If you are considering purchasing a piece of property abroad, by many accounts, you are about to make a smart investment. Any of a variety of different Google searches will yield an endless stream of articles touting the virtues of owning real estate overseas. Of course, these accolades come with the caveats that (i) you absolutely must do your research, and (ii) you need to be smart about how you purchase and own your new international investment.
This article focuses on the second of these caveats. For our purposes, we will assume that you’ve done your due diligence – you’ve visited the country and property several times, you’ve researched the local real estate market, and you are confident (or, at least, reasonably so) that your impending purchase will meet your lifestyle and investment objectives. Now, the question becomes: What is the best way to own real estate overseas?
Owning Real Estate Overseas: Investor Residence Programs
One initial consideration for choosing the way to own your overseas real estate is whether you are purchasing only for investment purposes, or if you are considering your new property as a potential future home. While many people who purchase international real estate do so solely as a method of diversification, others do so with an eye toward expatriation on either a short-term or long-term basis.
If your new overseas property is a potential residence, several countries have investor residence programs that provide residency benefits to foreign nationals who buy real estate and invest in businesses on their soil. Some examples include:
- Ireland – A minimum real estate purchase of €450,000 (currently $509,375) and an investment in at least €500,000 (currently $565,962) in immigrant investor bonds.
- Portugal – Purchase real estate worth at least €500,000 (currently $565,962).
- Spain – Purchase real estate worth at least €160,000 (currently $181,103).
- Colombia – Purchase of real estate worth at least 215,600,000 pesos (currently $71,214) .
- Panama – Purchase of real estate worth at least $300,000.
If you are considering an investor residency program, you will need to make sure that your chosen method of ownership satisfies the requirements for participation.
Owning Real Estate Overseas: Ways to Own Property Abroad
The first option – and the one that may seem the easiest – is to purchase your overseas real estate in your own name. In the U.S., you are not required to report real estate held overseas (though you must report any related income), which makes this seem even more like a favorable option. Some countries require real estate is purchased under an individual’s name to qualify for investment visa.
However, personal ownership has its drawbacks, two of which in particular are often significant enough to warrant pursuing a different option. These are:
- Liability exposure – If you own real estate personally (whether in the U.S. or abroad), you can face a lawsuit if something goes wrong. For example, suppose the management company you hire fails to fix a broken step, and one of your renters falls and hits her head, suffering brain damage as a result. This may sound far-fetched, but it happens. While you may or may not have a claim against your management company, (i) your renter is almost certainly going to sue you for her medical expenses and other losses; and, (ii) in order to recover from your management company, you will likely have to pursue a lawsuit against it in the country where your property is located. In the meantime, you could be facing tens or hundreds of thousands of dollars in liability. If you had formed a trust or business entity, your personal assets could be shielded from this exposure.
- Lack of protection against creditors’ claims – Conversely, imagine that you run into financial trouble, and your creditors decide to go after your assets in order to recover as much as they can. If your overseas real estate is in your name, it could be subject to your creditors’ claims. Here too, this risk can be avoided by placing your overseas property in a trust, corporation, or limited liability company (LLC).
U.S. Legal Entities
To avoid the risks associated with personal ownership, one option is to form a corporation or limited liability company (LLC) in the United States. Corporations and LLCs exist under state law, and the laws governing corporations and LLCs vary from state to state. You do not have to form your business entity in the state where you reside, and some states – like Delaware or Nevada – offer certain benefits that make it attractive to incorporate or organize your LLC there instead of in your home state. In addition, certain states have particularly onerous requirements that make them undesirable choices for forming a company to hold property overseas.
As mentioned, by placing your overseas property in a corporation or LLC, you can avoid the two risks of personal ownership discussed above. However, it is important to note that lenders often have additional requirements for corporations and LLCs, and they may require you to sign a personal guaranty. Nonetheless, your new piece of real estate will still be shielded from other creditors (and you will receive the liability protections of corporate or company ownership), making this a wise choice for many foreign real estate investors.
Foreign Legal Entities
Should you form a legal entity in the country where your new property is located instead of in the United States? Maybe, but you should carefully weigh your options before choosing this path.
IRS has special reporting requirements for owners of foreign entities. Some countries have unique (and complicated) requirements, and you will want to make sure that local laws provide the protections and benefits that you need, in order to make forming a foreign entity worthwhile.
For many expatriates and investors in foreign real estate, the best option for owning an overseas property is to form a trust. When it comes to property ownership, certain types of trusts offer similar protections to corporations and LLCs, but without many of the formalities and ongoing requirements. Different types of trusts serve different purposes, and choosing the best one for your situation requires careful consideration of the benefits and limitations of the options that are available. Learn more about using trusts for asset protection planning.
Questions to Ask When Deciding How to Own Real Estate Overseas
The following are just some of the questions that you will want to consider when deciding how to own your new overseas property:
- Where (in what country) is the property located?
- Are you purchasing the property as an investment only? Or, will your new property be a potential future residence?
- What type of property are you purchasing (vacant land, condo, townhouse, single-family home, etc.)?
- Will you rent your property when you aren’t staying there (assuming it has accommodations)?
- How long do you plan to own the property?
- Will you be the property’s sole owner? Or, will you own it jointly with your spouse, another family member, or a co-investor?
- What types of tools are you currently using for asset protection and estate planning?
Are You Buying Real Estate Overseas? Contact Jiah Kim & Associates Today
Jiah Kim & Associates is a U.S.-based law firm that focuses on meeting the unique legal needs of expatriates, digital nomads, and other individuals who travel, live, and own property abroad. If you are considering purchasing real estate overseas, we encourage you to contact us about setting up an ownership structure to mitigate the risks involved. To schedule a consultation, call us at (646) 389-5065 or send us a message online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.