Dateline: Bogota, Colombia
Part of diversifying your assets is making smart choices when it comes to your investments. No one wants to invest in something that is sure to be a dud.
Overseas real estate can be an excellent investment opportunity. But there’s a lot more to it than just finding the rent investment. How do you keep up on overseas investments? And should you buy real estate overseas in the first place?
There’s not a lot of real estate advice out there for folks who want to invest overseas versus their local market.
Whether you are looking to buy a home for yourself, are investing to obtain citizenship, or are looking to create another source of income, purchasing a house overseas can be a great idea. In this article, I will give you all the real estate advice you need when it comes to international real estate investments.
Investing overseas may initially sound daunting. How can you be successful at it? It really just depends on who and what you know.
My team and I have worked with real estate experts all over the world. Nomad Capitalist even offers a Real Estate Masterclass to help you learn how to efficiently invest in high-probability markets for increased yield and appreciation, taught by people who have already done it.
But today I want to offer some general real estate advice for anyone looking to invest overseas. In this article, I am going to discuss:
- Renting vs. Buying Overseas
- Owning Property in Your Own Name vs. a Corporate Structure/Trust
- The COTI Four-Point Test
- How to Manage Your Properties Overseas
REAL ESTATE ADVICE: RENTING VS. BUYING OVERSEAS[embedded content] [embedded content]
For many who are mainly interested in traveling the world, real estate advice is the last thing they are in search of. They want to explore the world and enjoy the perpetual travel lifestyle. And there is certainly appeal to that lifestyle. I lived that way for a long time.
But I never looked at my travels as mere travel. Everywhere I went, I was looking for the opportunities. And they were everywhere. So, when I decided to slow my travel and implement my Trifecta Strategy, I knew the best places to invest in real estate around the world to get the best deals and the most benefits.
But there are pros and cons to both renting and buying, whether you live in the US or travel the world. Here is a quick comparison of the main benefits and drawbacks of each approach.
RENTALS PROVIDE FLEXIBILITY
I started my first business as a young adult in the United States. At this point in my life, I rented the places where I lived. I called it “buying patience”.
I bought a home later in my 20s during what turned out to be the lowest point in the market where I was buying. I was already traveling substantially, and by the time I left the US completely, I still owned this home which I ended up selling and pocketing the money.
I then set up my first base in Malaysia where I was renting. Renting worked for me at the time. I was just starting to build up this new business called Nomad Capitalist and I wasn’t really sure where I wanted it to go.
Occasionally, I would help people who asked questions, but it wasn’t really more than that. At this point, Nomad Capitalist was in the stages of transitioning from a hobby to a business.
By renting during this time, I was able to get more for my money.
There are some very beautiful rentals in Kuala Lumpur. I’ve met a lot of expats there who are renting nicer places than where I live. For $2,000 a month, you can get a darn nice place. For $3,000 a month in rent, you could live in a place as fancy as the Taj Mahal.
Rent in some overseas markets is really cheap. While as a landlord in Malaysia you’ll make very low yields, other markets like Colombia or Georgia have much higher yields. For this reason, it may make more sense to buy in a place like Colombia or Georgia rather than Malaysia.
I rented initially because it worked for my financial position at the time, and I wanted the flexibility of renting. I wasn’t sure how long I wanted to be there. I still wanted to travel or possibly move somewhere else. So, I decided it wasn’t the time to purchase a house.
DIFFICULTIES IN PAYING RENT AND TRAVELING
During this time, I discovered why I personally wanted to buy a house someday rather than continue renting. One issue was simply logistics – it was difficult to pay my rent.
I was living in that apartment in Malaysia for four or five months a year and traveling the rest of the time. I often had to take out two to three months’ worth of rent from an ATM so that I could pay the landlord’s representative in cash ahead of time because it was easier than wiring.
In Malaysia, the ringgit is a closed currency. At the time, there was no way to send ringgit from other countries. (Now it’s possible through services like Transferwise.) Before these services were around, it was more difficult and there was more to worry about.
It was an absolute pain. At times, I would have to take out $5,000 from the ATM. To get that much cash, I would have to make numerous withdrawals. Then I would have to meet up with my landlord’s representative and bring this large stack of cash. This made paying rent a logistical challenge.
Sometimes, the real estate advice you need is more about logistics than the actual investment.
