What Is the Hallmark of a Good Foreign Property Investment?
Contents
- #1: Cash Flow Comes First
- A) Be Careful with Pre-Construction Risk
- B) Prioritize Ready-to-Rent Properties
- C) Factor in Local Financing Realities
- D) Property Types That Drive Stronger Cash Flow
- #2: Think Beyond the Tourist Map
- A) Risk of Relying on Tourist Hotspots
- #3: The Cost of Climate
- #4: Rules Can Make or Break a Foreign Property Investment
- Other Important Notes for US Investors
- #5: Build the Right Support Network
- #6: Legal Systems Matter
- #7: The Yield Premium Principle
- Turning Potential into a Plan
Owning property abroad is a dream for many — income, lifestyle, dollar diversification, sometimes even residency. But while the brochures sell sunsets and beaches, making money from your foreign property investment depends on unglamorous details: things like how the property is structured, managed, and taxed.
Yes, I’ll admit this is “boring” stuff. But it’s also “boring but necessary”.
What you’ll see in this article is based on practical experience – no theory – from working with lawyers, accountants, property managers, and other local experts, step by step, for our clients.
You’ll learn seven traits that separate solid foreign investments from costly mistakes — and highlight some of the traps that turn a dream purchase into an expensive disappointment.
Direct Ownership vs. Foreign REITs & Partnerships
US investors have two main paths into foreign real estate: you buy property directly or you invest through a pooled option like a foreign REIT (Real Estate Investment Trust) or partnership. Each approach has trade-offs. Let’s look at each one for a moment.
Direct Property Ownership
Pros:
Full control over the asset (management, improvements, tenant selection).
Full use of the property if you want to live there.
May qualify you for residency or, in a few cases, second citizenship.
Financing options may be available locally.
Cons:
High entry costs – not just the property but closing fees, taxes, due diligence.
If poorly managed, you might be cashflow negative.
Management challenges can be harder if you’re not around, even with local managers.
Less liquid — properties can take months (or years) to sell. (We currently have one client in Chile who has been trying to sell his very nice property for more than three years.)
Country-specific taxes and bureaucracy can erode net returns.
Best for: DIY-minded investors, people who want a vacation home or place to live, or investors who want direct control and can accept complexity for the chance at long-term upside.
Foreign REITs & Partnerships
Pros:
Professionally managed — no need to handle tenants or repairs.
Lower entry point (buy shares or partnership interests instead of entire properties).
Diversification across multiple properties, jurisdictions, or sectors, making it easier to build a more resilient portfolio.
Publicly traded REITs can offer easier liquidity than direct property.
In some cases, foreign funds provide US investors with more favorable tax treatment than comparable domestic holdings.
Cons:
Limited control over investment decisions.
Partnership interests (non-traded) are often illiquid – they can be hard to exit quickly.
Subject to management fees that reduce net returns. (Although in practice, professional management more than makes up for this.)
US tax reporting can be complex (PFIC rules may apply).
Most of the time, direct financing is not available; your return is based on the money you invest.
Some of the most lucrative deals are available to accredited investors only.
Best for: Investors new to foreign real estate, or those seeking a hands-off, diversified approach without taking on the headaches of direct management.
Takeaway: For most US investors looking at foreign real estate for the first time, a REIT or partnership is often the easier starting point. Direct property ownership can make sense when you’re ready to be more hands-on, or when lifestyle benefits (like residency qualification or personal use) matter as much as the financial return.
For the rest of this article, we’ll focus on direct holdings.
#1: Cash Flow Comes First
When investing abroad, cash flow is your lifeline. It protects you against one of the biggest foreign-property risks: the fact that you’re so far away. Currency swings, unexpected maintenance, questionable property managers, changing rental laws — they all feel more manageable when money is coming in consistently.
Think of it as a buffer: the sooner your property generates income, the faster it offsets risks and justifies the effort of managing something that’s not in the same town, state, or country.
Here’s how to build cash flow into your decision from the start:
A) Be Careful with Pre-Construction Risk
Off-plan and pre-construction deals abroad often look tempting with glossy brochures and “guaranteed” returns. But the reality? Many projects face delays, financing issues, or outright cancellations. Unless you’re working with a developer who has a proven track record — and you’re comfortable with the higher risk — these projects can trap your capital for years with zero income.
A lawyer in Mexico recently told us that 40% of pre-construction deals in Playa del Carmen and 70% in Tulum are currently behind schedule. There’s nothing inherently wrong with those numbers, but as an investor, it’s something you need to factor into your plans.
