If you’re just starting to explore overseas investments, you are probably intrigued by the possibilities. You may be drawn to affordable oceanfront properties, rural mountain escapes, or vibrant city living. Personally, I’ve been interested in all.
You’re also probably concerned about risks like foreign governments seizing your assets, natural disasters, and fraud. Investing in overseas real estate can be risky.
I found out the hard way.
I had just returned from Ecuador where I had purchased an oceanfront lot for a great price and made plans to build a house. I had visions of whale watching from my infinity pool and parties with new friends.
Then came the email from my attorney. My building permit had been denied because the government was planning to expropriate, or seize, my land to build a soccer field. At best, I would receive a fraction of what I paid for the lot.
This was my worst nightmare: Investing in a foreign land where my property was taken at the whim of local officials. You may have worried about similar things happening to you.
Does this mean that investing in overseas real estate is too dangerous? No. It simply means that you need to have a strategy in place to manage your risk. Here are five tips I recommend for investors considering an overseas purchase.
1. Follow The Well-Traveled Path
One way to manage your risk is to invest where many other expats have invested. The idea is to avoid the situation I had in Ecuador, where I was a lone foreigner trying to negotiate with local officials.
The best scenario is to find a community created by a local developer with a track record of selling quality real estate to expats. If problems arise with the government, the developer is in a much better position to deal with them than you would be.
To illustrate, my experiences working with a well-established developer have been a walk in the park compared to what I dealt with in Ecuador. They offer turn-key apartments where you can typically enjoy 25% rental returns and capital appreciation without fighting over building permits.
If no turn-key development is available where you are looking, you may still benefit by being in an area where many expats have settled. This gives you some assurance that the local government is friendly, or at least not hostile, towards foreign investors.
Investing where other expats have will give you peace of mind, but real protection comes from surrounding yourself with trustworthy advisors.
Just as important as finding the right property is finding the right people to assist you. This can mean lawyers, accountants, real estate agents, property managers, and knowledgeable expats.
A great way to get started is to attend a conference. Before I made my first overseas investment, I attended the Live and Invest Overseas Global Property Summit in Panama. It was the perfect way to start, as I was able to meet other investors, discuss investment opportunities with vendors, and hear about the experiences of expert panelists.
Attending a conference is a great way to start building your network. But don’t stop there. When you visit a new city or country to look at real estate, don’t limit yourself to one real estate agent. Work with several. Find the ones who seem trustworthy. A good real estate agent can connect you with reputable attorneys, accountants, and property managers.
One of the most crucial steps in your networking is to find an attorney you can trust. Don’t go cheap here. In Colombia, I pay more than the average for my attorney. I could find cheaper legal counsel. But working with this attorney, I know that he’ll promptly answer my emails and get the job done right. The extra I pay is worth the peace of mind I receive.
Once you have networked and put together your team, you are well on your way to success. But even with the perfect team, things can still go wrong, so it is important to be prepared for all contingencies.
3. Document Everything
When investing overseas, go the extra mile with your documentation. Keep every possible document. Note every person you talk to. Keep proof of payment for every individual to whom you send money.
Perhaps my biggest mistake as an international real estate investor was in relation to a remodeling project in Medellín, Colombia. I entered into an agreement with a contractor to remodel an apartment but did not insist on a formal contract. The contractor missed the scheduled completion date by a mile. Without a contract, there wasn’t much I could do to make him speed up his work. Informal completion timelines are useless.
Even in the absence of problems, documentation is important, especially at tax time and when selling your property. But even great documentation is no substitute for your presence.
4. Be There
I highly recommend that you spend time in the place where you are planning to invest. If you’re considering buying an apartment, rent an apartment in the same building or at least the same area where you’re planning to buy. This is the perfect way to be sure that the deal you’re considering is not “too good to be true.”
If you’re building a house or remodeling, you need to keep a close eye on what is happening. Making regular site visits helps to keep the contractor accountable.
Even though I could not be present during my Medellín remodeling project, I found a workaround that probably saved the project. I hired an expat to be my eyes and ears. While this step could not make up for my failure to have a solid contract with the contractor, it ensured that the contractor did the work that he was supposed to do.
If you’re still uneasy about investing overseas after considering the four preceding tips, then you may simply want to limit the amount you invest.
5. Dip Your Toes
Maybe you’re not ready to make a big commitment. Consider starting with a smaller investment. Live and Invest Overseas features many projects, and entry points often start as low as US$25,000.
Making a smaller investment will allow you to get comfortable with the process of investing internationally without taking a huge risk. You can then build on that experience to pursue larger investments in the future.
My five tips cannot guarantee the safety of your investments. They will, however, help you to minimize risks and avoid some of my mistakes. After two frustrating years and substantial legal fees, I was able to reach a compromise regarding my Ecuador lot. Much of this frustration could have been avoided by rigorously following the tips outlined above.
Brett D. Thompson