Here’s another logistical issue when it comes to renting: if you were to set up shop somewhere where you didn’t have immigration status, meaning you don’t have a residence permit and you’re not becoming a citizen, this makes setting up things like utilities much more difficult.
Without immigration status, you most likely won’t be able to set up a bank account in that country, which will make paying your utilities difficult. (Although, in some cases, you can get a bank account if you own real estate, which is another reason you may want to consider buying over renting.)
In Malaysia, you can’t pay your electric bill online. You could use cash, but if you’re traveling for months at a time, it’s difficult to get that cash to them. Overall, when you rent overseas, paying your rent can become a hassle.
CONTROL YOUR ENVIRONMENT
I remember when I was really young, I rented an apartment for the first time and was so excited to be out on my own. I decorated as nice as I could with my novice interior design skills. Later, I had a really nice landlord who let me paint and hang up photos. I loved decorating my space and I got used to this idea of being comfortable where I lived.
It’s been proven that you’re more productive when you have an environment that is conducive to your productivity. You’ll do better in your business or when you’re making investments because you feel good. You do better when you feel comfortable in your space.
This is part of why I don’t like staying at Airbnbs. Most of the ones I’ve stayed in have white walls and wires on the floor – and these are the nicer apartments. Most Airbnbs I’ve experienced are cold and dark. I don’t feel good there. I like being able to control my environment.
Depending on where you are overseas, your landlord is going to have different priorities. In some countries, especially in Asia, the landlords are very conservative.
If you’re from the US, you’re probably used to renting a place that’s unfurnished, so you bring your own furniture. A lot of rentals in Asia are furnished. This can be great because you don’t have to buy and move a whole bunch of furniture, but often the furniture that’s already in the apartment isn’t the greatest. The first apartment I lived in had very mediocre furniture. You may be renting a cheap place, but now you’re stuck with a horrible ugly couch.
One of the contributing factors that brought me to buy my own house was that I wanted to create a great environment for myself. That may not sound like real estate advice if you look at it from an investment standpoint, but once you realize that how you invest in yourself, your environment, and your lifestyle will deeply impact your happiness and productivity, it’s easy to see the connection.
When my wife and I were in Bogota, Colombia this time last year, we had just begun renovating the place we bought, so we had to stay in a hotel. As we would go out and do our own things throughout the day, we found that we both separately went to the new apartment to sit by the window and look out of it. Even with just a few things in place, it already felt nice and homey. It was turning into a place we wanted to be.
By investing in your own real estate, you can have control to create an environment that will feel like home. You don’t have this kind of control when you live in a rental or stay at a hotel or Airbnb.
DIVERSIFYING YOUR ASSETS
Asset diversification is another obvious piece of real estate advice any good investor will give you. But how do you apply that on an international level? I decided to buy real estate all over the world to reduce risk.
As any good investor, I like to balance my assets into different asset classes. And when you have access to a worldwide real estate market, diversification and risk reduction can often take the form of simply investing in different investment markets.
If you run a cash flow business or have a cash investment portfolio, putting money into real estate around the world is a good idea because it gives you asset protection by diversifying what you have.
When I bought my property in Malaysia, I signed the contract when the ringgit was almost at its lowest level against the US dollar. I had been watching it go down and timed my purchase to get a great deal.
The ringgit has since come back up and gone back down, but it’s never reached as low as it was when I bought the house. I felt then that the Malaysian Ringgit was undervalued and many others in the financial media agreed with me.
I liked living in Malaysia, so I decided that if I could get a place to live that would cost me almost nothing to maintain, I would buy it.
While Malaysia is a bit overbuilt, it’s still half the price of Bangkok. Once the supply issues get settled in the next five to ten years, prices will begin to appreciate and the market will balance out.
In the meantime, if you already have liquid assets that you aren’t doing anything with, diversifying into international real estate will give you a lot of risk reduction. By investing in real estate, you can protect your money and get a new place.
In some cases, investing in real estate can lead to immigration benefits. In Malaysia, they have the My Second Home program known as the MM2H. Through the MM2H program, you can become a Malaysian resident for a 10 year period. The program allows you to take out half of your term deposit if you use it to buy real estate.
