Today’s interview is all about investing overseas with LifeandInvestOverseas.com Editor-in-Cheif Lief Simon.
Lief has purchased more than 50 properties, investing in 26 different countries around the world. Lief has more experience buying and profiting from real estate around the world than any other individual investor you’re likely to find.
In this conversation we talk about the process to purchase international real estate, due diligence checklists, pitfalls to avoid and things to keep in mind (such as 10% Transfer Fees or 10% RE Agent Fees) when investing overseas, some potentially interesting RE markets like Brazil or Portugal (some of my favorites), and other options for RE exposure such as Hard Money or Agriculture investments.
This episode is packed with knowledge to get you started investing in international real estate. Enjoy!
0:00:00 Welcome and context
0:04:36 How did you get started with investing in international real estate?
0:05:36 What other countries you’ve invested in?
0:08:40 The process of deciding to invest overseas
0:12:50 How to start investing in international real estate?
0:19:14 What are some of the red flags for you not to invest in certain countries?
0:25:24 What other risks you see with investing in other countries?
0:32:18 Transfer fees, taxes and other expenses awareness
0:36:23 Property taxes
0:38:26 What is the impact of the zoning rules on the value?
0:40:45 Additional risks of buying international real estate
0:44:31 Disadvantages of international real estate over domestic real estate
0:47:06 Are there any tools that can organize international real estate markets?
0:48:50 How and where COVID-19 has created real estate opportunities?
0:53:47 What is hard money lending?
0:59:19 What is turn-key agriculture investing?
1:03:31 Where can people find out more about you and live and invest overseas?
Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available yo the everyday investor.
Here’s your host Ben Lakoff.
Welcome to the alt asset allocation podcast. Today’s interview is all about investing overseas with living invest overseas.com editor in chief.
Leaf Simon at live in invest leaf is the revenue real estate investing offshore diversification expert. And he’s also the editor of offshore living letter leaf has purchased more than 50 properties investing in 2016 different countries around the world. He has more experience buying and profiting from real estate around the world than any other individual investor.
You’re likely to find for me as an avid traveler. Lived on four and a half continents account. The middle East is half a continent and traveling to 80 plus countries. I love all of the live and invest overseas.com content.
We could have talked for hours. This is something I’m very interested in, but with this conversation, we tried to stay on topic with the due diligence required before purchasing a property.
So what are you looking at? What kind of countries, what different factors should you be thinking about before. Investing in these countries, then the pitfalls to avoid you do make these investments. So thinking about transfer tax, which can be up to 10% thinking about the total round trip costs.
Sometimes some countries, the real estate agent fees are up to 10%. Then you, the additional things like rental income tax capital gains, these are all tricky things. And we talk about how to think through these and what to look for. Before entering a new market. Then we talked about other options of different ways to invest in real estate overseas.
So things like that, hard money loans and a place like Panama looking at 23% for a two year lockup. So about a one year percent per month. And this is hard money with a reputable lender or something like agriculture investments throughout central America. Before you listen, please don’t forget to like, or subscribe to the podcast.
If you like the content, I would also really love a review on Apple podcasts. All of these things really help people to discover the podcast and keep this content coming after this interview, I’m really ready to take the plunge. So this is something I’ve tiptoed around with for a number of years. But in this interview, we talk about FX rates.
So all the other things that you need to keep in mind and I’m really think at this point, I’m actually ready to take the plunge. So come on beach house. Here I come. Please enjoy this conversation with leaf Simon on all things investing overseas, leave. I’m really excited to have this conversation.
I’ve been a reader of living investor, overseas.com for quite some time now, excited to have you on and share your knowledge. So welcome to the show Lief.
Lief: [00:02:59] Great. Thank you.
Ben: [00:03:01] Yeah, we chatted a bit about this before, but you know, my, my audience is looking for investments outside of the publicly traded markets.
So with living invest overseas, you guys produce a ton of good content about purchasing a home overseas, renting it out, getting some rental yields, all of these things. So I’m really excited to dive into all of these topics. You have a ton of great content blueprints, guidelines on how to do this. Do it strategically and, with an, your investor hat on, but I’d like to start today.
I mean, now you over 50 properties in 26 different countries. How did you get your start and investing in internet real estate?
Lief: [00:03:45] Oh yeah. Well that was just a serendipitous, I guess. But I always liked real estate and always had this idea of living overseas. And when, Kathy and I met, it was on, we were on a tour in Ireland together, and I was thinking of moving to Ireland.
of all things, I was going to open up a pub. And if you knew me better, you would laugh at that because I’m not a huge people person. I couldn’t stand behind a bar and talk to people on the pump. So that was, that was not a good idea. but she was moving a business over to Ireland. And, so I moved with her.
I actually was going to do a project there and, it didn’t work out a real estate project. And so just started helping her with that business, which was the same genre of what we’re doing to live in, invest overseas. I started looking at real estate. So, my first purchase overseas was in Ireland, the house that we lived in.
but my first investment was in Spain on a pre-construction deal that, talk about at our events, because it’s the only time has happened for me. And the only time I would think that if anybody’s ever told me their stories about buying preconstruction, that it went perfectly textbook. So, yeah, bought at the right time as the developer launched, the developer sold the property for me, two months before completion.
So I didn’t have to come up with the rest of the money and everything in between worked out very smoothly. and so from there it just kept buying more real estate as I was doing more research in different countries.
Ben: [00:05:11] Nice. And as an investor, that’s always very dangerous, right? For your first big investment to go perfectly.
Lief: [00:05:17] Right, right. Cause you, you kind of walk around with this and that’s the way it’s supposed to happen forever. I pick these winners all the time. You started in
Ben: [00:05:27] Ireland. then your first investment was in Spain. What are the other kinds of countries you’re investing in right now?
Lief: [00:05:35] Well, we just serendipitously serve typically as a word, sir. we bought property in Portugal in 2015 trip there, which was more or less the bottom of, of the Portugal market as it was recovering after 2008, we sold it last year. it had more than doubled in value in four years and then COBIT hit. And so I think the Portugal is going to be a place to look again, not now according to my contacts, but maybe, early next year, all mortgages and, And rent payments are on hold until next March.
