With the Globalization process underway, the economies of many countries have become permanently intertwined. Apart from having a big impact on trade and various industries, this process has also greatly impacted the international real estate investment market.
A lot of people around the world are now purchasing real estate in foreign countries as the benefits of making an international real estate investment are greatly outweighing the risks.
Buying property abroad can lead to higher returns (for those interested in rental property) or can be a great way to protect money from inflation. Spreading out your investments across different countries or regions can help build an international investment portfolio, but is also an amazing way to protect assets from political instability. If your home country suffers from it, all of your assets that are abroad will be protected.
10 Questions to Ask Yourself Before Making an International Real Estate Investment
Making an international real estate investment is a big decision. Because of that, it’s important to spend enough time thinking it through before you start investing your hard-earned money.
To help you decide, we’ve listed the 9 most important questions you should answer before you spend money and invest in foreign real estate.
But before we do that, we feel like we need to tell you the following for the sake of full transparency:
As an agency that helps people buy property in the US, examples that we’ll share with you in the next part of the article will mostly be from the US real estate market. The questions you should ask yourself regarding international real estate investing are still valid for any country in the world; it’s just that examples we’ll use to illustrate various points are from and about the US real estate market.
1. Why Do I Want to Invest in Foreign Real Estate?
Before doing anything else, this is the question you should ask yourself first. The answer to this will significantly influence how you approach making an international real estate investment, so make sure you think carefully about it.
Here are the three main reasons we’ve identified as to why people are buying property abroad:
1. International Real Estate Investment Can Bring Higher Returns
No matter where you are in the world, there’s a high chance that buying property overseas can get bigger returns on your real estate investment. Now, we’re not saying that’s always the case. You might be one of the lucky ones who live in a country where rental yields are inherently high. But, if you’re not, or if the real estate market in your country is stagnating or unstable, checking out foreign markets might be the thing to do.
Let’s take a look at real estate investing in Milwaukee. The average home price in this US state is around $180,000. The average rent for a 4-bedroom (2000 square feet or 185 square meters), is almost $1,900 per month. Now, you’d be hard-pressed to find those kinds of numbers anywhere in Western Europe.
For example, in Spain, specifically the Madrid Comunidad region, an average 2000 square feet home (or 185 square meters) is valued at around $640,000. So, if you’re an investor from Spain, this high price of admission can prevent you from buying property in this region of the country.
The reasons why real estate investors are buying property abroad are:
- There’s a higher chance of finding properties within your price range
- If the numbers are good, international real estate investing can bring in higher returns
We can help you find your ideal property in the US.
2. Buying Vacation Property Overseas
A lot of people are buying property abroad to use as vacation homes. This has less to do with making money and more about having a place to regularly visit during holidays. However, if the property is in a good location, it can be used to generate passive income (while the owner is not using it). A good way vacation homes can create steady streams of income is through Airbnb investing.
3. Moving to a Foreign Country
A good percentage of people thinking about making an international real estate investment are doing so because they want to move to a foreign country and are looking to purchase their new primary residence. The most recent estimates from 2020 suggest that more than 230 million people (or around 3,6% of the global population) immigrate to a foreign country each year.
International Real Estate Investment Example: Moving From Canada to the US
At present, there are more than 3 million Canadian-born people who live in the US. The reasons for Canadians moving to US are varied and include:
- Moving to study in the US
- Moving because of more job and career opportunities
- Moving to retire in the US
We should also note that moving to the US is much easier for Canadians than most other foreigners. For example, Canadians can stay in the US for up to 6 months without a visa (only with their passport), which is not a luxury many other foreign nationals get. Now, 6 months is not a long time, but is more than enough to figure out all the things a person from Canada might need (including documents, legal obligations, which location they want to move to, financing, and similar) to make a permanent move to the US.
2. What’s the Political Situation in the Country You’re Looking To Make an International Real Estate Investment In?
This long-winded question is almost as equally important as the first one. The general political situation and stability can greatly affect your international real estate investment, no matter your reason for buying it.