If you’re going to be living somewhere else, I see owning real estate as a way to make some money and put it into a property you can enjoy. Your yield as a landlord might only be 4% but at least you own an asset that has some potential for capital appreciation. Certainly, real estate prices don’t always go up but you’re also getting other benefits.
On top of that, my philosophy here at Nomad Capitalist is that you want to invest in growth markets. You want to study the market enough to feel comfortable when you buy a property.
I’ve been studying and traveling to Colombia for a number of years. I’ve studied the numbers, the metrics, and where the government seems to be going in a long-term perspective and I felt very comfortable with it. This helped me feel comfortable with making an investment in Colombia.
Making a real estate investment is a way to diversify your cash into emerging markets. ETFs (exchange-traded funds), on the other hand, don’t give you nearly as much correlation to the market. There aren’t as many ways to get diversification benefits in Colombia outside of investing in real estate unless you’re going to start a business there or buy Colombian government debt.
Besides financial diversification, investing in real estate also provides a lifestyle benefit. For me, having safe havens and homes around the world is very valuable. It’s a network that makes it so you can always go where you’re treated best.
If for some reason, one of the countries I have a home in decides to impose a draconian tax policy on me, I can decide to only use that home as a vacation spot and go live in one of my other homes. I’ve created a network of places that I enjoy living in where I have business connections nearby.
This functions as a hub and spoke model. The hubs are where my houses are. The spokes are the focus cities nearby where I do business. This makes it really easy to go anywhere in the world and be welcomed.
ISSUES WITH BUYING AND SELLING
Buying and selling is the biggest challenge when it comes to international real estate investments.
Selling can be difficult because a lot of real estate agents just aren’t that good. They’re always going to try and lowball you so it’s sometimes left up to you to make sure you’re getting in at a good number so that you can sell the property with some level of ease when you decide to exit.
But buying is equally difficult. If you just go online and Google properties, you’re going to overpay. I can’t tell you the number of times I’ve had to give hopeful investors that little piece of real estate advice.
I spoke with someone who was looking at apartments in Lisbon on an English-language website. All the apartments he found charged €3,000 a month. He had heard that there are plenty of properties for only €1,000 a month and was confused about why all the properties he found were so high. Lo and behold, just a week before this, our real estate team had rented someone else the exact kind of property this guy wanted for €1,000 a month.
If you look online on English websites you’re going to pay more.
If you’re doing stuff remotely, you’re going to pay more.
Shopping online for real estate may work in the US, the UK, Australia, or other developed countries, but even in some of those markets, it’s expensive. I know people in Austria who have told me that the prices you find online are 25% too expensive.
A lot of these things you see online are marketed to foreigners.
When I bought my property in Bogota, I got a deal because we worked with local Spanish-speaking agents. That required a cultural adjustment and a connection to a lawyer who vetted the people before I worked with them.
And that’s at the heart of this particular piece of real estate advice for investors: local vendors are often better than the American or Brit who goes into a market and opens up a shop. Local vendors will charge you less, although sometimes it is harder to work with them when you are from different cultures and speak different languages.
It’s a matter of whether you want to pay more on the buying side. Do you want to pay a premium for a website with nice pictures made by someone who’s from your culture? Or do you want to work with a local attorney or someone like Nomad Capitalist who does all the groundwork and finds a good deal?
You might want to invest in Colombia and decide that it’s worth it to pay 20% more just to make it easier. But personally, when it comes to buying a $200,000 property, I don’t want to waste $40,000 in convenience fees.
Especially if you’re buying real estate in order to get a citizenship or residence by investment, you might be buying something that has a 10% to 30% commission baked in. I would rather rely on my attorneys to connect me with people who offer good deals and will manage the entire process.
Owning Property in Your Name vs. a Corporate Structure[embedded content] [embedded content]
If you’ve decided to buy rather than rent, you need to ask this question: Is it better to own property in your own personal name or in a corporate structure or trust?
I’m not going to give you a one-size-fits-all answer. Sometimes, investors who ask for my international real estate advice want me to just say yes or no, but with hundreds of different countries and territories out there, I can’t give you a simple yes or no.
Instead, I am going to give you a four-point test (COTI) that you can apply to your own situation that will help you get your own answer – or at least some more clarity in the situation. But before we look at COTI, let’s address the common concerns I hear from investors looking at foreign real estate:
The United States has a very litigious culture. People sue other people all the time. If they slip and fall on your sidewalk, they’ll try to come after you for millions of dollars.
