You've successfully copied this link.

6 Signs You're Prepared to Invest in Foreign Property

The title of ‘expatriate' has a distinctive prestigious meaning behind it. Moreover, living and working abroad can be a very rewarding experience, professionally, personally, culturally, and of course, financially. If you have moved abroad, ideally the work you do in your new country should bring in more than enough money for you to spend as well as save.

So, before you actually invest, think very carefully if you are showing these signs of letting loose!

 

 

1. You managed to save a lot of funds for your investment

What are my current expenses? How many are fixed and/or recurring? Can they be eliminated (Yes/No/Maybe) or at least reduced (Yes/No/Maybe)? How many expenses are variable? This is probably the most important question to answer because here’s where most of your savings can come from. Also, add your discretionary (‘nice to have’) expenses to your budget. This will help you limit these expenses so your other essential (‘must-have’) expenses don’t have to take a hit. After you create a spending budget, you will know how much you can feasibly save.

Put this money aside for emergencies and don’t touch it unless absolutely necessary. To get rid of the temptation to spend it on non-urgent needs, you can even repatriate this money home. Don’t transfer money between bank accounts though! Banks charge hefty transaction fees which you can avoid by using a reliable, low-cost money transfer services.

 

2. You know the risks of investing locally and internationally 

It is critical to know yourself before you make any investments in a foreign country. Depending on your expenses, savings and financial responsibilities, ask yourself these questions first:

• What is your risk-taking capacity?
• How much money can you stand to lose if your investment is wiped out, say, due to currency rate fluctuations?
• What would you consider a reward?

Different people have different perspectives when it comes to risk and reward. Is a 10% return on investment on a low-risk government bond an acceptable reward for you or would you rather invest in the stock market which is more volatile – and therefore riskier – but may also give higher returns? What timeline are you considering? If you’re planning to live overseas indefinitely and have the means for it, you may consider investing in foreign property assuming you can, legally. Depending on where you live now, the returns may be significant when you eventually sell the property or rent it out now. Also, a property investment may attract a lower tax obligation in your home country than investments in stocks or bonds. But again, be aware of the laws in both countries with regards to property purchases by expats, especially in the areas of taxation, compliance and reporting.

If you plan to invest in tradable assets such as stocks or bonds, work out your acceptable ‘trading range’ in advance, i.e. your best-case and worst-case scenarios. 

 

3. You stop listening to "expert" advice

Do Your Own Research! People in your personal and professional network may or may not have the financial expertise to advise you. If you ask others for financial advice, keep in mind that their recommendations will be coloured by their own prejudices and beliefs, as well as their limited understanding of you and your situation. So, their knowledge of specific investment avenues for expats may be limited at best and outright wrong at worst.

Don’t just invest any of your hard-earned money based on somebody’s advice, recommendations or ‘hot tips’ even if you trust that person. 

4. Talked to a expat-friendly investment advisor

In many countries, new laws are being enforced with regards to expats’ foreign investments. For example, in the USA, the 2010 Foreign Account Tax Compliance Act (FATCA) gives the IRS more power to enforce US laws regarding taxation and reporting of foreign investments made by American expats. As a direct result of this official clampdown, many foreign institutions no longer allow American expats to open overseas investment accounts with them. Some US brokerage firms are also unwilling to work with these expats. Of course, such situations are not restricted to the US alone and can cause a lot of confusion among expats in many countries. To avoid potential losses and to clarify the legal environment in your home country and country of residence, find an investment advisor who specialises in working with expats. 

However, do remember that these are your investments, not your advisor’s. Therefore, keeping track of your investments and if necessary, pulling out of them, is your responsibility alone.

5. You are of Your Own Tax Liability & Compliance

In some countries, expats who qualify for certain ‘foreign earned income exclusion’ limits may be able to avoid ‘double taxation’ (a scenario where they have to pay taxes on their income and investments to their home country as well as their current country of residence). Find out if you qualify. If not, any profits you make on your foreign investments may be subject to taxes in your home country and at higher rates than the gains on any investments you make in your home country. Also, your country’s laws may make it mandatory for expats to keep extensive records and report all their foreign investments and gains, say through yearly income tax returns. These rules may apply to foreign-purchased mutual funds, hedge funds, cash management products, foreign pension plans and even some types of insurance policies.

Educate yourself on these requirements and comply with them without fail. If you plan to invest in digital currencies such as Bitcoin in your new country, find out if the laws in your home country allow you to do so. As long as you are still a citizen of your home country, you must comply with the rules and regulations. If the rules are unclear, err on the side of caution and avoid investing in digital currencies. 

6. You Build A Globally-Diverse Portfolio To Spread Your Risk 

A risk is an unavoidable element of every financial investment and overseas investments are no exception to this rule. However, when you invest your money in a foreign country, there is an additional risk that you should be aware of – ‘forex’ risk. This is the risk of losing money due to fluctuations in currency exchange rates. If you are from a developing country, say Nepal and have moved to a developed country, say Canada, chances are that your Canadian investments will earn you good returns vis-à-vis your Nepalese investments.

Before investing, do keep in mind the simple economic principle of risk & reward – any investment that offers very high future rewards to foreign investors likely involves a lot of risk. Invest in countries with low debt/GDP ratios and rising currencies. Also, check the currency’s past volatility patterns and exchange rates vis-à-vis your home currency. These data points will give you a better idea of how risky or not it could be for you to invest in the foreign currency.