Just to give you a modern-day example, the current president of Ukraine, Volodymyr Zelensky, bought a 3-bedroom penthouse in Crimea in 2013 (before he became the president and while he was still an actor). Just a year later, the Russo-Ukrainian conflict broke out. Now, we won’t pick sides or tell you who’s right or wrong. Our main goal is to share with you what could happen if you buy property in a county or a region that’s experiencing political instability — Zelensky never got to visit his vacation home and essentially ended up losing money on it.
So, whether you’re buying property overseas to vacation or are interested in buying rental property (short-term or long-term) in a foreign country, before you do so, make sure to familiarize yourself with the overall political situation.
3. What Are the Migration Trends?
Real estate exists for people. So, it goes without saying that the demand for real estate will follow the people. This basically means that the places where people move are the places where you’re most likely to make a good return on your real estate investment.
Now, when we talk about migration trends, we don’t necessarily mean international migration. There are a lot of places where migration happens within a specific country, where people move from one region of the country to another. A great example of this is the state of Texas. In 2022, more than 100,000 US citizens who lived in California moved to Texas. This internal migration has led to a sudden but steady increase in property prices which made a lot of money to anyone who owned or invested in Texas real estate.
This question of migration trends is important not only to those looking to buy a rental property in a foreign country but also to those who are buying vacation homes or looking to move to a different country. No matter the reason, buying real estate is always an investment for the future. The only difference will be to what degree the answer will influence your decision.
4. What Is The Economic Situation of the Country in Which You Want to Make an International Real Estate Investment?
The overall economy, including its prosperity and stability, is an important factor to consider when buying property abroad. You don’t want to buy real estate in a country with an unstable economic situation. This is especially true if you’re looking to buy a rental property. Why?
The rent is inextricably connected to the economy. The amount of money you can generate from a rental property (i.e. how high the rent is) will depend on the economic situation (i.e. how high the average salaries are). The higher the salaries, the more money you’ll be able to make on rent, and vice-versa.
Another important factor to keep in mind and that can help you evaluate the economic situation of a country is the amount of foreign investments in it. If foreigners are willing to invest a lot of money in a particular country, that’s usually a good indicator of a stable economy. Two of the most popular countries for foreign investors are the US and China. At the present moment, the US leads the way as the most popular location for foreign real estate investment and overall foreign investment.
5. What Are the Laws That Govern Eligibility, Taxes, and Landlord-Tenant Relationships?
Every county has its own unique laws and regulations that govern anything from purchasing rights and the entire buying process to the exact percentage of taxes you’ll have to pay. The main types of laws that you should most definitely look into before making an international real estate investment include:
Before looking into any other types of laws, you should first check if the country you want to make an internal real estate investment in is open to foreign investors. Certain countries have laws that aim to forbid or restrict foreigners from purchasing property. For example, in Thailand, foreigners are forbidden from owning land (unless there’s a specific treaty that permits it). In Mexico, foreigners need something called the Fideicomiso, if they want to purchase real estate. To buy property in Greece, you need to get an AFM number (for tax purposes), and you also need to hire a property lawyer.
In the US, there are no laws that prohibit any foreign national from owning or purchasing real estate property.
Taxes When Buying Properties
The exact amount of taxes you’ll have to pay will depend on the country you’re looking to invest in foreign real estate. For example, in Spain, you have to pay between 8%-11,5% of the property’s value in taxes when you make a real estate purchase. This means that for a property worth $200,000 in this country, you can expect to pay around $20,000 in taxes.
A lot of countries have what’s called a property tax — usually, a yearly payment that property owners have to pay and is equal to a certain percentage of a property’s value. For example:
- In Spain, property tax is 0,58%
- In Austria, property tax is 0,1%
- In Iceland, property tax is 1,14%
- In Italy, property tax is 0,62%
The average property tax in the US is effectively 1,1%, while in the UK it is 1,77%. But, unlike the countries from the above list, there’s an advantage to owning property in the US and the UK — you are legally allowed to deduct property taxes from corporate income taxes. This means that if you bought rental property in the US via an LLC, you can deduct most of your property taxes from your corporate income taxes.
Laws That Govern the Landlord-Tenant Relationships
This is another question that can have a big impact on your decision-making process ( but mostly if you want to invest in rental property). Investing in foreign real estate in a country that favors landlords is a much better and safer option, than doing the opposite. You want to make sure that if your tenants are not paying their rent, you can easily kick them out without violating any laws.