While some of that can be solved through insurance, setting up an LLC (Limited Liability Company) for your investment properties in the US can provide you with an extra layer of protection. You can put just one property per LLC or you can put many properties per LLC.
A lot of markets outside of the US don’t have those litigation issues, so a corporate structure may not be necessary for that reason.
On the other side of the coin, you have folks who want to hide their property ownership to protect themselves from certain government actions.
We don’t talk about hiding assets here. Everything we do at Nomad Capitalist, we do by the law. Plus, US citizens don’t have to report foreign real estate they own overseas. The income is reportable but the asset itself is not.
With those concerns out of the way, let’s take a look at my four-point test.
THE FOUR-POINT PROPERTY OWNERSHIP TEST: COTI
My four-point test for determining if you should place your property in your own name or in a corporate structure is called COTI and stands for Complexity, Operating Cost, Taxes, and Immigration.
Let’s examine each point:
C is for Complexity.
Is having more complexity going to make your life easier or harder? Is it going to solve any problems or provide insurance in relation to the level of complexity it’s creating?
O is for Operating Costs
A complex structure is going to cost more to operate. A company is generally going to cost more to operate.
Let me give you an example. I have a property in Montenegro. If you want to own a property in Montenegro in a company, there may be certain tax implications. Your company will be considered a regular company. In Montenegro, there isn’t a distinction between a trading company that’s selling widgets and a company that’s designed to own a property.
If you set up a company to own a property, you as the director of that property are going to have to pay yourself a director’s salary which is going to be subject to tax including social taxes.
That minimum salary is pretty low – something like 300 or 400 euros a month – but the taxes are going to be thousands of euros or a little bit more a year, and you will also have to file ongoing reports.
When you have a company, they need to know the status of your company. You have to have an accountant to fill out accounting reports. You have to pay tax. It’s a lot of work that adds costs and complexity, all so that you can own a property inside a structure.
This is going to make your operating costs higher. You can certainly have other offshore companies that own properties but those are not always accepted in certain countries. If you go to a lot of countries, they may want you to own your property only in a domestic company, so then you would have to have the offshore company with a subsidiary that’s local underneath.
Now you’ve got more complexity and an even higher operating cost on the two different companies.
Companies, corporate structures, and trusts always add costs. I’m not saying you should never add costs because sometimes it’s worth it, but let’s avoid needless costs. I might recommend spending more for one thing but I won’t recommend some five-headed hydra that we have to feed with startup costs, monthly costs, annual filing costs, registered agent costs, company secretary costs and more.
Someone who’s in the business of selling companies or trusts makes it their goal to get a lifetime customer. Every month, quarter, and year, they’re going to charge you more and more fees. That’s why there are low fees to start, because once they get you, they’re going to keep charging you. Their goal is to sell you as many companies and trusts as they possibly can.
When it comes to real estate, complexity and operating costs are going to be higher when you use that kind of structure.
In addition, even in countries where you can use that foreign company to own property, you might have to register it, pay fees, or have a lawyer do it for you if you’re not in the country physically. So, even when it does work, owning real estate through a company adds a layer of complexity and costs.
T is for Taxes
Here’s the thing to understand about corporate structures: in many countries, especially those with simpler tax codes (which is theoretically what we’re aiming for) corporate tax rates could be higher. Corporate structures could have fewer reductions of tax than individual landlords get for renting the property out.
Let me give you one example from Georgia. The Estonian model theoretically allows you to defer tax in perpetuity and pay 0%, and therefore compound your money. But eventually, the tax is going to come due and it’s going to be around 20% tax for a corporate structure.
On the other hand, an individual landlord pays a 5% tax on most residential properties.
In some countries, if you own a property in a corporate structure, the capital gain or entire value of the property could be subject to corporate tax when you sell it.
Individuals generally have more exemptions for selling a property and can avoid capital gains tax in some countries, even if it’s not your primary residence. If you hold a property for two to five years and sell it as an individual person, you can often get either a reduction or an elimination of capital gains tax scores.
