Some striking facts to consider:
- 15% of Americans are choosing to retire abroad
- Portugal is often ranked as the #1 country for US ex-pats to retire to, based on weather, health care, and safety.
- Keep Notes: 3 of the most popular spots for investment are Portugal, Spain, and Mexico
So what about diversifying your portfolio and buying an investment property in Portugal now, even before retirement, and what about some other locales around the globe? In addition to the countries mentioned above, Costa Rico and Panama are also popular spots.
To put all cards on the table, I chose to do just that and purchased the lower half of a two-unit budling in Porto in Portugal’s north in January.
There are many considerations in buying an overseas investment.
If you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. You may not realize it, but that is the exception, not the rule. Other countries tax based on residency, and where the income is made. But as an American, even if you live abroad you need to work with a tax professional to avoid double taxation when possible. Investing in a foreign country will require you to spend some extra time and money on tax reporting.
Taxation rates in other countries can be higher where the countries provide more social services. As an example, rental income in Portugal is 28% of net income. Quite high. If the property you buy is a short-term rental and is licensed as such (not always possible) then taxes are only 6% of that income but the management and other fees and licenses come to about the same. The rules affecting rentals, both long and short, are in flux across the United States and around the world and expect more changes.
Long-term leases might need to be filed with the financial offices of the city and minimum lease lengths can tie up the property longer than you might wish.
Furnished rentals, over 30 days, are attractive to a growing population of digital nomads and there may be some great opportunities. Some countries have developed Digital Nomad visas, and those may require having a lease upfront. Those furnished overseas rentals can bring in much more than a typical rent.
Just like buying an investment property domestically, one of the most crucial pieces to a successful investment property is the management company. In areas where overseas investors are common, the American buyer can find property managers that will take care of every part of the property, including managing the more frequent move-in/move-out, which happened with shorter rental agreements.
Lastly, consider the value of the dollar. When the dollar is strong, as it has been recently, the cost to the American buyer is depreciated. When the local currency rises, the American investor gets a bump in rental income.
We will be discussing international investments as part of the Real Estate Investing 101 Seminar on March 2nd. Register for a complimentary seminar. Hope to see you there!