And at that point is when the extent that people will be forced to sell, and prices might get softer than they are now. So, that is one place I’m looking Portugal. Brazil, Panama has always on our list in various ways. A big part. Yeah. When people ask me where to invest overseas today, the first question the guys said, well, what do you want to invest in?
What fits in your portfolio? so I talked about agriculture to our readers. short term rentals right now are probably not going to get you any yield since the airplanes are shut down. But, something to always look at and be prepared right now, looking at markets that are going to recover more quickly from tourism than others, perennial markets that are always.
Always good. I think, you know, the Playa Del Carmen market in Mexico, it’s always gonna be relatively strong because it gets Mexican and U S tourism. So you don’t, you’re not always relying on just the Americans, which can be a dangerous thing. If the U S economy has a hiccup or something happens. So there’s, there’s, there’s plenty of options.
It’s just, what is, what is it you’re looking for to fit in your portfolio? You’re looking for cash flow. You’re looking for longterm. income for your retirement, or are you looking for a combination of appreciation and, current cash flow, those kinds of things
Ben: [00:07:29] that makes a lot of sense. I’m a big fan. I speak Portuguese. I live, lived in Brazil and Portugal, so I actually went down the rabbit hole of. Looking at properties and Portugal also very good Intel, March, 2021 L a I’ll start putting that hunted my, my calendars to think about it because I know they were a little heated, but there’s still, much lower than a lot of other places. First step in purchasing real estate. Okay. Overseas is, it sounds like the why. So I love this country. I want to spend my summers there every year. Yeah, two, this is a great investment. And this is the primary reason.
Walk me through the process that you encourage people to take when they went, you know, I have, I have money saved.
I know that I want to make this investment overseas or walk me through the process that somebody should start thinking about.
Lief: [00:08:26] Yeah. So for me, I’m more about the numbers. but. If you want to think about it on, on a scale of pure personal use and pure investment, and where are you going to fall on that range of it’s more about being a second home and you’re just be happy with whatever income you can generate when you’re not there.
Then you’re farther over here. If you’re really, you know, I don’t care what the property looks like. I’ll stay there when I’m there, but I want a good return then you’re farther over this direction. and, my wife Kathy would say buy a place that you are comfortable. Being in and where you would like to be, because then if the investment side falls apart, you never able to rent it at all.
For some reason, you own a property that you’re happy to use for, for yourself. And we’ll probably like to be able to more easily sell as well, because it’s a, it’s a property that someone else will like. So. That’s that part of the process from an, from a numbers perspective. I want also, you want to be, you want to be interested in going to the place so that you can, you’re happy to go to manage your property and check up on it there, know, I’m sure you can find great real estate opportunities in Mongolia.
You could, years ago they were high yields and things like that. You’re not going to go check up on your, on your property. So it’s either gotta be pure investment and. Find somebody there to turn key management for you, or look somewhere else. So that’s why, a lot of Americans, when they first looked to buy overseas that, you know, Mexico is next door, central America is easy to get to.
so they start there and properties are cheaper. So you used to be able to find a lot of properties for under $50,000 and, in places like Belize and Panama and elsewhere, but. Now your threshold for something that’s decent, you’d be lucky if you find something under a hundred thousand dollars and that’s part of the processes as well.
What’s your budget because you’re not likely to get financing overseas. Most countries, you’re not going to get financing. The countries that you may get financing. Might not be worth the time and effort to deal with it. so you start with your budget and where you like to spend time and see what’s what’s there.
from my perspective, as a real estate investor, look looking in dozens and dozens of markets over the years, including the U S you can find a great deal anywhere, great investment anywhere. If you spend enough time, But where do you want to spend that time?
Ben: [00:10:47] Yeah, that makes a lot of sense. I think, in clean and said, you know, what kind of window do you want to wake up to?
What kind of view do you want? Right. And that, that kind of stuck in my head of, Oh yeah, that’s right. Do I want mountains? Do I want desert? Do I want beach or, or whatever? and interesting thing is I, I just went down to Baja, Mexico, not too long ago. And there’s. Gigantic billboards along the main highway there that say Elena Waymo, Sueno, Americano, which is the new American dream own an apartment in Mexico.
Right. So they’re just cashing in on this, way cheaper than the US although it’s, you know, at, multiple. Of what it was 10, 15 years ago. So I think for my listeners, it definitely, for me, I’m somewhere in between think about financials and everything I do. So I can’t just ignore, ignore that aspect.
But like you said, I mean, I don’t want to buy a coastal beach front property in Somalia because it’s not a place that I want to go visit two times a year for the next 30 years, finding that sweet spot of this is a place that I, I love, like something like Columbia. you know, the people are really nice.
The government is semi stable, but it still has that potential for a high yield. Good investment, both in appreciation and rental yields, walking through the whole process. How do you start looking for international properties? Do you say I love Columbia because it takes this box. Now let’s go make sure the numbers check out.
Where do you find this information? What, what does a walk me through brand new person? I want, I have cash. I don’t care about the financing. Let’s go buy an international property. What do I need to do?
Lief: [00:12:30] And yeah, so. The first thing is educate yourself and, and pick and pick a market to focus on. And I’ve been doing this so long that, I mean, a lot of my process is just, is automated.
But when I, when I go into a country, a new country, where I’ve never been, so we can go back to my first experience in Colombia, which was about 10 years ago. And we bought a property there within 12 months of our first visit. I think. But we went to Metagene that was recommended to us by, some of our friends and a couple of readers as the place in Columbia.
So we went there and fell in love with it. It’s perfect. Beautiful than the other places. Since in Columbia, that just don’t match up to Metagene from our perspective. and, and started just walking neighborhoods, which gets you some looks as a, you know, six foot, two white guy walking around in Columbia.
They didn’t understand why we get these tall as well within their STEM. Why we were there. But just to get a feel for the place and the neighborhoods and see, you know, from a safety perspective, do we feel safe from, amenities and stores and things like that? Where are they? How’s the city laid out. And so we spent a day or two doing that.
Then we contacted a couple of real estate agents and I speak Spanish well enough to, I’ve got one Spanish speaking agent, but for our readers, we always try and find, you know, of course, English speaking, People agents and attorneys and things like that, and started looking at some properties on that first trip, just to get a feel for the market.