B) Prioritize Ready-to-Rent Properties
A finished, permitted, and already rentable property starts working for you immediately. This shortens your break-even timeline and makes it easier to calculate actual returns instead of relying on projections. Even better, look for a property that already has a successful track record. People sell successful (Uber-style) short-term rental businesses all the time for valid reasons – even when there’s nothing wrong with the unit itself.
If you’re thinking about having an Uber-style rental, be sure to factor in the cost and time of getting a rental license. In some places, you don’t need one at all. In others, they are heavily restricted, and can take months, or even longer.
That means no income until you get it.
C) Factor in Local Financing Realities
Mortgage access for foreigners varies widely depending on jurisdiction. A few very broad statements in markets we work in:
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Panama: Local banks may lend to foreigners, but terms are often stricter.
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Mexico & Costa Rica: Local financing isn’t all that common but is possible; most investors pay cash.
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Europe: Mortgages are available but often require residency or a large down payment.
Cash buyers typically earn stronger returns since they skip interest costs — but that makes choosing a cash-flow-positive property even more important.
D) Property Types That Drive Stronger Cash Flow
Not all properties perform equally when it comes to generating steady income. Here are a few categories foreign investors often consider — and how they typically stack up:
Urban Apartments
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Best for: Business travelers, digital nomads, long-term tenants.
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Cash flow profile: Strong year-round demand in cities with universities, hospitals, or corporate hubs.
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Example markets: Panama City, Lisbon, San José (Costa Rica).
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Watch out for: Higher purchase prices, stricter rental regulations, and competition from professional investors.
Coastal Vacation Rentals
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Best for: Short-term stays, family holidays, retirees testing the lifestyle.
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Cash flow profile: Can deliver premium nightly rates in peak season, but highly seasonal.
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Example markets: Riviera Maya (Mexico), Algarve (Portugal), Manuel Antonio (Costa Rica).
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Watch out for: Off-season vacancy, heavy wear-and-tear, and higher maintenance from salt and humidity.
Student Housing
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Best for: Cities with strong international universities.
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Cash flow profile: Consistent demand and relatively high yields per square foot.
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Example markets: Florence, Barcelona, Guadalajara.
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Watch out for: Tenant turnover, regulatory restrictions on room rentals, and furniture replacement costs.
Suburban or Expat-Oriented Communities
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Best for: Retirees and long-stay expats.
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Cash flow profile: Longer leases, lower turnover, stable demand.
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Example markets: Boquete (Panama), Lake Chapala (Mexico), Tuscany (Italy).
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Watch out for: Slower appreciation, smaller tenant pool compared to city centers.
When US Success Doesn’t Translate Abroad
A seasoned US real estate investor came to us. She had jumped into her first foreign deal by signing a development contract overseas. The project looked glamorous: sleek marketing and promises of high returns.
Fast forward: she’s about to close, but the reality isn’t as good as the brochure. She’s hit with unexpected closing costs and other fees that were never mentioned and that she should have known about given her experience in the US.
#2: Think Beyond the Tourist Map
A) Risk of Relying on Tourist Hotspots
Beautiful doesn’t equal profitable. Plenty of investors are lured by stunning coastlines or mountain retreats, only to discover their property sits empty for most of the year. Tourist-only markets can generate high rates during peak weeks, but suffer long vacancies in the off-season.
The question to ask is simple: will people still come here in November, February, or May? If the answer isn’t obvious, you’re not looking at a stable investment — you’re looking at a seasonal gamble.
What Strong Markets Share
A location that supports steady cash flow usually balances three things:
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Year-Round Demand — Tenants beyond vacationers: business travelers, retirees, digital nomads, or medical tourists.
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Infrastructure — Access to airports, hospitals, shops, and schools; good internet; established expat hubs.
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Market Strength — A stable local population, enforceable property rights, and economic drivers that aren’t solely dependent on tourism.
Examples in Practice
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Panama City: An expat and business hub, dollarized economy, year-round rental demand.
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Lisbon (outside core tourist zones): Popular with digital nomads and students, not just summer tourists.
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San José, Costa Rica: Economic center with steady demand from professionals and locals, not just visitors.
By contrast, remote beach towns or mountain cabins — however charming — often underperform because they lack the steady tenant base to fill off-peak months.
Now, please don’t get me wrong – I appreciate both of these options. But it’s important to factor this seasonality into your projections. Otherwise, you may end up making less than you think.
