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Investing Abroad: Opportunities Bring Challenges

solomonsuccess graphicKing Solomon was no stranger to investing outside the boundaries of his kingdom. The Books of Kings and Ecclesiastes tell us that he sought materials for his great temple from many neighboring kingdoms and countries, and he entertained rulers of these lands in royal style, building connections through investment, trade and marriage. Foreign investment has always had its appeal. Now, as foreign investors flock to buy US real estate, American investors are also looking to buy properties outside the country. But beneath the glamour of foreign investment lie a number of pitfalls for American investors abroad.

Foreign real estate is becoming more attractive to Americans in all economic niches. Numerous publications aimed at retirees tout the benefits of owning homes in countries such as Ecuador, Guatemala, Greece and Mexico, where the cost of living is lower, medical care costs less, and the climate is temperate. Services have sprung up to assist US buyers to get the best deal for retirement living abroad. Other kinds of investment opportunities area also available, such as buying shares in larger real estate projects for as little as $1,000.

Buying property outside the US does have its upsides. In many areas, US dollars buy more than at home, and putting funds in these properties can help investors avoid the ups and downs of the US housing market. But at the same time, investing in real estate outside the country’s borders can be an uncertain and potentially expensive proposition.

The US mortgage lending industry has had its well-publicized problems, but in other countries options for mortgages are much more limited. In the US, borrowers are used to shopping around among lenders for the best rates, but in many countries such as Mexico and Spain, few banks handle mortgages and ewer still are willing to handle them for foreigners. The preferred currency for real estate investment is cash. Cash creates its own problems, too, thanks to changing currency rates and banking practices governed by laws that don’t obtain in the US.

Practices governing real estate transactions may also pose problems for US investors. A lack or records on property ownership, deeds and real estate transactions themselves can muddle property transactions. In some countries, boundaries have shifted over time and political unrest has created disputes over who can lay claim to a particular piece of land or dwelling. Purchases may be disputed years later as conditions change.

Although many countries that are popular with American investors have highly stable governments, many don’t – and even in stable democracies, corruption in various civil and corporate institutions can derail a transaction or make it costly to comply with local laws and codes. Not all countries have real estate professionals to guide a foreigner through the process – and in those that do, these agents may charge high commissions for their services.

And when the dust settles from these complications, many foreign property deals just aren’t a particularly good bargain. Although owning a three-story home in the shadow of the Andes or a villa on the beach in Mexico sounds appealing, an equivalent investment in US property as Jason Hartman advises, offers more security, stability and protection against the vagaries of national and international turmoil.

 

The Solomon Success Team

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