And that’s one phrase I use for readers, which is, be in the market. So don’t just. Do internet research, go to the market, look around, see what the prices are on the ground. Because typically if you’re finding something on the internet, that’s, in English, that’s the worst price. I’m assuming that the local countries language isn’t isn’t English and believes they speak English.
What you’re finding on the internet, maybe a decent price. but if the real estate agent, speaks English and is advertising on the internet, you’re getting, if nothing else, properties that are higher priced because they may value maybe they’re, but they’re higher price because the assumption is that foreigners have more money to spend.
if you, so you can find a $50,000 apartment, I think, and Metagene maybe not in the high end neighborhoods that we talk about, but certainly if that was your goal, you could achieve that. so find real estate agent speaking, the local language helps. Then the next step is to find a real estate attorney.
I’m always asking for referrals and got one in Metagene within the first week and met with him before we left on that first trip. And I think we made two or three more trips before we got serious and, and did our, our normal search for a property and bought something that we ended up renovating in that case.
But that gets back to lifestyle versus investment. I found a property that would have been just pure investment. It was not a place that Kathy would ever spend the night in. I might not even really want to ever spend a night in, but it was going to make cash flow. she wanted a place that she would spend time in.
So we bought an apartment that was needed to complete gut renovation, which is the best kind of renovation to buy. And we renovated it to a level that we’ve only rented the place out in. Eight years or nine years, however long we’ve had it for two months, because the first people who rented it like to cook, they scratched my nice wood countertop and like no more, no more renters.
I’m not going to have damage to the property. So that one is a pure capital appreciation play. Plus we use it when we’re in we’re in Metagene and I should sell it and put the money into something that’s cash flowing. But, I just liked the property too much. So this is the danger of, of buying something that you, have emotional ties to that you’re wanting to be an investment as well.
and so that’s how we enter a new market first, get a feel for it. So then I, so when people start telling me things about neighborhoods and stuff, I can make a reference for instance, see if they’re telling me the truth or exaggerating or whatever, and whether I want to work with them or not. And then just keep asking for the next referral, the next referral, and, decide who to work with from there.
Ben: [00:16:45] So, I mean, what the most common mistake you see when somebody determines, okay, I want to buy something in Columbia. I want to buy something in metagame is not going there, walking around and talking to people. Is that one of the most common things or just me with my lazy tax thinking, I can find everything online.
Lief: [00:17:04] yeah, I think. W I highly recommend, visiting a place and visiting a property before you buy it. Of course, I bought properties, actually home properties that I’ve never seen. so you know, it grills for myself. And then if I’m going to break the rule. I break it knowingly and do more alternative doodles if you will.
So if you’re not going to go to the place, then do you have friends who might go to the place based, or have someone there locally who can at least look at the property for you? Those kinds of things. But definitely boots on the ground to use an overused phrase, is, is always good. And if you speak the local language, internet research is, can be much more telling than again, doing the research in English.
So when I go to look for current property prices and Metagene just to talk to our readers and, update things, I’ll do a search in Spanish and see what prices, I can find. searching more like a local, which is going to get you more the local pricing. Makes sense.
Ben: [00:18:07] Well, good. No, so I have a built in excuse to go visit all these fun countries that I want to visit anyways, the rest of my life.
Right. Perfect. and then in terms of like research with I just, so every country has different laws or. Title, property rights, taxes, all of these sorts of things. What is, what are the red flags? No, go, no matter what, what the cap rates look like or the investment perspective of, of like governmental landmines that you try to avoid.
And they could be real landmines if you’re in a place like Laos or Cambodia, I guess.
Lief: [00:18:44] Yeah. There’s still some areas and Eastern Croatia. I think that, It would be no go for landmines as well. I’m crazy. It’s true. Because we talked about don’t have, many, if any, property restrictions it’s usually like Mexico, you can’t own within 50 kilometers of the coast, unless you own through a feed can be.
So, but still many Americans think that you can’t own property at all period of Mexico, but outside of that 50 kilometers of coastline or a hundred kilometers of a land border, you can own. Freehold title in your name in Mexico? other countries have similar, like Nicaragua’s five to 15 kilometers of, of the land borders.
Panama’s 10 kilometers land borders. Most of the time, those are places you’re not gonna be looking for property. Anyway, South America has some restrictions on agriculture land. Brazil is probably the worst defender there, Argentina as well, but again, most people aren’t going to be going to buy, agriculture land, and in most countries.
So from that perspective, Yeah, foreign ownership is, is fairly straightforward. Croatia. You have to have reciprocity, your country has to have reciprocity with Croatia. So, that’s one hiccup we found when we bought it and Croatia was that they actually wanted a letter from the last state we lived in, in the U S which for me was Illinois staying saying that Croatians can own property in Illinois.
Well, You’re not going to get a letter from the secretary of state of Illinois stating that, fortunately at the same time we were buying that property. We, we’re in the process of getting our Irish citizenship. So we just switched the contract to our Irish passport once we had titled it that way.
But. There are always other options, like going through a corporation specifically of what properties not to buy, in Mexico is it Hito land is what it’s called. And this is where, you know, when you see the internet people saying, Oh, no, I know a friend who had his land stolen by the Mexican government.
Well, it wasn’t stolen. He never actually had. Proper title to it. And he was taken by the developer who sold it to him. that’s his problem for not doing due diligence and hiring a proper real estate attorney and the U S you don’t usually use a real estate attorney for most transactions, unless you’re doing a commercial transaction overseas.
We highly recommend it. You don’t need it necessarily in all countries, but we highly recommended as the real estate attorney. Who’s going to do the title search. No in the U S there’s so many safety nets. If you’re getting a mortgage, you know, the bank is going to hire the title company, title company is going to do the search.
The systems are very well laid out other countries, not so much. So you need an experienced real estate attorney. to do that search for you. So you’re not buying a heat of London, Mexico, or cooperative or land in Nicaragua that may have had, title issues that, but the real estate agent isn’t going to necessarily tell you about it.
Cause they just want to sell you the property.