Callout: When the Tourist Strategy Can Work
Tourist-only markets usually underperform because of long off-seasons. But there’s one situation where they can work: when you plan to split your own time between two locations with opposite high seasons.
One of our clients does exactly this:
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Summer in Portugal → He relocates to Panama, where it’s low season. His Portugal property is in peak rental demand and fully booked.
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Winter in Panama → He moves back to Portugal during its slow season, while Panama fills with peak-season tourists.
By alternating between homes, he:
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Always has a place to stay.
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Maximizes occupancy and yield on both properties.
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Offsets the vacancy risk that usually makes seasonal markets unattractive.
If lifestyle flexibility is part of your plan, pairing two opposite-season tourist markets can turn a weakness (vacancy risk) into a strength.
#3: The Cost of Climate
Weather doesn’t just shape lifestyle appeal — it can directly impact your bottom line. That’s because climate determines how often you’ll be paying for repairs, how much insurance costs, and other factors.
This is especially true of property on the ocean. Behind that postcard shot is a property that can cost 30–40% more per year to maintain compared to an inland unit. Salt air corrodes metal, pits window frames, and eats through exterior finishes faster than most investors expect.
Key Climate Costs to Watch
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Salt Air: Expect higher maintenance near the coast — everything from hinges to air-conditioning units wears out faster.
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Humidity: High moisture creates mold, rot, swollen doors, and nonstop A/C bills. Furniture and linens may need regular replacement.
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Disaster Risk: Hurricanes, floods, wildfires, or earthquakes all carry two costs: higher insurance premiums and higher risk of disruption.
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Heating & Cooling: Cold winters mean heating bills and frozen pipes; tropical heat means energy-intensive cooling.
Examples in Practice
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Caribbean Beachfront Villas: Attractive for lifestyle buyers, but corrosion, mold, and hurricane insurance eat away returns.
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Highland Towns (e.g., Boquete, Panama; San Miguel de Allende, Mexico): Mild climates with not much need for air conditioning or heating — lower running costs and fewer weather-related risks.
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Mediterranean Regions: Southern Spain, Portugal’s Algarve, and parts of Italy offer the sweet spot — warm, dry weather with relatively low maintenance demands.
The Investor Angle
When running your numbers, don’t just compare purchase prices or rental rates. Build in climate-adjusted expenses: higher maintenance budgets, replacement cycles for fixtures and furniture, insurance premiums, and even seasonal vacancies if weather deters tenants.
#4: Rules Can Make or Break a Foreign Property Investment
Property laws vary widely from country to country, and they can hurt your returns. What surprises many US buyers is how different the rules can be compared to what they’re used to at home.
A common pitfall: the property you thought you could rent out may not legally qualify for short-term leases. Or, you discover after closing that the best ownership structure itself adds layers of cost and bureaucracy you hadn’t budgeted for.
Country Examples
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Portugal: Short-term rentals require a local license (“AL license”), inspections, and ongoing reporting. In Lisbon and Lagos, new licenses may be restricted or outright banned in certain neighborhoods to limit overtourism.
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Costa Rica: Ownership is generally straightforward, but beachfront properties within 200 meters of the high-tide line are subject to special rules.
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Mexico: Foreigners cannot directly own land in coastal and border zones. Instead, you must use a fideicomiso (bank trust) costing $700–1,200 per year, or a local company if operating as a business.
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Italy: There are no restrictions on foreign ownership, but transaction costs are generally quite high and need to be budgeted for. Bureaucracy is heavy and can drag timelines far longer than expected.
How Do You Plan to Use the Property?
One common mistake we see is an investor who enters a deal without knowing how they’ll use the property. Are they buying it for short-term rental income, long-term tenants, personal lifestyle, or eventual resale? Often, they don’t decide until after signing — which is too late.
This is especially risky in pre-construction projects. Buyers may not fully understand what they’ve signed, and in many cases, developers reserve the right to approve or refuse your intended use. If your plan is too much of a hassle, they may exercise that right — and you’re stuck with a situation you may not be happy about.
Other Important Notes for US Investors
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Taxes: Rental income abroad is still taxable in the US. The Foreign Earned Income Exclusion doesn’t apply to rents. In most cases, though, you’ll also have to pay taxes in the country where your property is located. You’ll then need a strategy to avoid being “double taxed” on the same income.
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Structures and Reporting: The ownership form you choose (individual title, corporation, trust) directly affects both local taxes and US filings. The “simplest” choice abroad may create extra IRS paperwork at home.
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Exit Strategies: Some countries impose heavy capital gains or transfer taxes at sale. These can make it hard to find a buyer when you’re ready to sell. And it hurts your overall return.
