Common Pitfalls of Foreign Investment: Buying Property

Whether you are a U.S. citizen purchasing international real estate or you are a non-US citizen who is purchasing property in the United States, understanding the common pitfalls of buying foreign property will help to ensure you are making the best investment decisions possible. To that end, here is a look at some of the common pitfalls in foreign investment that you should be sure to consider before making a purchase.

Not Knowing What You Can Do with the Property

Various zoning regulations in the United States and in other countries can impact how you can use the property as well as the types of modifications you can make to it. Before making a purchase, be sure the property can be used in the manner you hope to use it.

Choosing the Wrong Way to Title the Property

As a foreign buyer, you will have to decide whether or not you wish to put the property in your own name or not. If you choose to put a property in the United States it in your own name as a foreign buyer, you will be taxed a long-term capital gains rate of 15 percent when you sell the property. On the other hand, if you pass away while holding property in your name, you will be responsible for an estate tax as high as 45 percent of the value of the property beyond $60,000. If you are a green card holder, this tax only applies to the value beyond $2 million. In addition, as a green card holder, you can pass your assets on to your spouse without having to pay any estate taxes at all.

It should be noted that the United States does maintain tax treaties with 15 countries, which may make you exempt from the estate tax. Some of these countries include Japan, Australia, Germany, South Africa and the United Kingdom.

Failure to Obtain Actual Ownership

As a U.S. citizen purchasing property in a foreign country, you may face some restrictions in terms of obtaining actual ownership of the property. In addition, there may be restrictions in terms of where you can purchase the property. For example, you may not be permitted to purchase land that is close to the country’s international borders. Or, you may be required to purchase property of a minimum value or you may be required to build a home on the property within a certain amount of time after making your purchase.

It is also important to note that some countries and even in some parts of the United States, you may find that there are different ways to purchase property. For example, you may be allowed to purchase the property as either a fee simple or as leasehold. With a fee simple purchase, which is also referred to as freehold, you obtain ownership of the home and the land on which it sits. With leasehold, you simply have the rights to use the land, but you do not have actual ownership of the property. Rather, the person with fee simple ownership retains full ownership of the property while agreeing to let you use it for a certain period of time. Be sure to know the difference and to know which one you are buying before making a purchase.