So, what you should be looking for are landlord-friendly countries or, if you want to buy property in the US, landlord-friendly states. The list of landlord-friendly places in the US includes:
- North Carolina
6. How to Choose Which Foreign Country to Invest In?
Choosing a country in which to make an international investment is directly connected to your reasons for wanting to buy property in a foreign country.
If you are intent on moving to a different country or are looking to purchase a vacation home — both of those will pretty much determine or at least heavily influence where you eventually end up buying the property. But, if you’re interested in purchasing rental property, the main thing that should influence your decision-making should be the numbers. Now the question is: What numbers to check?
Before you invest in foreign real estate, you should research the market of the country you’re interested in buying property in. The market growth numbers will show the current situation of the market if it’s stable or volatile, and most importantly, will help you decide if you should invest or not.
Apart from a few bumps here and there, the US market has been strong throughout history. The newest market research predicts that the trend of “strength and growth” of the US real estate market will continue into the future.
Without people, there would be no real estate. A country that’s experiencing population growth (either through birth rates or migration) will more than likely have a higher demand for real estate, which can affect the rent and house prices.
The unemployment rate is a number that can indicate the purchasing power of a population (along with the average salary), or in the case of real estate, whether or not they’ll be able to pay rent. If the unemployment rate is low, that’s always a good indicator of a stable economy, which almost always has a positive effect on the real estate market.
When you’re looking to make an international real estate investment (and make money from a rental property), the ratio between price and rent is what truly matters. You don’t want your investment to be too high to a point where you won’t be able to make a return from it.
Let’s take a look at Germany for a moment. A price for one square meter ranges between 5,000 and 10,000 euros (or roughly between $5,500 and $11,000). The average rent for a single-bedroom apartment, of let’s say 40 square meters, can range between €500 to €1,346 ( or roughly $550 – $1,500). If we take the numbers from the higher part of the range, we’ll end up paying 10,000 euros per square meter for 40 square meters:
40 x 10,000 = 400,000
Once we divide that with the current highest rent, we’ll end up with the number that shows that it will take roughly 310 months or a bit over 25 years to get back the entire 400,000 euro investment (and that’s without making any profit from it).
Now, let’s take a brief look at the city of Chicago in the US, where the average home price is around $287,337 and the average rent is around $2,300. Simple math will tell us that if you bought property there, it will take around 125 months (or about 10 years) to start making a profit from it. This is a huge difference when compared to Germany’s 25 or more years to just break even.
We can help you find the best location for a rental property in the US.
7. What Are the Currency Exchange Rates and Fluctuations?
Currency and exchange rates can have a significant impact on your ability to purchase foreign property and the risk associated with making an international real estate investment. You’ll have to consider the currency fluctuations between two economies — your own home country and the foreign country you’re looking to buy property in.
Every time you’re buying property abroad (and based on the current exchange rates), you could end up having notable gains or significant losses.
One thing you should definitely consider is the exchange rate between your local currency and the US dollar. As a reserve currency of the world (or most of it), the US dollar is the best way to measure how much of your local money you’ll need to make an international real estate investment.
Also, you should know that if you purchase US real estate, you are effectively investing in the US dollar, which is a good option if your local currency is volatile (not stable).
8. Are There Any Financing Options Available to Foreigners and What Are They?
What financing options will be available to you will heavily depend on the country you’re looking to make an international real estate investment. In a lot of countries, foreigners have trouble getting mortgage loans due to a lack of credit history or score. In the US, the story is a bit different. This country has the largest and most developed financial system in the world. It welcomes foreign investment and makes it easy for foreigners to get loan approvals. Just as an example, between 2022-2023, more than $20 billion of foreign real estate investment in the US was financed with loans.
Mortgage loans are a good way to finance properties, whether or not you have enough cash on hand to cover all the costs associated with buying property overseas. If you don’t have enough capital, you can use a mortgage loan to increase your purchasing power. For the most part, you’ll only need to have enough to cover the down payment (which can range anywhere from 15-25%, depending on various factors). And, if you do have enough cash on hand, you shouldn’t risk more of it than you absolutely need to. Let the mortgage lenders provide you with capital while you slowly increase your equity with each loan payment.
