Don't Let Offshore Real Estate Investments Become a Recipe for Fraud
Estimated reading time: 3 minutes
Mix together the growing preference for investing in real estate using self-directed retirement accounts with the upward trend of Americans retiring abroad. Then, stir in the dismaying proliferation of online and real estate investment scams. The result could burn a big hole in your retirement savings.
Just like good cooks check to make sure they have all the ingredients before starting to bake, adding a healthy dose of due diligence before investing in offshore real estate can help you achieve your dream retirement. Here’s a recipe to avoid being scammed:
1. Know the Laws Governing Offshore Real Estate Investments
It all starts with knowing the local laws and regulations that govern real estate transactions in the country where you want to buy. For that, you may want to consult a local attorney. Indeed, in some countries, using an attorney may be required to purchase real estate. You’ll also need to make sure you follow all IRS rules regarding disqualified persons and prohibited transactions for assets held in a tax-advantaged retirement account. Read Four Tips for Holding Real Estate Offshore.
2. Learn About the Country Where You Want to Buy
In addition to knowing the local laws, you’ll want to familiarize yourself with the broader business and social cultures. For example, will you be able to open a bank account? If you plan to rent out your property before moving there in retirement, how will you manage the property and collect rent? Read more from Entrust experts about offshore real estate investments. Be sure to research the safety and security of the country where you want to invest. The U.S. State Department’s Consular Information Program is one place to start for information on countries around the world.
3. Protect Yourself from Fraudsters
The rules, laws, and regulations discussed above are the easier, more organized, part of your due diligence. After all, they are written down and verifiable. The harder part can be protecting yourself against fraudsters. They can be wily, sneaky, and hard to identify. For example, a shady real estate developer can easily misrepresent:
- The construction quality or condition of a property that is an ocean away. Having someone trustworthy represent you, or being present in person can offer protection.
- Prices, market inventory, and ownership trends. Be sure to do your own research to validate what an agent or developer tells you.
- The availability of tax incentives or other come-ons. Government-sponsored tax programs should be announced on an official website.
Here are some other tips to reduce your chances of being scammed by someone offering to sell you a bungalow in Costa Rica, a condo in Crete, or that famous bridge in Brooklyn.
- Be on the lookout for pyramid and Ponzi schemes. A pyramid scheme happens when a huckster claims he can turn a small investment into huge profits. For example, getting in the “ground floor” of a resort development will require more investment from new investors—who you are expected to recruit. A Ponzi scheme is similar, except it is the fraudster who recruits the new investors—until he can’t find any and the scheme collapses.
- Be wary if you are asked to pay in advance for the right to participate in a real estate purchase (beyond the typical “earnest money deposit” frequently required when you have made an actual offer).
- Check the credentials of real estate professionals you are working within foreign countries.
- Deal only with registered banking institutions. Your local bank may be able to help you find a bank that it has a relationship with already.
- Insist on having all needed documentation (deeds, inspection reports, tax certificate, and such) before moving forward.
- Do check out the seller’s (or her agent’s) website, but also contact the local equivalent of the Better Business Bureau, Chamber of Commerce, or professional association to verify their credentials.
The trained professionals at The Entrust Group are another source for education and information about investing safely to reach your dream retirement. Get in touch today for your free consultation.