Foreign Real Estate Investment - An Example
By Eric Hammer
Foreign real estate investment is one of those areas where
you can make a fortune and you can also lose a fortune. Consider
Europe for a moment. Many people invested heavily in real estate
in Eastern European countries and former Soviet republics, believing
these to be up and coming places where their money could grow.
Unfortunately, when the real estate market overheated in these
countries, the value of their investments fell and they were
left holding underwater mortgages reminiscent of those many Americans
are dealing with right now.
However, let's take a specific example of a foreign real estate
investment which many people like to use and analyze it for a
moment. Many Jewish Americans (and some non Jewish Americans
with connections to Jews such as actor Leonardo DiCaprio whose
girlfriend is Israeli model Bar Refael) like to purchase second
homes in Israel. Some do so because they want to spend a few
weeks in that country each year while others make the purchase
purely for investment purposes. For this example, we'll look
at those who do this for investment purposes.
The Israeli real estate market, as of this writing in December,
2010 is extremely hot. Prices have been rising steadily for the
past few years and the Bank of Israel has been working together
with several government ministries to find a way to cool down
the markets. Ironically, one of the main culprits they tend to
point to is foreigners who buy homes there.
However, in spite of the fact that buying in Israel can be
a good deal from a purely economic perspective, there are a number
of peculiarities of the Israeli real estate market that could
flummox average Americans who want to invest. For example, land
ownership is often not so clear. In most cases, you will be purchasing
a condominium rather than a house, however the land under the
condo is often owned by the Israel Lands Administration which
leases it to you for 99 years at a time.
If you actually want to purchase the land underneath your
home, be prepared to work with a local lawyer (actually, work
with a lawyer either way) because you'll need to register with
something called the tabu, which is a deed registration dating
to Ottoman times which delineates ownership of various plots
of land.
No matter where you purchase or what you purchase by the way,
Israeli banks will often loan you no more than 60% of the value
of the property you wish to purchase (which is one reason that
Israeli banks emerged largely unscathed from the recent financial
crisis – they required such large down payments that fewer
people could end up going bankrupt and needing to be foreclosed
upon).
How Much Can You Make?
The Israeli real estate market is just one example of course,
however in Israeli it is not impossible to double or triple your
money in a span of just a few years. In Tel Aviv for example,
were you to purchase an apartment in the year 2000 for $150,000
that same apartment today might easily fetch around $400,000
because of the real estate bubble developing in that country.
You need to be careful however about that word, "bubble."
Many Israeli newspapers are now referring to a real estate bubble
which they expect may deflate soon. This means that those who
buy and hold purely for investment purposes right now could lose
money by making such an investment.
On the other hand, given that Israel is a small country with
an ever expanding population clustered in a relatively small
area of the country (More than half of the country’s citizens
live within an area approximately 10 miles wide by 40 miles long
along the Mediterranean coast line), prices may continue to rise
in those areas simply because there is a limited amount of space
on which to build.
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Consider when making your purchase, renting out apartment
that you buy. This way, someone else will be paying the mortgage
for you. If you purchase commercial real estate, make sure that
it is an area which is well trafficked and which is likely to
attract high rents.
Wherever you make a purchase, you need to do a great deal
of research. The Israeli market, profiled above, has its own
peculiarities but so do most markets anywhere in the world. You
need to understand what land ownership rules and taxes there
are on homes and commercial pieces of real estate you purchase
before you take the plunge. Be sure to work with a local lawyer
who speaks fluent English and who has been recommended by others
whom you trust. There are many charlatans out there who will
try to take your money and offer you nothing of value in return.
Qualifications / Requirements
The main requirement here is money. If you have the money
to invest, then you can make purchases of foreign real estate.
However, beyond money, you need to be careful and keep your wits
about you. Even in a country where you may feel perfectly at
home, say France or England, where it seems you ought to be able
to get a good deal and make your way through the markets, you
still need local help to make sure that you don’t get fleeced
and that you are following all local laws.
First Steps
Start with lots of research on the country you want to invest
in. Ideally, learn the local language if it’s not English
and spend time reading local newspapers. It pays to know more
than just that "my buddy told me that investments in Thailand
can pay off handsomely." Take the time to visit in person
and actually see, physically the property you want to invest
in. Then, recruit local help. It goes without saying that you’ll
need a local to manage your property while you’re not there
and you’ll need a local lawyer to help you with the paper
work and understanding the ins and outs of the deal you plan
to make.
Resources
Check out these helpful resources to learn more about foreign
real estate investment:
Kiplingers: Investing in Foreign Real Estate Goes
Mainstream – An excellent examination of the risks and
rewards of investing in foreign real estate. Also offers an additional
suggestion for investing in foreign real estate for those who
want a pure investment and not an actual property.
CNN Money: Tax Pitfalls of Investing in Foreign
Real Estate – Good information to keep in mind. Remember
that your foreign investment still has repercussions for your
taxes here at home.
BusinessWire: Brazils Appeal as a Foreign Real Estate
Investment – An interesting study on why Brazil has
emerged as a strong contender for foreign real estate investment.
Overseas
Property Mall – A guide to investments in overseas real
estate.
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