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Buying Real Estate Overseas For Profit

18 Nov
Buying Real Estate Overseas For Profit

Buy Only What You See?

“You tell us all the time, Lief, to ‘buy what we see.’

“But at the same time, you promote pre-construction investments. How does that make any sense?” one reader wondered this week.

Perhaps I should adjust my mantra from “Buy what you see” to “Pay for what you see.”

Taken literally, “Buy what you see” leads you to conclude that you should only invest in real estate that is 100% complete, totally built-out, with all infrastructure and amenities in place.

If you’re an ultra-conservative investor or a retiree not interested in taking any chances, this safe-bet strategy can make sense.

However, the point of the advice is to help the would-be real estate investor get back to basics. To remind you of the fundamentals of real estate markets, cycles, and pricing.

If what you see at the time of your purchase is a plot of land with no improvements or infrastructure, then that’s what you’re buying…and that’s what you should pay for.

That’s the crux of the thing. Make sure that, whatever you’re buying, you’re paying a price that reflects the reality of the product at the time of your purchase.

The Real Meaning Behind The Phrase

“Buy what you see” does not translate to mean never buy pre-construction or raw land. It means to understand what you’re buying…so you can assess and accommodate for the risks…and so that you pay the price you should pay given what you’re paying for.

The trouble starts when investors forget this fundamental and are tempted into paying “something-there” prices…when there’s nothing there.

In Panama, for example, during the heyday of the pre-construction boom, people began paying prices that reflected potential values, not current, pre-built values. That’s not buying and paying for what you see. That’s buying and paying for what some developer is promising you. When you buy early, you should pay a price that reflects a discount compared with comparable completed projects.

Unfortunately, in Panama, as elsewhere through various boom and bust cycles, the developers got greedy…and the buyers, greedy, too, were led astray by promises of profit supported by claims from earlier buyers who had, in fact, bought at discounts to completed construction prices.

If your risk tolerance is low, then maybe, yes, you want to follow the advice literally. Buy only what you see. Understanding that this means, sometimes, you’ll miss out on profit opportunities. But maybe you don’t care. Maybe you’re looking for a nice place to live in retirement, and you don’t want any surprises.

However, if your agenda is more profit-driven, then you don’t want to limit yourself literally to buy only what you see. You want to pay for what you’re buying. Which means the earlier you buy, the bigger the discount you should enjoy.

Lief Simon

Mailbag

“Lief, Bitcoins can be held privately just like gold. It’s far past time you reported on them!”

M.R.

If by “privately,” you mean it’s possible to hold a Bitcoin account in your own name, your statement is correct. If by privately, you mean that you don’t have to report your Bitcoin account to the IRS, not so fast. That depends on the wallet company where you set up your account.

Use a company based in the United States, and it would likely be classified as a U.S. account and not reportable as a foreign financial account on your FBAR. Use a non-U.S. company for your Bitcoin account, and it would qualify as a foreign financial account.

A Bitcoin is not a physical asset.

Gold in physical allocated form, even if it is held offshore, doesn’t need to be reported on the FBAR or Form 8938. The same goes for real estate held in your own name—because, again, it’s a physical not a paper asset. Bitcoins are virtual, not physical, and do not, therefore, qualify as physical assets.