Top 5 Challenges of Buying Property Abroad
Posted by Wei Min Tan on September 15, 2017
In this global market, investors looking to diversify their portfolio often venture abroad for their property investment. This can be because they already own multiple properties in their local country or they simply feel a certain foreign country’s property market has better prospects in terms of stability, return or risk/reward tradeoff.
In a market like New York, foreign buyers invest because of the safe haven aspect whereby New York has a steady appreciation trend and property ownership is well protected by established rule of law.
When foreign clients approach us about buying property as a foreigner in Manhattan, they often have a certain set of questions seen as challenges that they want to ensure will be taken care of. They also come with certain assumptions, often the result of endless reading on the Internet. In my experience, here are the top five challenges a foreign buyer should be aware of and should ask their investment team.
View from above Central Park in Manhattan, New York.
1. Taxation and capital gains
This is the top question that savvy investor clients ask. What are the taxation levels for a foreigner and what are the capital gains. The foreign buyer needs to know whether they are being taxed differently than a local. Are capital gains calculated differently from a local?
2. Can they get a mortgage
One of the biggest advantages of buying property vs buying stocks is the ability to leverage debt. With property purchase, the buyer can often get a mortgage loan and finance most of the purchase price. Do local banks give mortgages to foreign buyers? Or can the foreign buyer get a mortgage from their country to buy property abroad?
3. Buying under a company name
This is one of the most overrated aspects of buying residential property. Of course, it’s because there is so much on the Internet about buying property under a company name. Usually written by attorneys who try to scare consumers into setting up entities. There are obvious advantages of buying under a company, the biggest of which is limitation of liability. There are disadvantages too. For example, in New York, most banks are not going to lend if a residential property is held by a company.
A lot of investors say they’ve been advised that at time of selling the property, they can just sell the company (which owns the property) to the buyer. Now, I would be very interested to see how many buyers are actually ill advised enough to agree to do that.
4. Getting the people together
Is the foreign buyer the one who needs to form the team of real estate agent, lawyer, bank officer and accountant? Unless the foreign buyer has a local contact, often the real estate agent, who can bring all these people together, how can the foreign buyer possibly form the team from thousands of miles away. For example, in the Manhattan, New York market, we at the Castle Avenue Team serve as the one-stop solution to foreign buyers.
5. Who’s the local point of contact
Who does the tenant call when there’s an issue, eg when something needs to be fixed. Alternatively, who can the foreign owner call when the tenant did not pay rent and action needs to be taken? The point of contact can be the real estate agent or a local property manager but it definitely needs to be determined clearly at the beginning.
When thinking of venturing abroad for property purchase, the foreign buyer needs to have solid answers to all the above. The most important is to have the right investment team. Now this becomes the challenge. Referrals from friends is a good way to identify the local investment team. In this age of Google, the foreign buyer can also search online for established local investment professionals. Look at the credentials, interview a few. Proceed only if there seems to be a good fit.
Note: The author is not a legal or tax professional and the above should not be taken as legal/tax advice.
Please consult a qualified legal or tax professional for such advice.