#5: Build the Right Support Network
A profitable foreign property doesn’t just depend on location or yield — it depends on the people you trust to run it. Trying to manage everything yourself from thousands of miles away is a great way to raise your blood pressure.
The Core Team You Need
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Property Managers: Look for firms that provide full-service management — tenant screening (or guest services for short-term rentals), rent collection, maintenance, and transparent monthly reporting (in English).
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Cross-Border Attorneys & Accountants: Local professionals who understand both US and foreign rules. It’s not enough for someone to know the local market — if they don’t understand US reporting requirements, you might end up cleaning up expensive mistakes.
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Tax Advisors: US-based advisors with cross-border experience who can coordinate with local accountants. Rental income abroad must be reported in the US, and the way you structure ownership (personal vs. entity) can create very different outcomes.
Banking & Money Movement
Banking is one of the most underestimated hurdles. In Costa Rica, for example, opening accounts often requires a local entity. In Mexico, moving money across borders can trigger lengthy compliance checks and often trigger rejections – we know because we see it all the time.
Even in more streamlined jurisdictions, wire transfers can be slower, more expensive, and paperwork-heavy compared to domestic transactions.
Practical points:
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Verify in advance if you’ll need a local bank account to pay utilities, taxes, or staff.
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Understand local anti-money laundering (AML) rules; some countries flag frequent incoming rents or transfers. (We have a lot of clients who struggle on this point in Mexico.)
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Ask your home bank if they offer multi-currency accounts and avoid the need for an overseas account entirely. Or use a fintech service like Wise or Revolut.
Why This Network Matters
The wrong banker, lawyer, or property manager can create a lot of hassles. A good professional team can:
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Keep your property compliant with local rules.
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Keep tenant / guest services hassles to a minimum.
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Minimize tax and reporting risks in both countries.
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Save you time and money by anticipating issues before they snowball.
Abroad, your team is an important asset. Pay for experience and transparency — because the cheapest manager, lawyer, or accountant usually ends up costing more in the long run.
This is, obviously, something we can help with. Feel free to get in touch with our client support team to discuss further.
#6: Legal Systems Matter
When buying abroad, the legal tradition shapes everything from how contracts are written to how disputes are resolved. Two main systems dominate:
Common Law Systems
Examples: Belize, many Caribbean nations, former British colonies.
Familiarity: US investors often find these systems easier to understand. Contracts tend to be longer, more detailed, and drafted to cover a wide range of contingencies.
Precedent-driven: Courts look at prior cases to interpret disputes, which makes outcomes more predictable.
Advantages: If you’re comfortable with US-style contracts, this framework will feel less foreign.
Challenges: Familiar doesn’t always mean efficient. Some common law countries have overloaded court systems, meaning delays in getting disputes resolved. And they can be very expensive.
Civil Law Systems
Examples: Mexico, Costa Rica, Spain, Portugal, Italy.
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Contract Style: Contracts are often shorter and less detailed, assuming the civil code will fill in the gaps.
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Judge-driven: Judges apply the law directly, without directly relying on precedent. (Technically, the concept doesn’t exist in the same sense as it does under common law.) For foreign investors, this can make outcomes feel less predictable.
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Advantages: Legal processes can be more streamlined when everything is codified, and thus less expensive.
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Challenges: What looks like a “short” or “simple” contract may leave out things US investors assume will be spelled out — leading to surprises later.
Things to be Aware Of
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Title Clarity: Regardless of system, always confirm you have clear title, no competing claims, and rights equal to locals. In some countries, “title insurance” is available, but in others, your only safeguard is thorough due diligence.
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Recourse: In both systems, legal disputes take time and money. The key difference is predictability — common law tends to rely on established precedent, while civil law depends more on the specific judge and code.
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Local Expertise Is Essential: Don’t assume your US real estate attorney can navigate either system. You need a local attorney who lives and breathes that jurisdiction’s property law… and someone in the US who is keeping an eye on your home jurisdiction asset protection strategy.
Key Takeaway
You don’t need to avoid a system just because it feels unfamiliar. With the right local team, both common law and civil law jurisdictions can work. The danger comes from assuming the rules are the same everywhere — they aren’t.
#7: The Yield Premium Principle
Not always possible and not always needed when buying for asset diversification / asset protection reasons.
And be sure to run your numbers conservatively. Assume higher vacancy, higher maintenance, and transaction costs on both the buy and sell side. If the deal still works, you’ve found a solid candidate.
