International Real Estate Investing

The Best Places to Look

 

So how does one go about identifying places to build your “dirt bank”? I’ve done some research on various countries based on the variables I identified, and compiled it in the table below. I selected the countries based on their overall fit with my variables, as well as the existence of robust and open property markets that are known to appeal to foreigners.

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Except for Malta, they’re all in the Western Hemisphere. The reason for that is largely by default: Europe is too tax-heavy, Asia is generally unfriendly to foreign property ownership, and Africa, with some possible exceptions such as South Africa and Kenya, isn’t stable enough.

The tables don’t include an estimate of each country’s property value appreciation prospects, since these vary widely by region and type of property, and are unpredictable for many countries. Nevertheless, you’ll notice one thing most of these countries have in common: They’re small — several are islands — so land is in relatively short supply. That generally means values will go up.

Loophole the IRS Wants to Keep Secret

What if you don’t want to hold foreign real estate in your name? What if you prefer the privacy, security and protection of a corporation?

Under some circumstances, even if you purchase foreign real estate via a corporation, trust or other structure, you might not need to report your interest in it on IRS Form 8938. That’s because Form 8938 applies to those with “significant” assets outside of the United States. You don’t need to file Form 8938 if:

• You are resident in the United States, are a married couple filing a joint tax return, and your reportable foreign financial assets on the last day of the year do not exceed $100,000, and are not more $150,000 on any day of the year; or if you are single or married filing separate, and your reportable foreign financial assets on the last day of the year do not exceed $50,000, and are less than or equal to $75,000 on any day of the year.

• You are resident abroad, are a married couple filing a joint tax return, and your reportable foreign financial assets on the last day of the year are not more than $400,000, and do not exceed $600,000 on any day of the year; or if you are single or married filing separate, and your reportable foreign financial assets on the last day of the year do not exceed $200,000, and are not more than $300,000 on any day of the year.

Being “resident” abroad is based on a combination of factors, but essentially it means that your home, business and income are all in non-U.S. locations, so if you maintain a home or business in the U.S., but live largely abroad, you’ll need to act as if you were a U.S. resident, because legally that's what you are.

The upshot is that you might be able to hold non-reportable foreign property worth up to $100,000 in a single corporation trust, or other vehicle if you are a U.S. resident, and up to $400,000 if you’re resident abroad. That means you could possibly even participate in a property syndicate, as I explained when discussing Uruguay.

But beware that Form 8938 kicks in based on the value of all your foreign financial interest taken together — so if you have other offshore financial interests, the threshold for the value of your interest in a property-holding vehicle will be correspondingly lower.

As I’ve stressed, building a “dirt bank” isn’t the same thing as buying property to live in overseas. Nor is it the same as investing for profit. The goal is to protect a portion of your wealth by converting it into a form that you’re not obliged to tell the government about.

As the risks of government wealth confiscation grow, hedging investments like this are becoming more and more important. Don’t just say to yourself, “That would be a nice thing to do. Maybe someday…”

Consider doing it now before it’s too late.

Happy Investing!

Today's blog courtesy of  Ted Bauman
Editor, The Bauman Letter and Plan B Club

Investing in Foreign Property

In order to buy real estate in another country, it may be necessary to open a foreign bank account. It is possible that the attorney handling the transaction could use their own escrow account for the purchase. Once you are a property owner in another country, most banks will open an account for you, as you have a clear presence in and relationship with the country.

Many foreign real estate purchases have to be paid in cash, as most foreign countries do not have U.S.-style mortgages. In the best case, you can get a 70% 10-year mortgage, but long-term or higher LTV ratios are generally unheard of.  The good news is that property prices in such countries are typically much more reasonable than in the U.S., precisely because mortgage finance isn't so easy to get.

The South American nation of Uruguay is an increasingly popular destination for foreign property investment and one that has been recommended by the editors of The Sovereign Nation.

Uruguay has some of the best farmland in the world. It has a mild climate and ample annual rainfall, and the seaports along the mouth of the River Plate make it easy to ship grain, beef, pulpwood and soybeans all over the world.

International interest in Uruguayan agricultural land has driven its price up an average of 20% a year since 2002, when you could buy excellent land for $3,700 per acre. Now land costs $17,000 to $32,000 per acre for prime crop land (soya, corn, wheat), and $7,000 to $15,000 per acre for good cattle pasture. Operational returns for farming in Uruguay are typically in the 3% to 5% range.

Uruguay’s average farm is only 1,000 acres, which reflects the high productivity of its land, so you can expect to pay from $7,000,000 to as much as $32,000,000 for an average farm. But better deals on smaller farms are available — you could find worthwhile opportunities for as little as $600,000 if you know where to look. But that’s the minimum. To invest less than that in farmland means buying into a syndicate. But if you do that, you’ll have to report on your interest in that syndicate to the IRS, since it’s a “specified foreign financial asset.”

As an alternative, excellent residential property in Montevideo could be had for as little as $100,000, where rental yields are from 6% to 8%. If your “dirt bank” needs to be in smaller chunks, residential property would be your best option. It would offer not only a place to store a portion of your wealth outside the notice of the IRS, but rental property could also yield a nice, steady income as well.

The purchase process is simple in Uruguay. You appoint an “escribano,” or conveyancing attorney. They draft a boleta de reserva (intent to purchase agreement), inspect and verify the title, draft the purchase agreement, set up the escrow account, and record the purchase at the national Registro de la Propiedad, or Property Registry.

All of this would cost you about 8% of the purchase price, or $8,000 per $100,000 in property purchased. You’ll also pay property tax of 0.25% per annum. If and when you sell the property, capital gains tax will be 12% (under current law).

So, sticking with a hypothetical $100,000 residential investment, here’s how your “dirt bank” hedging strategy would work out, assuming a 15-year ownership with 5% per annum increase in property values, which is actually quite conservative given Uruguay’s recent market performance:

If you rent out the property, you’d need to open a Uruguayan bank account, which isn’t difficult (but keep in mind you must keep its balance below $10,000 at all times). You’ll pay tax of about 12% on that income, but it can be offset against your U.S. tax without revealing the source of that income — i.e., the existence of your “dirt bank.”

Happy Investing!


Today's blog courtesy of

Ted Bauman
Editor, The Bauman Letter and Plan B Club