Things are generally looking good for the US economy lately. Growth is back, and unemployment is down. The stock markets are finally crawling out of the hole they fell into back in 2008. Or so it would seem. Even with all of the positivity flying around, one shouldn’t be too quick to hail the US economy as being back on track again. An article recently published in CNN Money pointed out that nearly half of US stocks are in a bear market. In fact, as of the second Friday of 2016, nearly half of the stocks on the S&P 500 have fallen to 20% below their 52-week highs. Billionaire investor George Soros has also been raising some alarms, last week saying that the challenge facing the market now “reminds me of the crisis we had in 2008.”
What this means is that even though many signs are looking good and pointing towards a growth period, many problems are still lurking. The US economy isn’t out of the woods yet, and there could be a bear hiding around the next ridge. Given the uncertainty of the US stock markets, you may be wondering where to make your next investment. Well, if you haven’t already, perhaps you should consider investing in overseas real estate. Overseas real estate is an exceptional investment opportunity. Whether it’s diversity, stability or increased returns you’re interested in, overseas real estate can be an exceptional addition to your investment portfolio.
I’m sure you’ve heard the phrase “Don’t put all your eggs in one basket.” This phrase holds true for many aspects of life, and investment is certainly one of them. If you’re looking to distribute some of your eggs into different baskets, overseas real estate should be at the top of your list.
Probably the strongest aspect of investing in overseas real estate is that first word, overseas. By making an investment in a market outside of the United States, you are protecting your money from any instabilities or mishaps that may happen in that market. No matter how strongly you believe in the US economy, at some point it will take a downturn. This is the nature of a business cycle. If you have all of your money invested in the US, when this inevitable downturn occurs, all of your investments will go down with it. True enough, eventually the economy will bounce back, but wouldn’t it be nice to have an investment that grows even while your others are taking a hit? By investing overseas, you can hold strong investments that will continue to grow while your domestic ones flounder.
The second strongest aspect of investing in overseas real estate is the real estate aspect. While stocks and bonds are great ways to get good returns, they carry with them a certain inherent risk that isn’t there with an investment in real estate. “The value of real estate will never reach 0,” is a common phrase among realtors, and for good reason.
Real estate is a great investment because it is an investment in a hard asset. Hard assets are much more resistant to fluctuations of the markets place. They have an intrinsic value that can never be taken from them.
It has been touched on a bit in the previous section, but investments in real estate, especially overseas real estate, are incredibly stable. Due to the intrinsic value that hard assets like real estate possess, you’re unlikely to find yourself “taking a bath” on a real estate investment. In addition, real estate prices are much less susceptible to fluctuations than other financial assets, such as stocks.
Overseas real estate provides another form of stability other than financial. Let’s call this personal stability. Owning real estate overseas provides you with a place you can go to if ever the need should arise. It can act as an “escape hatch” for you. In many cases, owning real estate in a foreign country can be the first step to obtaining residency there. This again adds to the “Plan B” appeal of owning real estate overseas.
Overseas real estate is also a stable investment in terms of personal liability. Real estate is one of very few financial assets that does not need to be reported under FATCA, a recently enacted law which allows the IRS to keep tabs on almost all financial assets a US citizen owns, even if those assets are not within the United States. This only applies under certain circumstances though, so consult a tax advisor to get the most out of your prudent investment in overseas real estate.
Finally, owning overseas real estate is a good move financially. Think about the gains you make from an investment in stocks. Capital appreciation and dividends are what you get out of it. For most stocks, however, the main appeal is the capital appreciation, with dividends being more of an “icing on the cake.”
Now think about the gains you can make with overseas real estate. You will certainly see capital appreciation, especially if you buy into a growing market, such as Nicaragua. But you can make money in another way from overseas real estate. This can come from renting out the property. Rental income on an overseas property can be an excellent way to make extra money. And in most cases, the money you would earn in rental income will be more than the money you would earn from dividends of an equivalent investment.
Speaking of rental yields and above-average returns, the rental market in foreign countries is much more lucrative than in the United States. The average gross rental yield in the United States is 4.2%. Compare this to emerging international markets, such as Nicaragua which is 7.13% gross rental yield, Costa Rica which is 8.38%, and Panama which is 8.99%.
Whether it’s diversity, stability or good returns you’re looking for in your next investment, overseas real estate can provide you with all of these. If you’d like to learn more about purchasing overseas real estate, you can contact me directly here.
Michael K. Cobb is the CEO and co-founder of ECI Developments which has properties throughout Latin America. He speaks all over the world on international real estate and is a board member of the National Association of Realtors.
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