Ben: [00:21:29] Yeah. The biggest risks then to investing. I mean, a lot of people think that, the government taking my land, but it sounds like a lot of that is, is. Is avoided. If you have a good real estate attorney that does the title search correctly, and you find those people from, referrals, you know, but if you show up in the country, I mean, talking to a real estate agent, he’s he, like you said, he’s just trying to, or she just sell the land, right?
Lief: [00:21:58] It is. And in central America, frankly, yes. It’s the gringo real estate agents. The ones from North America that are usually the ones to watch out for most. we knew one in the garage would years ago would tell us why do you keep telling people to check the title? That’s just, that’s just slows down sales, right?
Yeah. We didn’t deal with him. but yeah, they’re there and there’s the other side of things is that there’s not licensing required to be a real estate agent in most countries, in fact. and so. So the guy you’re dealing with may not know anything about real estate. At all, probably especially if it’s a gringo real estate agent may not know anything about real estate in the country, who’s selling it.
And at a conference years ago, I was upfront explaining this to people and say, you know, the person may have been a travel agent in Florida three months ago and moved to Roatan in Honduras and started selling real estate. And I saw out of the corner of my eye, somebody get out and storm out of the storm, out the back.
They made a big fuss about enough to hear from the front of the room. And when I. I got on stage, the conference manager came up and said, we’ve got, you’ve got to go apologize, apologize to him and who I didn’t offend anybody on stage half that I’ve done that I’m used to offending people, but not while I’m giving a presentation usually.
And tell me about the well sell and sell from such and such real estate agency from, from real time or paid literally was a travel agent three months before and had moved to proton and started selling real estate. He had no idea about real estate period, Roatan. And so how can he advise someone for buying property and relative time, what the, what the things are to look for in title, how contract should be put together and that kind of stuff.
So you want to be there, there are good Rick gringo, real estate agents, and, central America, we work with, with several, but you want to make sure you’re working with someone who has experienced, and if they’re new to the country, at least they have experience in real estate. So they understand, you know, How to look at things and how to analyze pricing and things like that.
Ben: [00:23:59] Yeah. That makes a lot of sense. I mean, another big risk in my mind is that you’re, well, obviously you’re investing in this other country, you’re investing in their economy, you’re investing in their currency in the longevity of this nation’s state. I mean, how do you think about. So I choose Columbia. I choose Modine.
I find my real estate attorney and I’m walking around, but then, you know, I’m Colombian peso, is it? But, so I’m, I’m exposed to the Colombian economy, the Colombian peso, it’s driven a lot by tourism, I would imagine. So COBIT has this negative impact. So, I mean, how do you, how do you think through, ethics risks and things like this when investing in other countries as well?
Lief: [00:24:43] Right. So, right. So Columbia peso has actually, devalued since the COVID thing, a good deal. It’s recovered a little bit. And in fact, since we bought, in 2010, it’s gone from call it 1800 to. Calling now I think 3,800. So I lost more than half. Wow. Yeah. Yeah. My property is still worth about double what I paid for it because local appreciation has been so strong because the local economy and the growing middle class there.
So sometimes, you know, currency risk is, is never predictable. sometimes it can go in your favor sometimes not. So I focus on that’s another reason to buy and places where you want to spend time. In fact, one thing we, we talk about with our readers is so if you want to spend time in Columbia and be there part time, especially when you rent out your place, you’re can earn Colombian pesos.
In fact, a lot of rentals, print and dollars in Columbia, but just stick with the imagery, granting Colombian pesos. And then when you’re down there, you’re spending Columbia pesos. So you don’t have to worry about exchanging your, your lifestyle dollars. you can spend your pesos, whether the peso is up or down or sideways.
we do that with the Euro in Europe as well for our European, cashflow properties. That money just goes into a Euro bank account and we can use it, for cost of living when we’re spending time in Paris. So as one way to think about the currency, Risk is to mitigate it by, I want you to spend time there and spend the money there on the capital side.
It’s, you know, it could be a bigger risk if you wanted to sell and then move that money back into dollars too. Yeah. By something else. but yeah, longterm real, you know, real estate is longterm investment longterm. Currencies are impossible to protect. So you can just gotta be comfortable with that risk and be open to the idea of just doing it for diversification.
which is, which is a big part of why we do it. The other risks, you know, country risk is, is relatively low. It governments, aren’t going to take your property unless, you know, unless you bought big swaths of agricultural land in Venezuela. 20 years ago, then you might’ve been eminent domain of course is possible.
So it’s, it’s, ignore the risks that they’re, that they’re already comfortable with. and we talked about safety, you know, people feel safe in environments where that they’re familiar with. so you know, somebody living in South Chicago may actually feel safe, even though it’s one of the least safe places in the world right now.
But they might go to, you know, the safest neighborhood of Paris and not feel safe just because they don’t know their way around. So a lot of that is just, in your head, as far as I’m concerned for most people, then the market risks are the ones to really pay attention to. So you’ve talked about, tourism in Columbia and right right now the short term rental market is zero across the world.
so where are the tourists coming from? That’s one thing to take a look at. I mentioned earlier, not part of our, to sorry, the other side of the title, Carmen, where they get a lot of Mexican tourists and us and Canadian tourists. So over the years, that market has evolved to being totally reliant on the U S to the growing middle class, Mexicans taking vacation there.
and so you’ve got two markets now that you’re less concerned about market risk, whereas the rentals in Spain. Are mostly Brits and Northern Europeans. And if they stop coming then that, so it’s Spain. What happened to Spain in 2008, 2009. And there’s still, some markets are recovering from that. So, did I cover all the types of risks that you asked about?
Ben: [00:28:20] kind of, yeah, no, I, I mean right. If, if we knew how to manage FX risks, we’d just be making millions and billions of dollars in the FX markets alone. Right, right. It’s pretty, but I, there’s more like, you know, major factors that you’re looking at before going into a country. So a big part. Are you willing to spend time there?
I love the just conceptualizing. Okay. I’m earning rentals in pesos. It’s going into my peso bank account. I’ll spend it when I’m there because I love the place anyways, that that really, resonates well with me, but thinking. You know, am I looking at GDP growth, population, job growth, mineral water rights, or availability, tourism, sources where that’s coming from, what percentage that’s making up of the GDP.
What key factors are you looking at here?
