Investing in foreign real estate is a good way for investors to diversify, increase exposure to other markets, and generate revenue. This is especially true for foreigners who invest in American real estate. The problem, however, is that many of these investors are unfamiliar with American laws, and neglect to file the subsequent paperwork. Therefore, individuals must be aware of the laws and regulations surrounding real estate matters and investors must familiarize themselves with tax laws and other obligations after purchasing property, especially in instances where they are looking to rent the property to others.
An article by RJ Palano entitled, “Foreign Investors in U.S. Real Estate- Are You in Compliance with the IRS?” offers several ways to maximize the return on investment properties rented out to third parties. His suggestions are based on minimizing the financial tax burden on investors, but there are other issues that one needs to be aware of besides tax law.
Renting out property in a foreign country is dangerous if the investor has not taken the necessary steps to become educated about the laws, or fails to be mindful of the property once the rental deal has been completed. Issues resulting from property or contractual concerns could also arise. For example, issues as to who should run or maintain the property, how rent should be paid, and what forum or jurisdiction should be used for judgment if there is a dispute between the two parties are all concerns that must be addressed. Thus, even though investing in American real estate might generate revenue, the process is difficult and requires constant oversight.
Investors want to generate the maximum amount of revenue and avoid any liability for tax purposes. The problems, however, can be even more accentuated when the investor owns multiple properties or owns a single property that is worth a large amount of money. In these cases where the stakes are higher, the amount of paperwork increases and there is even more potential for issues to arise, especially when foreigners decide to rent their property to others in order to have someone else maintain and operate their investment. Consequently, foreigners must ensure they are aware of the legal concerns associated with American real estate and foreign investors should be wary to give up all control of their property.