Reasons To Buy Property Overseas (And 4 Reasons Not To)

Intro

Hi, I’m Kat Kalashian for Live and Invest Overseas, and today I’d like to share seven of the unique reasons it can make sense to buy international property.

Real estate is a dependable store of wealth. FDR called it the safest investment in the world. Unlike many investments, it is something physical that you can touch and even live in.

International property ownership can also be a cornerstone of a real diversification strategy. Instead of buying only into the U.S. housing market, for example, diversifying into other countries can act as a safety net against volatile markets, economies, and political situations.

It can also bring profit and cash flow across currencies. But beyond being just an investment, a piece of overseas property can provide a range of other unique benefits that many people do not think about right away.

The Pros of Buying Real Estate Overseas

There are several strong reasons to think about investing in property internationally, especially if you are looking at diversification, lifestyle value, and long-term flexibility.

Property Can Come At A Discount

Property in other countries can sometimes come at a discount for U.S. dollar holders. This obviously depends on the exchange rate at the time you make the purchase.

When you are buying property in a foreign currency, the local currency exchange rate affects the sales price in dollar terms. A currency advantage means that your capital can go further. When the dollar is strong against the euro, the pound, the peso, or another local currency, it can buy you more property for the same budget.

So a house costing €100,000, for example, could cost meaningfully less in dollar terms depending on the exchange rate at the moment you buy.

Overseas Property Costs Less

Property overseas can also cost much less than comparable property in the United States. On top of any currency-related savings, the underlying real estate itself may be significantly cheaper.

A beach property in Northern Cyprus or Ceará, Brazil, for example, might cost less than $100,000. In top U.S. beach towns, such as those in California or Florida, a comparable property could cost many times that amount.

International Properties Can Provide Income

International properties can also generate income. In addition to becoming a second home, they can be rented out and produce cash flow in the meantime.

That income can help offset carrying costs such as maintenance or taxes, or help you build a nest egg in the local currency if you plan to move there later or already live there part time.

Net yields for rental homes tend to be somewhat lower in much of Europe, but in places with strong tourism appeal, double-digit returns can be possible. In Northern Cyprus, for example, a small beach property can cost less than $100,000, and with short-term rental demand returning to pre-pandemic levels, net yields above 10% have been realistic.

To take advantage of dollar strength in Europe, coastal areas in Portugal, Spain, France, and Italy can make sense for short-term vacation rental investments, especially in places with strong holiday demand. Rental properties can also still be found for under $200,000 in some markets with historically strong tourism appeal.

There is also the possibility that the exchange rate could swing back in the future, which means you could realize U.S. dollar appreciation even if the local property price itself stays roughly the same.

It Brings Privacy And Tax Advantages

Owning property in another country can also bring privacy and tax advantages.

Foreign real estate is one of only two asset classes that Americans are generally not required to report to the IRS as a specified foreign financial asset on Form 8938. A personal residence or rental property abroad does not typically have to be reported in that way.

There can also be practical legal advantages. A property outside the United States may be less directly exposed to certain domestic legal actions or pressures than an equivalent asset held inside the country.

Renting out your overseas property can also bring tax advantages. For example, there may be deductible expenses related to managing and maintaining the property, including certain travel and financing costs, depending on how the property is structured and used.

Owning Property Internationally Brings Diversification And Risk Reduction

Buying property overseas can also reduce concentration risk. It gives you exposure to a different market, different economic conditions, and a different legal environment.

Overseas property markets may perform differently from the U.S. housing market, and that can be valuable when you are trying to spread risk more intelligently.

By investing abroad, you are effectively putting an egg in another basket, which is one of the basic principles of diversification.

It Can Bring Residency Perks

Owning international real estate can also bring residency perks. In some countries, buying real estate above a certain threshold can be a fast track to residency.

Several countries in Europe and Latin America offer relatively low-hassle residency visas in exchange for a qualifying property purchase. Overseas residency can become another important part of a broader diversification strategy.

Having the legal right to live in another country means you have a place to go if you ever want or need to leave your home country, whether temporarily or permanently.

Your overseas property can become a kind of plan B. It might be a place to ride out economic uncertainty, tighter regulations at home, or even future global disruptions. In some cases, residency can also eventually lead to citizenship after a period of years.

That can bring long-term benefits, including greater travel flexibility and, in some cases, access to a second passport.

Low-Cost Vacations

A piece of overseas property is not only an investment. Ideally, it is also a place you enjoy spending time. It can double as a retirement plan, a holiday property, and a family asset.

Today’s investment could become tomorrow’s retirement residence, while earning rental income until you are ready to make the move yourself.

Real estate abroad can also function as a second home that you and your family can enjoy from the beginning. You could even arrange house swaps with other vacation homeowners overseas.

And because the cost of living in many attractive international destinations is lower than it is in the United States, simply spending time in your overseas property can save you money on day-to-day living, services, and even seasonal utility costs.

The Cons of Buying Real Estate Overseas

There are also real downsides to buying property internationally, and they are important to understand before making a decision.

There Might Not Be An MLS

One of the biggest differences is that many countries do not have an equivalent to the U.S. Multiple Listing Service, or MLS.

Without an MLS, agents cannot necessarily show you everything available on the market that fits your criteria. They only have access to their own listings or the listings they are directly connected to. If they do not have what you want, they may still show you what they do have, whether or not it actually meets your needs.

That can make the process less efficient and more time-consuming.

You Will Have To Buy With Cash

In many cases, you will also need to be prepared to buy with cash. It can be difficult for non-resident foreign buyers to get mortgages abroad.

Financing is possible in some countries, but it can be more expensive than in the United States. Banks may also require you to take out a local life insurance policy naming the lending bank as the primary beneficiary if you die before the mortgage is paid off.

Most life insurance companies, however, only insure borrowers up to around age 70 or 75. That can significantly restrict mortgage terms for older buyers. If you are older than 50 when applying, the available financing window may already be limited.

Transaction Costs

Another factor to consider, especially in Europe, is transaction costs. These can be as low as 1% in some places and as high as 10% in others.

So due diligence is essential before making any investment. This is generally less of an issue in much of Latin America, where transfer costs tend to be much lower, though there are still exceptions.

Personal Use vs. Investment Tension

There is also a tension between personal use and investment logic.

If you buy a property in a place you love to vacation every year, then owning it and renting it out can reduce your travel expenses. On the other hand, you may begin to feel obligated to use it for your vacations, which can become restrictive over time.

There is also a tax and financial tradeoff. If you use it personally beyond certain thresholds, some expense deductions may be reduced. If you never use it yourself and only rent it out, then it becomes a pure investment, which can trigger different tax obligations.

So no matter what, there will usually be some IRS reporting or tax filing considerations, whether or not you actually owe anything. That is something you need to examine more closely once you know the specific property and country involved.

In the end, buying property overseas can offer real advantages in terms of diversification, lifestyle value, income potential, and long-term flexibility. But it also requires more due diligence, more planning, and a clearer understanding of what you want that property to do for you.