Real estate investment abroad: what risks? What precautions?
Investing in real estate is a safe bet. Whether it is to build up a heritage, pass on an inheritance to one’s children, reduce tax or take advantage of rental income, the French consider this to be the safest way to invest their money. Taxes and prices can push you to invest abroad. A good idea, but don’t rush headlong, at the risk of being trapped and losing everything…
The risks of real estate investment abroad
Remote management not always easy
Investing in a foreign country where you have no family, friends or acquaintances makes managing your property less easy.
Doing work without being able to supervise it and check that it is running smoothly can lead to serious poor workmanship.
Incidents of the weather can damage the roof and expose your home to the elements. Unexpected repairs and the difficulty of quickly finding a contractor to carry out the work can lead to the dilapidation of your property.
In the context of a rental investment, it is necessary to plan the search for a tenant and if you do not speak the same language, this can constitute a barrier. Similarly, in the case of unpaid rent, management can quickly turn into a nightmare.
It is possible, as in France, to entrust the management of your property to a management company or a classic real estate agency which will take care of all the tasks related to the rental of your property, from the search for a craftsman to carry out small jobs from collecting rents to selecting tenants. Of course, using these companies has a cost and it is necessary to plan for it before investing.
A disadvantageous tax
The sun, the beach, the coconut trees and the azure blue sea… In front of such a postcard, everyone cracks. But beware, if the setting may seem idyllic, investing in real estate abroad can quickly become hell.
Indeed, while some destinations are tax-efficient, others are simply money pits and you may find yourself paying taxes twice on the same property.
Investing in real estate abroad does not exempt you from paying your taxes in France and the value of the property is taken into account in the calculation of the IFI Impôt sur la Fortune Immobilière. You have the obligation to declare all your assets and all your income without exception and, if the country in which you have invested has not signed an agreement with France, you find yourself doubly taxed on the income that your real estate investment gives you. reports.
You will find the list of signatory states of a convention on the government website, it is imperative to refer to it before investing.
Legislation different from France
As you can imagine, the legislation is different in each country, which is why it is absolutely necessary to know it well before investing.
There are, for example, countries where you can own your house, but not the plot where it is located. You will end up with a property that is difficult to resell. This is the case of Thailand where foreigners cannot buy land. Some countries simply deny home ownership to foreigners, as is the case in New Zealand (except for Australian and Singaporean nationals). Investing in Mauritius is possible, but there are conditions to be met.
In short, it is important to know what you are getting into, especially since violations can sometimes be heavily sanctioned.
The risk of fraud
There are many sites that sell dreams on the Internet and the temptation to earn easy money is strong. You should always be wary of attractive “turnkey” offers that promise mountains and wonders.
These ill-intentioned individuals will try to convince you with falsified documents, stolen photos and instead of having invested in real estate on a paradise island, you will have lost your life savings.
Climate, social and financial crises
The economic situation of the country is an important parameter to take into account before investing. The case of Spain is a good example, explanations…
The 2008 crisis caused property prices to fall and the real estate market suffered a 30% drop. In this context, the financial losses can be severe. Conversely, buying a property when the market is at its lowest can also be a good deal, but it is a risk that you have to be able to assume. Indeed, the market can just as well continue its decline as rise.
Precautions to take before investing in real estate abroad
It’s a golden rule! You absolutely must go and see the property before investing, at least to check that it really exists!
As with a real estate investment in France, it is important to be aware of the general condition of the property. Photos can easily hide defects and give less visibility of the work to be undertaken.
Clearly visualize the location of the property: Is it close to shops, schools and services? Or is it landlocked between two mountains?
So many parameters that will allow you to assess the real value of your future investment and its rental potential.
You will also be able to meet potential local partners and intermediaries.
Provide financing for your purchase
With current rates, it is very interesting to borrow to finance the purchase of your property abroad. Two solutions are available to you:
- Apply for a loan in France: Depending on the country in which you want to invest, it will be more or less difficult to convince your bank to finance your project. The property being abroad, the risk is higher for the bank, which will require more guarantees, including the mortgage of real estate not encumbered with credit. The value of the mortgage must be at least equal to the amount borrowed. You will also be asked for a contribution equal to the amount of the costs, especially since the bank will not take into account the expected rents.
- Apply for a loan in the host country: It is of course possible to borrow from a local bank, however the contribution requested will be high, generally between 30 and 50% of the amount of the property. Keep in mind that you will be subject to the credit laws of the host country.
In general, your real estate investment will be easier to make with real estate located in the Euro zone, unless you know the foreign country perfectly, having stayed there and kept contacts there.
Surround yourself with competent people
Each country has its own taxation, its own laws. As a result, it is not always easy to find your way around. In order not to find yourself in an untenable situation because of an administrative oversight, a misinterpreted point of law or a bad tax surprise, it is best to contact specialized firms who will be able to warn you of the specificities and traps that await you in the destinations you have selected.
thinking about succession
This is not the thing we want to think about, but it is a crucial and too often neglected point if you do not want to leave your heirs in a difficult situation.
Regarding the taxation applicable to the succession of real estate, it is simple, it is that of the country where the property is located that applies. On the other hand, concerning the civilian, it is another story.
Within the European Union, successions are governed by the law of the habitual residence of the deceased. If you live more than six months in your foreign residence, the law of your host country will prevail, otherwise, it will be French law. Outside the European Union, it is generally the law of the host country that is applicable.
It is strongly recommended that you draw up a will designating French legislation to govern your estate.
So where are you going to invest abroad? In Europe, or on an island on the other side of the world?