As globalization gets more widespread in our world today, investing in overseas real estate markets has become a lot easier.
The benefits of investing internationally include investment diversification, international protection and confidentiality, and currency diversification. However, investing in a real estate market far from home also comes with its share of risks.
Risks of foreign real estate investing
Being aware of the potential risks and how you can mitigate them will help you decide whether foreign investment is worth it. Here are some of the risks to look out for before investing in a foreign real estate market:
Higher transaction costs
Due to the unprecedented growth in real estate, Canadian policymakers recently implemented a foreign homebuyers' tax. This move aims to dissuade investors who don't reside in Canada from purchasing property to engage in speculative real estate investing. Also referred to as the non-resident speculation tax, this new tax was highlighted in a fiscal document published in November 2020. To learn more about the tax, click through to read that article: https://www.regalwayhomes.com/post/what-is-the-foreign-homebuyers-tax
For Canadians looking to purchase real estate in the US, there are other complications that you'll need to know. For example, a mortgage in the US processes in 30-45 days, whereas a Canadian mortgage can close in 5-10 days.
No matter whether you are looking north or south at potential investments, purchasing a property will not affect citizenship in either country.
Travel Flexibility
Whether you are considering a vacation rental property, a second home, or a full-time rental property, you will need to be able to access the property frequently.
If plane trips or extensive road trips are a necessity to visit your property, you'll need to consider the time factor and the cost of reaching your property when you weigh up your potential costs. Until very recently, American citizens were unable to visit their own properties across the border due to COVID restrictions. At the time of writing, Canadians are still unable to cross the US border.
For border restriction info, please read our article: https://www.regalwayhomes.com/post/the-border-is-open-now-what
Liquidity risks
Another potential risk in foreign markets is liquidity risk. This refers to the risk of being unable to sell an investment fast at any time without incurring substantial losses. It is therefore important to evaluate the liquidity of an asset before making an investment.
Conclusion
Investing globally offers investors a great opportunity to diversify their real estate portfolio, potentially enjoy a higher return on investment, and purchase a vacation home. However, foreign investment also comes with a wide range of risks. Reach out to Regalway Homes for advice and real estate investment coaching. Having a partner in your corner can alleviate the stress and get you on your way to more passive income or a better lifestyle!
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