Lief: [00:29:13] So for the properties that I look at for short term mental, What I would look at is where are the, where are the tourists coming from? Sorry, is there a local tourist market or a foreign tourist market or both preferably both. and then where are those tourists going?
And it is in a market that I will be able to, what was the resale ability fees? And what’s the liquidity. The real estate is not highly liquid to begin with, but an apartment in a good neighborhood and managing is more liquid than a farm two hours outside of managing. For example, and the farm may have good agricultural income, but it’s not going to, you’re not going to be able to sell it and quickly if you need to sell it.
And then that gets to one of the biggest things we’ve been paying attention to on that side of real estate. The last few years is the, is the growing local middle-class. So Columbia has it. Brazil has it. Panama has it. In fact, Panama had a big boom with Americans going down there after the canal was turned over.
Then they had a follow on boom from Venezuelans and Argentinians and Colombians buying property there. And when all of that kind of settled out after 2008, The local developers were able to start selling to the Panamanians beach houses, to Panamanians because the growing middle class, and there’s still a deficit of local housing, which we worked with some guys who do hard money loans down there.
So there’s different ways to get into markets. You know, short term rentals is one. Agriculture is another, it’s kind of hard to have local hard money loan offerings is yet another. So. Part of what you’re going to analyze is what part of the market are you planning on investing in?
Ben: [00:30:55] You have an excellent episode, number 24 on your podcast. live in, invest overseas podcast. That’s all about your due diligence checklist. But one from there, you know, is how do you think about taxes? So rental income cap gains, and then additional, Transfer costs and things like this with which vary wildly from country. I mean, you just model this in to whatever your investment you’re making.
Lief: [00:31:24] Yeah. You gotta, you gotta run some math and right. The biggest thing people are surprised by when buying overseas are the, are the transfer taxes. So not every country has them, but most have some sort of transfer texts. And I’ve just updated. In fact, some of the data sheets that are on the website for the, for the new book, how are the transfer taxes calculated, as well, but transfer taxes can range between one and 10% and that affects your budget.
So if you’ve got a hundred thousand dollars and transfer tax or 10%, you’re not buying a hundred thousand dollar property, you’re buying, you know, a $91,000 property or whatever. So you want to factor that into your, your buying up front budget. Do you want to look at the total round trip cost when you’re buying?
Real estate agent fees can be high in some countries, as high as 10%. And again, used to use proton and also, for certain types of properties and believes they can be low in Columbia. It’s 3%. So you want to understand that’s? I think the rat, the Columbia is probably the lowest total round trip, costs, for a country that I can think of off the top of my head.
And then the. There’s rental income tax. How is that if some of your renting, how is that assessed? some countries like Portugal, the rental manager is obliged by law to withhold 25% of your gross rental income after the rental management fees. So that’s how it worked for us, for Americans. you’re going to report that income on your us tax return, but you’ll get a tax credit for that 25% withholding.
so. You’re going to pay taxes somewhere as an American. It was just a matter of who gets to keep the money. And what kind of credits you get on your tax? Extra turn capital gains taxes are another tricky one and country by country. Some countries have low capital gains tax. And the other thing is with Texas, the rules are always changing.
So when we first started going to Columbia, their capital gains tax was 33%, which. Bothering me at the time, but I thought it couldn’t stay 33% if they want foreign investors. And sure enough, about four years later, they switched to 10%. So right now that’s the cap against tax in Columbia. Other countries have slowly.
Disappearing in capital gains tax on real estate, Frances. the one I know best since we have property there, open one, France has two taxes on capital gains. One is the actual tax and one is social charges. French love their social charges. the tax disappears after, 22 years. And the social charges disappears after 30 years.
And it starts declining after the first five years ownership. So that’s more information on tax. You probably want it in your head right now,
Ben: [00:34:09] but I mean, these are significant numbers, right?
Lief: [00:34:12] I mean, kind of look at it country by country. And again, remembering that as Americans, even if you’re not living in the U S you’re going to be paying, you know, reporting that income and paying tax to uncle Sam, if you’re not paying it to someone else.
So if you’re paying 10% in Columbia, And you’re in the 20% bracket in the U S you’ll pay another 10% to the U S when you sell that property
Ben: [00:34:32] in Columbia.
Yeah. And I’ve, I’ve had a whole nother episode, just all about the foreign earned income, exclusion, FEI Yi, and flag theory. So this is, I mean, with diminishing returns, going forward, taxes, transfer costs, all of these additional.
Fees and things really eat into, into your, your net return. So it’s something you have to be aware of. The one other thing I was thinking on there is property taxes. Are they vary wildly, obviously?
Lief: [00:35:02] yeah, and there’ve been, and most countries they’re going to be much cheaper than they are in the U S and I found out where I am right now in Northern Illinois at my mother’s house.
The real estate agent told me it’s either the second or third. Most expensive property tax County in the U S because I saw our property tax bill and nearly had a heart attack. she’d tell you it’s more in property tax for her not highly valued house here in Illinois. I think that I do for both of my properties combined in Paris.
So that gives you an idea, French leather, social charges, but on the property tax side, it works out too, less than half a percent of the value. And that’s the other thing would probably be in Texas. How is property power? Property taxes calculated in many countries is on what’s called the the pastoral value and the catastrophe value is going to be much less then the real value of the market value.
and believes for example, you know, the, the property tax is, there are, you can, you can pay with a change in your pocket in some cases. And so when people buy property and believes, I recommend go down and pay, you know, 50 years of property taxes in advance, because the gas to go drive and pay it in a person, what you have to do, is it’s going to cost you more than your one year’s worth of property taxes.
So it can be. Tens of dollars and Panama has probably the most relevant in the middle example, they recently changed their property tax rolls and it works out to more or less about 1% of the, of the sales value. Okay.
Ben: [00:36:39] And then other, other big risks would be, understanding zoning rights. So in one of your episodes, you talked about, you know, they just put a meat market next door because they can, and it’s nightclub right next door, which significantly changes the.
The deal that you thought you were getting into. So I would think zoning zoning rules are something very important to think through. Is this something the real estate agent can help with?
Lief: [00:37:07] Or where do you go state attorney? You could ask those questions and it’s mean we use it as an extreme example exit, and that examples from Ecuador, it actually happened.
