In today’s world, there is increasing uncertainty with almost all investments. Traditional investment hot spots like China and the United States are cooling off. The US has been barely clinging to an average 2% GDP growth rate the past decade. That’s after the tragic downfall of 2008, from which the economy is just now creeping slowly away. Some believe the US economy may be heading towards a slow down once again in the coming years. China’s economy, as well, is slowing down, with 2015 being the first year the government reported GDP growth under 7%. In fact, GDP growth below 7% is being described as the “new normal” by the Chinese governments. Some skeptics hypothesize that China’s growth may be even lower, citing such factors as a decline in electrical output in 2015. All in all, investments are looking not as promising as they once did, and this is leaving many people questioning where to put their money to work. Luckily, there are still a few good options out there.
Real estate, and specifically international real estate investments are one of the better opportunities available in today’s global market. International real estate offers solid returns, based on simple principals, while providing some of the most comprehensive diversification one can find.. Think about it this way; would you consider an investment portfolio that includes different stocks in different industries to be diverse? Sure, there is variation across industries, but all of the investments are still in stocks. Most likely, they are stocks that are traded in the same country, and probably even on the same exchange. Basically, a “diversified” portfolio of stocks does not in reality represent very comprehensive diversification. Now, consider an investment into international real estate. First of all, by the very nature of the investment being international, it is already much more diversified than an all domestic stock portfolio. Getting some money out of your home country is a very prudent move in terms of diversification. In addition, diversifying into different asset categories, such as real estate, is also very wise. Getting some money out of the traditional stocks and bonds and into alternative investment opportunities allows for greater diversification.
International real estate is also a smart way to litigiously diversify your investments. This is because foreign owned real estate, so long as it is in your name, as in not owned by a trust or LLC, and it is not income generating, does not need to be reported to tax organizations, such as the IRS. International real estate is very unique in this regard. Thanks to the far, far reach of FATCA, essentially all international holdings must be disclosed to the IRS. This includes such things as international bank accounts and stocks traded on foreign exchanges. Privately held, non-income generating international real estate, however, is one of a very few assets which does not need to be disclosed to the IRS on an annual basis. Of course, you are still responsible for reporting capital gains income generated on international real estate sales. At the same time, using an international LLC to hold international properties is an extremely smart strategy for those in professions which are prone to lawsuit, such as doctors, builders and private business owners. Although we hope it would never happen, if a doctor were to get sued for malpractice, international real estate could be kept out of the clutches of money hungry prosecutors.
For those looking to make money from real estate through rental income, international real estate can also net you impressive returns. Being a landlord in the United States can be a challenging pursuit these days. Gross rental yields have dropped into the low 4% range due to taxes and fees. And of course, one must consider the immense liability of being a landlord in the world’s most litigation-happy nation. That’s a lot of work and worry for what may result in very little profit. In essence, you have to be good to make money as a landlord in the United States.
Now, compare this situation to being a landlord in say Nicaragua, where average gross rental yields are 7.2%, and can get as high as 13%. This is a very different scenario. The environment can be much more favorable to landlords in jurisdictions outside the United States.
Whether you are looking to invest money that will be shielded from legal prosecutions, or you are looking to generate some extra income, international real estate is the asset class to investigate. It really is the opportunity that prudent investors should be considering.
If you have further questions about international real estate, or about international diversification in general, you can contact us using the button below. We look forward to hearing your questions, and to helping anyone who wishes to achieve financial freedom and security through international diversification.