Fact Checked

What is a Foreign Investment Property?

K. Kinsella
K. Kinsella

A foreign investment property is a piece of commercial or residential real estate located in another nation that an investor buys in order to generate income from its sale or lease. Individuals and businesses often buy these properties because currency exchange rates enable the purchase of foreign land for prices below the going rate for comparable property in the domestic market. There are a number of legal complications to overcome before buying a foreign investment property.

Every country has its own laws about property ownership, and laws in some nations prohibit non-citizens from buying residential or commercial property. Countries embroiled in political unrest are not good locations for buying foreign investment property because civil unrest often leads to changes in government, and new laws could erode the rights of foreign property owners. Real estate investors normally employ local real estate attorneys to advise them on the legal aspects of buying property before making any overseas purchases.

A foreign investment property might include an apartment building.
A foreign investment property might include an apartment building.

Taxes are a major consideration for investors who buy foreign investment property. Property owners in most nations are required to pay property tax. The money derived from either rental income or profits generated from the sale of a foreign investment property may also be subject to local income tax or capital gains tax. Investors may also have to pay taxes on the property as an asset and the income derived from it in their own country of domicile.

Political unrest and economic problems can cause the value of a currency to plummet at any time. People who own foreign investment property have to contend with the fact that income derived from the property may lose value if the currency of the nation containing the property weakens against the currency of the nation where the investor lives. Currency risk is a major concern for individuals who heavily rely on income from investment property located abroad. Investors stand to benefit from currency exchange rate fluctuations if the currency of their own nation weakens against the currency from the nation where they own the property.

Hotels, condominiums, and villas are among the most popular types of foreign investment property. Travel firms often buy these properties and employ local people to manage them. Private individuals often use foreign investment properties as vacation homes for themselves, but hire local leasing agents to rent the property out for most of the year. Corporations buy foreign investment property to gain a foothold in an international market prior to starting business operations in a particular nation.

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    • A foreign investment property might include an apartment building.
      By: Olivier Le Moal
      A foreign investment property might include an apartment building.