The night club thing happened to a friend of ours. it’s going to be the more third world countries that are going to have these. These lack of these backup zoning things, but also if you’re buying in a gated community, what are the HOA rules or are there HOA rules? And we know, project in Panama, for example, that in fact there was nature way, but they didn’t have any restrictions on what you could build.
And so literally there was a glass house with the colonial Spanish style house with in the next lot over was a TV. I think the TV was purple. That has an effect on property values. So you want to, you know, if you’re buying in an HOA, you definitely want to look at those rules and understand those for the city rules, for zoning, your attorney should be able to help you with that and do want to ask what can anything in my neighborhood be turned into a commercial property that might devalue the property value.
Ben: [00:38:11] And with HOA, I mean, It almost sounds like it would be an advantage to be in a neighborhood that has an HOA it’s an additional cost, but it protects you from, you know, that TP next door sort of thing. Right.
Lief: [00:38:25] Right. But the HOA also provide services. So, you know, and, and believes you’re paying, we’ll call it $10 a year in property taxes.
And what do you get for your $10, you know, about. $2 worth of services. So, you know, the roads are often in disrepair and other issues with just the general infrastructure and beliefs. If you’re in a gated community, that HOA fee is going towards maintaining that internal roads at least, and keeping up.
Yeah, with the landscaping and all of those things. So a lot of people look at HOA fees as just an expense. I look at it as just a, an additional property tax that is going to help you maintain your property values. Okay. So
Ben: [00:39:08] we’ve, we’ve talked through a lot of the risks and the gotchas and the potential pitfalls.
Are there any other ones that we’re missing here that are screaming at you?
Lief: [00:39:17] Nah, screaming at me. No. And it’s going to be the, it’s going to be country by country or location by location. one, one thing is if you’re buying, if you are buying for short term rental, make sure you can rent short term. And there are city, ordinances, you know, Panama city, the hotel groups and Panama city and in Columbia, Got the laws changed.
So that in Panama, you can’t rent within the city limits, short term for less than 45 days because the hotel occupancy rates were going down because they were building too many hotels. So that’s one thing to pay attention to in Columbia is it’s less than 30 days. in Paris, the apartment that we still have, that we live in when we’re there.
when we moved to Panama, our plan was to just rent it short term. And we did that for the first year until our Cindy, which is the local HOA. You know, they join for the, the building, send us a lovely letter. You know, the French were always very polite and letters, saying, please stop renting short term because it’s not allowed it’s in the Cindy group specifically that is not allowed, but we didn’t know that.
And it was easy enough to switch to longterm that worked out better for us. Anyway, as it turns out, and we still snuck in a few periods of short term, anyway, but, But check the building rules, check HOA rules to see if you’re going to be able to rent a short term without any problems. I mean, if you want to fight with the administration, you can go for it, but it’s easier to then just buying a different building that will allow you to rent short term.
Ben: [00:40:44] And the important thing there is, these things are constantly changing, right? I mean, you buy in this particular area because it’s, that door can slam shut as. Quickly as you thought it was open, right?
Lief: [00:40:57] Yeah. I bought in there and Airbnb has changed a lot of rules in a lot of places as well. in some cases for the good and some cases for the bad, I think Airbnb is probably the main reason that our, rental yield in.
And Portugal went down each year for the years that we owned the property. and that’s why we sold in the end because the value of it more than doubled and the rental yield on the original price had gone from 8% to 5%, 5% net is still decent, but not on the new value. So. Yeah, the Airbnb is a double edged sword from, from my perspective, but in places where there, the forcing the government to crack down on people who are not licensed to rent, for example, that’s a good thing.
Governments who have had to. Yeah, step up the game. Yeah,
Ben: [00:41:45] that makes sense. I mean, Airbnb is, is drastically changing rentals throughout cities, all of this stuff in Portugal’s a perfect example, right? I mean the minimum wage is like 800 euros per month. And the average rent in a downtown Lisbon is over a thousand.
And then the short term rentals. 2000 right
Lief: [00:42:06] now, these numbers wait long term. Yeah. The long term inventory. Yeah.
Ben: [00:42:10] They also had, another, person, Matt bowls on the podcast talking about single family rentals in the U S and, the tax advantages that from an investor standpoint, real estate is the most tax advantaged asset class in the U S I mean, you can write off all of these things against your income, and it’s very, very, It’s advantageous for investors. And some of these more prominent us investors there. This is their argument against investing overseas. You don’t get these tax advantages, you can’t access credit. So you’re not getting the leverage. You also, you can’t do a HELOC, probably an unlock, the house value value, probably not. So what other, what other disadvantages along these lines do you see with international real estate investment?
Lief: [00:43:00] Well, the main one is lack of financing. bank financing is available in a few countries, handful of countries as a nonresident foreigner. You’re not going to get remotely the same terms as you would get in the U S maybe if you can get a financing is going to be a good looking at. 80% loan value at best, but probably, you know, 60 to 70% loan to value.
And you’re going to have to get life insurance. Most countries, most banks in most countries require a local life insurance policy. So that’s an added expense and right refinancing to pull cash out is painful. I’ve actually tried it in France and then laugh at me outright, but basically said they weren’t interested in.
And in doing that, but from the tax advantages, other than that lack of financing, which then you’re not able to write off the interest, you’re not paying, the depreciation is slightly different to depreciate over 40 years instead of 27 for a foreign property. but you can still write off the depreciation.
You can write off all of your expenses and you can write off that those two trips a year, you’re going to check on your property. So, you know, you’re going to fly down to Columbia and spend a week there meeting with your rental manager and checking your property and making sure that there’s no repairs that need to be done.
That’s an expense towards that property because that’s why you’re going down there. the fact that you spent a couple of days at the beach on the way back, aside, so there there’s that advantage of writing off some of your travel expenses. We know a lady years ago who, But two pieces of land next to each other in Ireland, she built two houses.
One was hers. She didn’t rent it out. The other one she had as a full time rental and she took trips to Ireland regularly to go check on her rental estate in her own house. that was a renter’s and dealt with that. But then she was able to write off those, those airfares anyway, to, to go check on her Irish properties.
So other than the lack of financing and, and again, not deducting interest, you’re not paying, So you can, everything else you can write off the same as you would write off in the U S. Or for as property. Okay.