The corporate structure is much more difficult because the corporate rules apply, especially if you’re coming from the US and use an LLC. The LLC is a very interesting kind of hybrid model. It’s not really a corporation. The LLC itself doesn’t really make things more complicated. However, other countries don’t always have LLCs. So, if you come from the United States and you’re used to LLCs, you’re not going to find that same thing in many countries, and you will end up paying more tax.
I used a corporate structure once and I ended up having to pay a VAT on the sale of the property because of a simple tax code. Real estate is not exempt from a VAT if you’re not selling to a VAT payer. I ended up having to pay $5,000 or $6,000 of my profit in VAT on this small deal because I had it in a corporate structure.
I’ve made mistakes. I don’t have some secret sauce that makes me immune from ever making mistakes. But the more I do in the offshore world, I learn first hand what not to do. Then I tell you what to avoid.
The big thing that I want you to understand is that buying property overseas is not the same as buying properties in your own country. If you think that way, you’re going to be disappointed and face more problems.
Taxes are an issue that you need to consider when deciding to place a property in your own name or in a corporate structure. In a corporate structure, you’ll often pay a higher rate of tax on income, income may be subject to VAT, you’ll generally pay more in capital gains, and when you sell the property, you’ll have fewer exemptions and you may even pay VAT on the sale of the property.
I is for Immigration
Not everyone who’s buying real estate overseas is buying it for the immigration benefit, however, buying real estate is a great way to take advantage of certain residence programs, such as permanent residence programs, fast-track naturalization programs, and citizenship by investment.
The real estate you can purchase to get a citizenship by investment is generally not good. Although, in Turkey right now, they have a deal where you can buy any real estate you want and qualify for citizenship. Other countries have programs that take a little bit longer, two to five years. For these programs, buying real estate is the basis for getting a residence and possible citizenship in the future.
While there’s no uniform standard, I found that generally owning property in your own name is a lot easier for immigration. Sometimes, it’s even required.
When you immigrate, you don’t want to make the bureaucrats’ life any more difficult. You want to make it as easy for them and for yourself as possible.
If you apply for a Golden Visa or permanent residence in a country and you give them your name and the property that’s in your name and your passport with that same name in it, that makes it easier for them to understand. It’s harder for them to understand when they have to deal with a shell company.
For immigration purposes, if your goal is to move to the country, keep it simple because you’re going to cause needless hassle if you put your investment in some other name. If they let you put your real estate in a corporation, you’ve got to show the paperwork and you have to fill out many different documents.
Those are four things to keep in mind when buying real estate in new markets.
REAL ESTATE ADVICE FOR MANAGING PROPERTIES OVERSEAS[embedded content] [embedded content]
As someone who owns real estate on four different continents and maintains a portfolio of properties across numerous countries, I’m often asked for more practical real estate advice, like how I maintain the properties that I live in when I’m not there.
I have spoken before about why I don’t rent out my empty homes, but that is no excuse for making a bad investment. Any good investor knows you have to make money in real estate when you buy. You can’t just rely on the goodwill of the market to skyrocket so that you’ll make a return on a bad buy. If you make a bad buy, you’re not going to do well in property investment.
And if you do decide to rent out your properties, once you have a good buy, you want to make sure you’re not running into problems with tenants who will screw the place up and raise your cost of acquisitions substantially if you have to do more renovations than for normal wear and tear.
What I’ve found in my years of actually – not just in theory – investing in different property markets is that it’s often like investing in property at home. The same can be said of managing properties overseas: it is often like managing properties at home.
Let me explain what I mean. A couple of years ago, my team and I were helping some of our non-American clients who were looking for high-yield investments. One of the places that popped up in our research was where I’m from – Cleveland, Ohio. Sometimes, renters in these areas had government subsidies, which means the government was paying a good part of the rent.
It looked like these properties had very low prices and pretty good yields. So, as a test, I went in and bought two houses for very cheap that came with tenants. I wanted to see what would happen. If it worked, I would tell other people to do it. If it didn’t work, I’d let people know it didn’t work.
Well, fast forward to the end, it didn’t work.
The people I worked with in this up-and-coming area were different from the people I would work with if I was buying rental properties in the most affluent suburb. It’s a different kind of ecosystem in that area.
KNOWING THE RIGHT PEOPLE
What I learned – which is now free real estate advice that I’m passing on to you – is that being able to communicate with people so that you don’t get ripped off or taken advantage of is not a function of where the property is, it’s a matter of who the people are.
