Foreign Real Estate in Your Self-Directed IRAPosted on November 6, 2013 by
Many people are surprised to learn that not only can they take direct ownership of real estate within their IRA, but they aren’t even restricted to owning land within the United States. The IRS rules regarding what you may or may not invest IRA assets in are very liberal, and there is no IRS restriction whatsoever on ownership of foreign assets, including real estate.
Benefits of Foreign Real Estate Ownership
Owning assets abroad can be an important way to help diversify your investment portfolio. The economies of other countries and regions don’t necessarily move the same way as the U.S. economy. When U.S. assets are in decline, real estate in other countries is sometimes doing very well. For example, many regions in the Caribbean are benefitting from rapid economic growth due to a rise in traffic from more affluent Europeans. While real estate in Florida continues to struggle, some areas in Jamaica and the Bahamas are experiencing rapid development – creating opportunities for enterprising real estate investors. Case in point: A Chinese company is currently building a massive $3.4 billion resort at Baha Mar in the Bahamas, scheduled to open in December of 2014. If the project succeeds, that casino is projected to boost the gross domestic product of the entire country by 10 percent.
Meanwhile, even a relatively small amount of money, by American standards, can purchase a vacation rental home that will be extremely attractive to a European, Asian or Middle Eastern tourist. Homes in some areas of the world still sell for a fraction of what comparable beach front or other resort area homes would go for in the United States.
By buying assets denominated in foreign currencies, you can also help protect yourself against a general decline in the value of the dollar. There are a number of economic factors that continue to put downward pressure on the dollar compared to other currencies: An extended period of low interest rates, “easy money” policies from the Federal Reserve, including a recent massive quantitative easing designed to flood a struggling U.S. economy with liquidity, and deficit spending on a massive scale all combine to push the dollar down.
If the trend continues, currency appreciation in other countries could have the result of magnifying investment gains for U.S. investors – either when they sell the investment for local currency, or when they continue to accept rent payments in appreciating currencies.
Income and capital gains from foreign real estate investments held within tax-advantaged accounts is tax-deferred – in the United States. In the case of a Roth IRA, the income and capital gains are tax free. Again, though, only in the United States. The host country – in whose jurisdiction your investment real estate falls, may not necessarily be so accommodating. Generally, you will have to pay some sort of property tax to local officials.
International taxation is a highly technical and specialized field of tax law. If you are considering ownership of foreign real estate, it’s vital to have qualified experts, such as Attorneys and CPAs on your team.
While most governments around the world recognize the importance of a stable investment environment in attracting foreign money and assets, not all regimes do. As part of your due diligence, make an assessment of the political climate in the country. Is the government likely to nationalize real estate assets or other foreign assets? This is unusual – even among developing countries. But it does happen.
Keep in mind, too, that Congress may pass trade sanctions against certain countries. For example, you can’t directly buy property in North Korea or Cuba.
If you want to diversify your retirement portfolio with foreign real estate, getting started is easy: Open an account with American IRA. You can start the process by calling us at 866-7500-IRA (472). We will send you everything you need to fund your account. Once your account is funded, simply provide us written instructions on the specific property, location, amount, and who we need to make the check out to. We will work with your professionals to ensure the property is titled correctly, and to ensure that you don’t unwittingly generate a prohibited transaction that could result in a penalty. American IRA does not provide any recommendation on the quality, profitability or reputability of any investment.