Ben: [00:44:56] Makes a lot of sense. So now that we’ve got a good understanding on how to identify our market due diligence that you need to take.
I’m curious, are there any tools out there I’m, I’m imagining this wonderful screen, that’s sortable, PDP growth and tourism, and all of these sorts of things. Is this something you guys offer through your website or you know of,
Lief: [00:45:19] we, we, we don’t, and it would be impossible to keep up to date. There is a website, there’s a website that tries to do some of that.
and it’s, I’ll give it to you as quick. They’re not really competition for us. So I don’t think there is global property guide.com and. They, my we’ve known about them and we actually knew the original owners. I don’t know if it’s been sold out or not, but this was 18 years ago or something. And so there’s a lot of data there.
My problem with their data is it’s data provided by statistics from the country. They talk in terms of gross rental yield and these countries. And for, and look at longterm rental. Yields. normally short term rental yields are going to be higher and I don’t usually recommend renting longterm unfurnished and the country that you’re not living in yourself that you can pay attention to who’s renting.
And, you know, cause the tenant laws are just too strong countries. and so. That is a good place to get some basic knowledge that website, but, and there’s economic data and they have the transaction costs. Sometimes things change too quickly. There’s not always up to date. So use it as a starting point, not as a definitive source.
But it can get you some of that. I think the GDP type of stuff that you’re looking for.
Ben: [00:46:37] Yeah. I’ll, I’ll, I’ll check it out and I’ll report back. But thanks for that. So I know on that topic, you, you have a couple of good articles on your website. So one is. How and where COVID-19 is creating real estate opportunity.
So in my mind, I mean, tourism numbers across the world are down currency. These are devaluing at different rates, something like Columbia, How do you like walk me through? What, what, what opportunities are you seeing? Something like Portugal in March, 2021? I mean, this is a property. This is a location that I’m comfortable buying in and holding for a long time.
so if I could swoop in and get a deal in March of next year, you know, this is a great opportunity, but what other markets are you looking at? Should I be looking at I’d love to get any Intel you have there.
Lief: [00:47:30] So fortunately it’s Marcus, we were already interested in to begin with. They just became, some of them became better deals.
So Columbia was one. And I think, well, pesos come back a little bit already, but Colombia and Brazil really took a hit when oil went negative in February or February or March, whenever oil went negative. because they’re both oil exporting countries and commodity exporting countries. And so when a crisis like this, Their currencies are hit.
the Brazilian reality went from about four to one to five and a half or so. And so the developers were working with their, priced in dollars because it was easier for people to account North Americans to understand that and not deal with the currency exchange, but there they’ve been offering discounts because the rail has been so.
I’ve been so weak on. So on a lot of the new stuff that they’ve put out there will the real go back to 4.0 or better, again, hard to predict, currencies, but I’ve been going to Brazil for what about 20 years now? 2002, I think was the first trip I made there. And at that point it was about 3.6 to one.
It appreciated to about 10 years ago to one and a half to one, and now it’s a five and a half, so it doesn’t have the possibility to go the other direction past for closer to one and a half. It just depends on a lot of global factors, but I would, I would expect the rail to appreciate, so there’s some currency appreciation potential, but the rental yields are.
Tremendous potential in Brazil because there’s a lot of local tourism. In fact, the majority of tourism is local, with some growing international tourism and the Ford laser area, which is where we focus on because of new flights. but you’re looking at double digit net yields in rails, but still double digit, net yield on properties there.
And because it’s local tourism is the bulk of it. it’s look, it’ll recover faster than some places that are solely dependent on international tourism.
Ben: [00:49:30] I love Brazil. Right? I thought that was my first expat assignment and I just loved it. I love the culture. I love everything, a lot of things about it. And it has a number of things that are kind ofbackwards. one of those things I thought was real estate and I looked into this a decade ago, but I. I seem to remember thinking there was something very peculiar and different about the real estate and bridges.
Lief: [00:49:55] Yeah. Not that, not that I’m aware of other than this agricultural restriction, which is turns out to be a problem for, for an investment of mine.
I actually did invest in some agriculture. Brazil. So attorneys are working through that, but, but owning property outright and your own name is okay. Brazil’s biggest problem. And you were there, so you witnessed it firsthand is just bureaucracy, I think every year and the ease of doing business rankings, that whichever global Institute does those it’s for a major country.
It’s really horrible. It’s like 186 out of 200 countries, for ease of doing business. So the bureaucracy is painful. there’s been lots of information out there about the currency restrictions. So if you people say, well, I bought property, I’ll move my money down there. And then I couldn’t get my money out.
Well, probably because they skipped a step when they bought, which was registering. The transfer when they sent the money into Brazil, you have to register it with the central bank. And, if you don’t do that, then getting the money out is going to be more problematic, especially getting the money out, and not paying more taxes than you should because they don’t see where the original capital the basis, came from.
So don’t follow the rules and you’ll have problems, follow the rules and, It’s more painful, upfront, but less painful on the back end is more or less how it works.
Ben: [00:51:21] Finding a good real estate attorney and a good agent and, go down there and figure it out. That’s a good, good information. another, so I’m loving where this conversation is going all the good Intel on, on investing overseas.
Another two things you had mentioned were. A way to get exposure to international real estate of hard money lending and agriculture, turnkey, agriculture investing, or something like that. Can you touch briefly on that without going too, too deep on what you mean there?
Lief: [00:51:53] Sure. So hard, hard money lending, fairly straight forward.
And the one group we’re working with in Panama, they’re doing, you know, basically taking in $50,000 from an investor for a specific lock where they’re going to build a house. And this is, local housing, so low to medium income, housing and Panama, which there’s a huge short job. And the reason that a developer will want to do this is because banks are a pain in the ass.
Keester. don’t know if I can swear on a podcast or not, but it’s for the children leave. Yeah. The, the. Yeah, banks are bureaucratic. And for a construction loan, you’ve got to do all this documentation and then maybe it’ll bill send you to release the funds in a timely manner or not. And so, it’s faster and ultimately cheaper because of the time value of money and, and speeding things along for developers to do it the way that they’re doing it here.
and bringing in, you know, a trickle of money every month by M you know, investors doing this hard money loan stuff, and it’s a two year. A fixed return, the way this, this particular one’s operating. I did one personally years ago in Australia, I met a Australian guy who was working with this developer and, and it was, it was a similar thing.
