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August 23, 2018
Owning property overseas is a great asset class diversification strategy inside an IRA. But before racing out to buy an investment property in a foreign country, read on to know 3 of the most important critical issues to know up front.
#1 – Does the developer have a record of success?
If the answer is “yes” and the developer has a proven track record, investigate that record. Visit some of their other locations. Would that property meet your expectations? How much have they invested in amenities to create a sense of community? How busy is it? A great mantra for overseas property ownership is, “Buy what you see.”
On the other hand, if the answer is “no,” that does not mean you should instantly walk away. Just understand that you are agreeing to be a guinea pig as they experiment and suffer forward through trial and error. Be sure to price that into equation.
Developer commitment is key. Determine commitment by asking questions like:
#2 – How many condos is the developer keeping?
Many developers selling condo product sell them based on a projected rental income and return on investment for the buyer. If you are buying a property inside your IRA, it must be for investment only so ROI should be your only consideration. The question every buyer should always ask is: How many of the condos is the developer keeping?
Doesn’t it make sense that the developer would want to keep as many as possible to earn a similar yield as the one they are promising you? Especially if the yield is double digit. Greed is your enemy here. Common sense is your friend. Run the numbers and see if they even make sense. If you were in their shoes how many units you’d want to keep. Actions speak louder than words.
#3 – Is the home or condominium plumbed for hot and cold water?
This may seem like a silly question, but it is not. There are reasons that many homes are not plumbed for hot water in Latin America. First, extra plumbing is expensive. Second, water heaters are expensive. And third, the electricity to run them costs even more.
When touring properties overseas, you will likely come across faucets just like those in the US and Canada: a faucet with two handles, one for hot and one for cold. You may be in a mansion with granite counter tops, Italian marble, and expensive fancy Delta fixtures. You may also assume that there’s hot water running to the hot water side. You could be wrong.
What’s going on here?
Be sure and look under the sink. If you see a Y-adapter that splits one single cold-water pipe into two pipes, that means that faucet will only ever produce cold water. Be sure to check every sink, shower, and faucet and test for actual hot water before buying a house or condo.
So, there you have 3 critical pieces of information to understand and bring into your analysis of any property acquisition overseas. There are more of course, and they can be obtained by requesting an electronic copy of the Consumer Resource Guide to Property Ownership Overseas by e-mail or stop by my table at the Planning for Prosperity Conference Friday September 7th and grab a hard copy.
Owning property overseas inside your SD-IRA is a great way to diversify assets and capture significant opportunities that lie outside the US markets. Just make sure that you measure twice and cut once as the saying goes. That and be armed with expert advice. Prudence and wisdom are powerful advocates.
Chairman & CEO of ECI Development