With a good financing option, you won’t need to spend 100’s of thousands of dollars to invest in foreign real estate. So, be sure to check out what types of mortgage loans are available to foreigners in the country you’re looking to make an international investment in. For example, in the US, there are many mortgage loans available to foreign investors, including:
9. What Are the Property Prices?
Property prices are one of the main factors that should be considered when making an international real estate investment. Depending on your budget or the financing options available to you, the answer to this question will help you narrow down the location of your future property. For example, if you’re looking to buy a property somewhere in the EU, you can expect to pay:
- $542,858 for an average home in Austria
- $341,917 for an average house in Belgium
- $184,957 for an average home in Croatia
- $342,138 for an average house in Denmark
- $511,333 for a house in France
In North America, average home prices are:
- In the US the average home price is $408,732
- In Canada, the average house costs $529,422
We should also note that these are average home prices and that you can find cheaper homes in both the US and the above-listed EU countries. The US consists of 50 states, which in many ways, operate as separate countries. There are many hidden places in the US where real estate prices are extremely affordable. In certain areas of this large country, you can purchase properties for under $300,000
10. What Is the Average Rent in the Country You Want to Make an International Real Estate Investment?
This question is important for those who are interested in buying property abroad for rental purposes.
How high the rent is will directly impact the amount of income you can generate from a rental property.
The average rent for some Western countries is:
- The average rent in the US is around $1,372 per month
- The average rent in France is around $720 per month
- The average rent in Spain is around $800 per month
- The average rent in Italy is around $880 per month
- The average rent in Portugal is around $1,100 per month
Two Main Issues With International Real Estate Investment
There are many problems that you can encounter when you invest in foreign real estate. Arguably, the most important of them are about:
Finding a good property manager or a property manager firm is one of the main problems when making an international real estate investment. Property management can be the deciding factor between your investment’s success or failure. But why is this?
Well, first off, the country you’re investing in is a foreign country and presumably, you don’t live there. This means that you’ll be managing the property remotely and won’t always be around to deal with problems and issues that come up. Issues such as:
- Tenants not paying rent
- Regular maintenance
- Emergency repairs
- Complying with the laws that are relevant to renting a property
All of these and more, are things that a good property manager or a property management firm can handle for you.
Local Real Estate Market Knowledge
There’s a chance that, as a foreign real estate investor, you have limited or no knowledge about the real estate market of the country you’re looking to invest in.
You can mitigate this problem by doing your own research, but there’s always a good chance you can miss something. And, when making an internal real estate investment, missing even the smallest of details can make or break your entire investment. That’s why it’s always a good idea to contact real estate agents with in-depth knowledge of the markets you’re interested in and experience in dealing with international clients. If you like doing things yourself, you don’t have to hire them, but you should at least schedule a consultation and see what they have to say.
Is making an international real estate investment a good idea?
Yes! It’s a great way to expand your investment portfolio and ensure your assets are safe from domestic political instability. It’s also a great way to generate passive income if you buy a rental property.
Is real estate affected by inflation?
It can be, but to a lesser degree when compared to other industries. For example, in the US, the increase in property prices usually stays on par with inflation. This means that, no matter how high inflation becomes, the increased value of properties will ensure your investment is protected, that you don’t lose money, and in many cases, you can make more money.
What are the main advantages of international real estate investing?
The most common advantages of buying property abroad include:
- Higher returns
- Safekeeping assets
- Securing a second residence
- Protection against inflation and current fluctuations
- Opportunity to diversify an investment portfolio
Interested in International Real Estate Investing? Check Out the US Real Estate Market
NRI is a full-cycle agency that helps foreign nationals buy property in the US. We can help you in every step of the process of buying US real estate. From connecting you with real estate agents with international experience to helping you find the best financing option, ensuring filing of all tax-related documents is done by US law, and ultimately helping you close the deal.
Whether you’re looking to expand your real estate portfolio, buy a rental property, or a vacation home, NRI is a perfect place to start your US real estate journey!
Subscribe to our newsletter