If they, in that case, it was 18 months and they were paying 1% a month, in the case of Panama it’s 24 months and 23%. So. It’s kind of typical for a, kind of a international hard money loan kind of thing. I did them in the U S as well, and they worked really well in the U S usually the hard money loan borrowers are the, are the renovation renovation.
And that worked really well for me. I was making my, whatever, it was 12, 14%, right up until 2008, when all those cousins I’m out of business as did the. Manager for the hard money loan business that I was invested in. So, there, there is risk, obviously on that side, on the agriculture side, you know, agriculture
Ben: [00:53:51] hard money lending vote should be relatively secured by that property.
Right? So if you have like a 50% loan devalue, even if there’s a gigantic. Correction in the market, you still have, have some cushion. Is that how, how does it work? Like what kind of loan to values and for my listeners. So the way that hard money works is it’s collateralized by the property. And, like you said, I mean, these guys just instead of going to the banks and dealing with all of that, though, they’ll get it.
They’ll pay a premium, they’ll pay a higher percentage, but then they can start developing. They can start flipping this and their returns should. Cover this additional cost of capital. but they get it deployed more quickly. So how, how does it work in a place like Panama? I mean, loan to values and things like that.
Lief: [00:54:35] So in, in, in Panama, the houses that are being constructed, so the Le the initially the lot is the, is the value, is the collateral, the houses that are being constructed. Are being sold on the retail market for, I think under 120,000. So between a hundred and 120,000 cars, 120, is that the threshold for the, the interest rate benefits that the buyers can get from the government, the incentives.
Yeah, rent for, you know, produce mortgages. and so once it’s constructed there, there’s your loan, your loan to value is like 40%. But of course, when it’s just a lot, your loan to value, probably a hundred percent. and so it’s. You’ve got to have some faith in the developer. when we first started with this person, the, you know, the development was just starting.
So infrastructure wasn’t in yet. So there was more risk then now three years, three and a half years later, they’ve already paid out first people who invest in a lot of them reinvested. So there’s a track record. but still there’s there’s risk if they aren’t able to, to build, but they’re, they’ve shown that they are able to build their, there was a big.
Group like this, that in Brazil that was churning out thousands of houses and just grew way too big. And I don’t think it started out this way, but effectively it turned into a Ponzi scheme. This was maybe 15 years ago.
Ben: [00:56:01] it has it written all over it, right with these things.
Lief: [00:56:05] Yeah. And this, this guy out of the UK was the one and running it and whatnot and Panama.
These guys are local developers, 40 year history, one project, you know, they’re going to there. They eventually are going to build hundreds of homes, but phase one is 80 homes. So it’s not, it’s not a beyond scope kind of, kind of scenarios. It wasn’t in Brazil. But you still have to have some faith and that’s the due diligence that we do.
I mean, especially since our office is based in Panama, we have the local context to, you know, do the due diligence on the developer and ask around Panama is there’s a small town. Everybody knows everybody. So some of the more important people that we know directly can give us feedback when we’re, when we’re, asking about, you know, a different family in Panama.
Ben: [00:56:49] Yeah, good, good stuff. Okay. Thanks for that. And so then the next one was agriculture, turnkey agriculture, right?
Lief: [00:56:56] Right. And so agriculture, as I turned to that after 2008, trying to get just back to basics, I never left basics, but the whole rest of the world, did, they were buying for capital appreciation rather than.
Yield and rental deals were good. Ones who are easy to find in 2008, 2009, because prices have been bid up so much. You had to wait until they came back down. So I started looking at agriculture. The problem with agriculture is you either have to buy a half million dollar property and hire a farm manager or a million dollar property or whatever.
or you have to buy shares of a company. And if you own shares of a company owns shares of the company second best in the stock market, even though they’re doing agriculture and real estate, it was hard to find developers who were focused on. Doing a project to bring in the small, the small investor.
And so over the last 15 years, we’ve found a few, some of them have worked out. Some of them have, and we’re working with it’s about, I guess, three, really right now that have, four or five different products available, where you as an individual can get in at like a 55. That was dollar point. there are other groups out there, doing international, but also in the U S that I’ve seen, doing that agriculture stuff.
But again, it’s shares. So you can, you know, you can buy a share of a cattle farm in Columbia if you want. but then you have no actual asset in your name. whereas the groups that we work with you, you own something, whether it’s land or, a greenhouse that’s growing hydroponics or something like that.
Ben: [00:58:29] Cool. And my listeners can find out more about those opportunities through your website.
Lief: [00:58:33] Yeah. Yeah. They can go to, live in, invest overseas.com and there should be a tab at the top for, for real estate and lots more information on real estate in general. There.
Ben: [00:58:43] Well leave. We’re butting up against the time I could talk to you about this stuff for hours.
I know, but, you guys are producing a lot of content. You’re clearly a subject matter expert on this. so I’m sure my listeners are really going to enjoy it. Where, where do you want, where do you want to send them? Where can they find out about you, or, or your companies.
Lief: [00:59:03] so the, the main website is the best place to start.
living invest overseas.com. We have several free letters. There’s a daily, that’s more about lifestyle that Cathy puts out. I do a twice weekly off shore one, which is more about off shore topics. Like you’re talking taxes for earned income exclusion, but second residency, citizenship banking, that kind of thing.
we have a once a week real estate, one called the overseas property alert. written by one of our colleagues in Ireland. so for the real estate people, that’s the one that, that they should look for on the website. And, so just for a pure blatant promo pitch, you talked about the new book buying real estate overseas came out a couple of weeks ago.
you can buy it on Amazon and, has definitely a lot more information and detail. Tell him, they’re including a whole chapter on stories of properties that we’ve bought, good and bad. you know, not every, not every investment pays off. so we talk about some of the losers in the book in detail.
Ben: [00:59:57] I really appreciate you taking the time. and thanks a lot.
Lief: [01:00:00] Great. Thanks, Ben.
Ben: [01:00:02] There you have it. Thank you for listening. I really appreciate your support.
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