Investing in property abroad: Should you buy a house abroad and rent it at home?

A lot of research will be needed to find a property that suits you

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A lot has changed in the past 14 years for Sam Butcher. The expatriate from Britain came to Canada in 2007 thinking he would stay here for at most a year. At 18, the idea of ​​skiing and biking in the Rockies was appealing, but he wasn’t looking forward to living away from his family that long.

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“For me, as a Brit, rather than saying second-generation Canadian, [Britain is] My house. So it was always the plan to come back anyway,” Butcher said. “Everyone lives 15 to 20 minutes apart.”

Fast forward to today, and Butcher has a lot more in mind. But one thing that hasn’t waned is the need to have roots in Devon, England; where not only his parents live, but a large part of his family. With housing prices rising where he lives in downtown Toronto, it makes more sense to invest and generate potential income in Devon.

Consider the cost of the desired location

“I have no problem living in a rental property if… I am generating income [somewhere else].” Butcher said. “I have no desire to go out in a small town…I prefer to have it in the [United Kingdom] so I can rent it knowing I have family nearby to check it out.”

Depending on who you ask, now could be considered the best and worst time to invest in foreign property. The housing market remains quite low in many parts of the world, due to the economic collapse of the pandemic. However, this does not remain true everywhere, as we have seen here in Canada, where house prices continue to rise.

Yet, as Butcher describes it, the idea of ​​renting at home and buying overseas appeals to many millennials like him. It’s something Margaret Leong, Senior Investment Advisor and Portfolio Manager for BMO Private Wealth, sees often these days.

“I see more and more millennials inheriting money from their parents as a wealth transition starts to happen,” Leong said in an interview. “[Real estate] has a lower correlation with the financial market, and it also has a good ability to track long-term inflation. So that’s why it’s actually a great asset class.

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But where would someone like Butcher, or anyone for that matter, begin such a process?

Study the market, rules and regulations

Some questions Leong suggests to potential investors would be to ask how would this investment fit into a person’s overall wealth and goals, and what would be their exposure? For Butcher, the average cost of a house in England is around £268,349 in October 2021, according to Statistica. This represents approximately $445,000 in Canadian dollars. Compare that to the average of $748,439 in Canada in January 2022.

To get started, Leong recommends finding a local real estate agent to provide both information about the area and comparisons. This will help you determine the type of return you would need for such an investment.

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“Real estate is usually a long-term investment, so have that mindset. In terms of risk, we’ve all learned from the pandemic that it could all of a sudden end. So we need to test that hypothetical situation. of this worst-case scenario,” Leong said.

Then there is understanding the costs associated with the property to consider. It’s not just mortgage and property taxes, but the potential for something like the “non-resident speculation tax” that we have here in Canada. This tax levies 15% on the purchase or acquisition of residential property for those who are not citizens or permanent residents of Canada. Yet there are even ways around this, Leong said.

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“Between Canada and some of these countries there are tax treaties, so you may not have to pay double tax. But there are other jurisdictions that don’t, so it’s something that should be understood,” Leong said. “For example in China, 10 or 15 years ago, we could go there as foreigners and buy with money. But now foreigners are not allowed to buy these properties.

Additionally, Canadians can also consider buying property as a business, or even in trust rather than in their own name. If you have a strong financial establishment, you can use this asset as collateral to get a loan and buy foreign property with cash. You can also place it in a trust as a gift, Leong said, and acquire the property under the name of a corporation. It can also be useful in places like England and the United States, where there are inheritance taxes.

“Because of the pandemic, people have died. Or accidents just happen. Canadians will talk about Canadian assets, and maybe you can highlight that. But some countries may not recognize a Canadian will,” Leong said. “If you want to make sure that your children or your family inherit this property, how would that work?”

Is it a job or a pleasure?

Then there’s the biggest question of all, Leong said, whether this absolute ownership across the globe is a want or a need. Leong has family in Asia, but there are simply too many costs and what-if scenarios for her to consider a long-term purchase. Instead, she opts for an Airbnb to visit relatives.

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“But from a pure investment perspective, real estate is a great opportunity for cash flow and growth potential,” Leong said. This is why the first step in any investment decision should be to meet with a financial advisor and discuss what is possible in the first place. Especially for millennials, whose lifestyles are only getting busier.

For Butcher, real estate is the investment, but location is what matters. The goal is to have roots close to his family, but to live in Canada where he now has a partner, a job and a life. But owning in Canada just isn’t as appealing as owning in Devon.

” We have to be realistic. For me, it’s all about family. It’s either Devon or near [my partner’s family]”, Boucher said. “I have no desire to go anywhere else.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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