immigration. Sometimes it is even mandatory. If you immigrate, you don't want to make life difficult for bureaucrats. If you want to make it as easy as possible for them, it will be easier for you. If you apply for a golden visa or permanent residence in a country, giving your name, the property in your name and your passport with the same name on it makes it easier to understand, complicated corporate structures are harder to understand. If you actually want to move there, keep it simple and transparent.
Foreign Property Management
As someone who owns property on several continents and has helped many clients buy a house or apartment abroad, I am often asked for practical advice on, for example, how to maintain the properties I live in when I am not there.
It is obviously a luxury not to rent out my empty homes, but that is no excuse for making a bad investment. Any good investor knows that you make money on real estate when you buy. You can't rely on the goodwill of the market alone to make your investment skyrocket in value or to make a bad purchase pay off. If you make a bad purchase, you will not do well in real estate investing.
If you decide to rent out your property, once it's been a good buy, you want to make sure you don't run into problems with tenants who will flatten the place and significantly increase the cost of acquisition if you need to do more renovations than normal wear and tear.
What I have found in my years of actual - not just theoretical - investing in various real estate markets is that it is often like home (local knowledge, experience required). The same can be said of managing property abroad: it is like managing property at home, if you are not local, it is important to have a good trusted person.
KNOWING THE RIGHT PEOPLE
What I've learned - and this is free real estate advice that I'm passing on to you - is that your ability to communicate with people in a way that doesn't deceive or take advantage of you is not dependent on where the property is, but on who the people are and how you can communicate. You need the right people. There are great people all over the world.
To avoid being scammed, when I work or invest with someone abroad, I always start with a good lawyer. At OrderOffshore, we always look for good lawyers around the world. We have a database of those we have worked with. We keep track of who has failed to deliver, who is working slowly, who is working badly etc. Sometimes it takes a while to find the best lawyer.
There are many markets that pique my curiosity, there are no big international companies yet. Then, over time, as the area develops, they will emerge. I have spoken to a number of successful entrepreneurs who have hired large international firms and have been very disappointed with their services, some of them expensive to learn from.
When I first visited Georgia, I stayed on Agmashenebeli Avenue, which was renovated by the government in 2012. When the government renovated it, all the local Georgians sold their properties at low prices to the Turks. Now the most expensive properties in Georgia are located on this street. There are many Turkish lawyers or law firms here, with Turkish staff, mostly serving Turkish clients who want to invest or settle. For my part, I avoid these offices by far. Find local lawyers who have international experience and contacts, but are the best locally. It is important that you understand each other and have a clear definition of your objectives.
To use the example of Georgia, it is very frustrating for a Westerner to be repeatedly discussed and repeatedly asked whether something has changed. Many times they do not speak very good English. It is even more true abroad that you can make good contacts with the help of a good lawyer.
Do you need to speak the local language? Generally, no. But English is important, so in its absence, get someone who can translate for you.
I am also often asked about renovating property abroad. If you don't know anyone, it can be difficult to know who you can trust. Take advantage of the local contacts you have.
You may be pleasantly surprised by the quality of the products from local contractors. A friend of mine in Colombia hired someone to renovate his home. It's probably the best renovation I've seen in my life. They did an amazing quality job and everything was really outstanding in every detail. The technician did not speak English, sometimes they understood each other in basic Spanish and sometimes an English speaking interpreter helped with communication.
So far we can say that in practice we have not encountered very many problems with renovation and property management. There are places where there are not many opportunities, but these tend to be in less developed countries. However, if you find a good real estate agent, they can usually help you with property management.
And if you live in one of these emerging countries and own an apartment or house, you can manage your property yourself. If so, we would be happy to talk to you to see if you live in a country where we could work with you.
No need to do it alone
My final piece of advice on property abroad is this: as you start your journey with property investment abroad, you have a lot of decisions to make. But the great thing is that you don't have to make any of them alone. Find good contacts in the markets or contact us and we can help you develop a good plan and connect you with the best professionals around the world to help you buy and manage your property.
There are countless opportunities to buy and use property abroad and it's a good way to potentially find a second residence, a second passport or a higher yield.
Buying property abroad has many advantages. And with the guidance in this article, you'll be able to overcome any challenges you may encounter along the way. If you have any questions, feel free to contact us and we'll do our best to help you on your way.