Having the right people is what you need. I’ve proven that by finding great people in countries all around the world.
In the US, I wasn’t able to find good people. If you have invested in the US and you found good people, that’s great.
To avoid being ripped off when I invest overseas, I’ll often start with a good lawyer. At Nomad Capitalist, we’re always looking for good lawyers in countries all around the world. We have a database of people who we’ve worked with. We keep track of who hasn’t been able to deliver, who delivers slowly, who delivers poorly, etc. Sometimes it takes a while to find the best lawyer.
If you find a locally-based internationalized attorney, that can often be the gateway to finding a lot of the other vendors you need.
A lot of the markets that I look at aren’t as developed. They don’t have a lot of big international firms. But some of the countries, even Georgia for example, have some big international firms coming in.
I’ve spoken with numerous successful business owners who hired the big four and were very disappointed with their service. For some of them, these big companies ended up making a mistake and it cost them a lot of money.
I have avoided those big firms. You pay a lot but don’t get a lot.
When I first went to Georgia, I was staying 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, properties on that street are very high.
If you walk down Agmashenebeli in central Tbilisi now, you’ll see a lot of Turkish attorneys. I spoke to some of those Turkish employees and found that many of those attorneys didn’t know what they were talking about. They were largely serving people coming from Turkey who were looking to invest or become residents.
I had to double my efforts in order to find local attorneys who were international focused but still understood how things worked locally.
Over the years, I have found the attorneys that are best for me. They understand what I’m trying to accomplish and how I work. It’s very rare that you’re going to find someone who entirely gets it, off the bat, but as you work together, they’ll learn what you want and how you want it done.
You want an attorney with an international clientele.
To use my Georgia example, one thing that is sometimes frustrating for folks from the West is that everything is always discussed multiple times in Georgia and other countries. If you have an appointment with an attorney, the attorney will call just to ask if you want to change your appointment time. It’s a different culture, so you have to train people on how you want things to work.
If you can have an attorney who has a good relationship with different vendors, they will often turn you to good real estate agents.
I found two good real estate agents the entire seven years I’ve been working in Georgia. One of them does not speak very good English, but she has very good connections in the local market. She gets a lot of people with valuable city center properties who hire her and pay her a good commission. She works with the attorney and they find the deals.
The other agent is a very good English speaker. She was very hard to find.
Most of the connections you can find in a foreign city will be through an attorney. They get a lot of feedback on who’s good and who’s not.
Do you need to speak the local language? Generally, no.
If you have a good relationship with a good local attorney who has an international outlook and international clients, they will often be willing to help you work with other vendors for a rather reasonable price. I have even had attorneys help with things like putting cabinets in my house in Tbilisi. They helped me negotiate and translate.
Some of the vendors they connect you with will speak English. In that case, you can then work with the vendor directly. However, speaking English isn’t necessarily a required factor for success.
Finally, I am often asked about real estate advice in regards to doing renovations on properties in foreign countries. If you don’t know anyone, it can be difficult to know who to trust.
Again, capitalize on the local connections you do have.
I also think you will be pleasantly surprised by the quality you will get from local contractors. I hired someone in Colombia to renovate my apartment. It’s probably the best renovations I’ve seen in my life. I got excellent details, amazing quality, and everything is really outstanding.
The person I hired doesn’t speak English fluently. We sometimes communicate directly with my basic Spanish, but sometimes we communicate through someone local who can translate.
I haven’t had many problems with renovations and property management. Some countries don’t have a lot of options for property management, but generally in emerging countries, if you find a good real estate agent, they may offer property management as well.
And if you live in one of these emerging countries and own rental property, you can manage your property yourself.
YOU DON’T HAVE TO DO IT ALONE
My final piece of foreign real estate advice is this: as you start or continue your journey investing in real estate overseas, you’re going to have to make a lot of decisions. But the great thing is that you don’t have to do any of it alone.
Look for good connections in markets, or contact Nomad Capitalist and we can help you come up with a holistic plan and connect you to some of the best people in the world to help you buy or manage your property.
There are a lot of opportunities for investing overseas. It’s a good opportunity to potentially get a second residence permit, a second passport, higher yields, and higher returns. Some foreign markets have not gone down in years. As markets ebb and flow, they have been steady gainers.