But it’s a fact that cross-border real estate is more complex than buying down the street. Extra paperwork, higher transaction costs, and ongoing compliance all chip away at returns. To make the effort worthwhile, we recommend aiming for a higher yield than a comparable US rental.
That’s because additional costs that aren’t present at home exist when you invest in offshore real estate. That includes:
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Property Management: Fees can run 20–30% of rent in some markets (vs. 8–12% in the US).
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Maintenance & Utilities: Importing parts or labor shortages can push costs higher, especially in island or rural markets.
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Taxes & Insurance: Local property taxes vary widely – some are absurdly low; others are shockingly high to most American eyes. Add insurance for hurricanes, earthquakes, or floods if relevant.
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Currency Transfers: Expect bank spreads and wire fees each time you move rental income back home – not to mention risks from currency movements themselves.
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Travel Costs: Site visits, repairs, or annual inspections add up. Even one personal trip can wipe out months of profit.
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Professional Fees: Local professionals are essential — and they don’t work for free.
Why the Premium Matters
That extra premium isn’t “bonus profit” — it’s your margin of safety against the unknowns: currency swings, legal disputes, sudden tax hikes, or vacancy shocks.
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If the numbers still work after conservative estimates, you likely have a solid investment.
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If the deal only looks good in the glossy marketing brochure, it’s not good enough.
Practical Example
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US Rental Property: $250,000 single-family home, 5% net yield = $12,500/year.
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Foreign Rental Property: $250,000 condo, 7.5% net yield target = $18,750/year.
That extra $6,250 annually covers the very real costs of cross-border ownership — without it, the foreign investment may underperform despite seeming more “exotic” or exciting.
Where does capital appreciation fit in?
A lot of investors get into a deal with the goal of breaking even on cashflow with the expectation that they will make a profit on the sale 3-5 years later. And it’s not a bad model.
But best practice is to be conservative about it. Unfortunately, we’ve seen plenty of deals where the person is paying every month to keep a property, hoping that it will make them money on the sale some years away.
Market-Specific Considerations
Panama: US dollar economy, strong expat support, and (generally) efficient title system. Year-round demand from retirees, business, and tourism in certain areas.
Mexico: Close and culturally rich, but requires planning. In the infamous Restricted Zone, the default fideicomiso is generally a bad structure for investors buying multiple properties and/or using the property for income. (It’s best suited for people who plan to use their properties for personal use.)
Costa Rica: Equal property rights for foreigners in theory (practice can be a little different), strong tourism, and generally good rule of law. But infrastructure outside hotspots may be thin.
Italy: Accessible, but heavy taxes and bureaucracy mean lower net returns unless carefully planned.
Red Flags to Avoid
Foreign property can be rewarding, but the risks are real — and they often show up in the fine print (or lack of it). Here are a few signals that should cause you to move on:
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Promises of 12%+ Returns
If it sounds too good to be true, it almost always is. Sustainable net yields above 10% are rare in legitimate foreign markets. High advertised returns usually rely on inflated occupancy assumptions, manipulated “pro forma” numbers, or unsustainable rental models. -
High-Pressure Sales
Developers and agents who push you to sign “today” are showing you they don’t want you to do your homework. Solid deals can withstand due diligence. If the pressure is on, walk away. We’ve helped multiple clients in such situations and the underlying deal is almost always a bad one. -
Developers With No Track Record
Pre-construction is risky even with an established builder. With a newcomer, it’s a gamble. Always verify past projects, completion timelines, and delivery quality. Ask to see finished units and talk to prior buyers. -
Missing Permits or Unclear Title
Unclear ownership is a deal-killer. In many countries, title disputes and fraudulent sales are common. Always demand proof of permits, licenses, and recorded title. Hire your own professionals — never rely on the developer’s lawyer. -
Unstable Political Climates
Political shifts can bring sudden tax hikes, rent freezes, or property-rights disputes. If a country is experiencing unrest, corruption scandals, or frequent rule changes, your “stable” income stream might not be so stable.
An Insider’s Tip
The best deals abroad aren’t the ones that look spectacular in a brochure. They’re the ones that are boringly solid, pass every legal and financial check, and deliver consistent returns over time. They’re also harder to find because all the professional investors are looking for them too!
Are these the best International Income-Producing Properties?
That’s for you to decide. But enter your email address below to receive a summary of pre-vetted, turn-key short-term foreign rental properties available right now.
The Nestmann Group does not sell, rent or otherwise share your private details with third parties. Learn more about our privacy policy here.
By signing up for this briefing, you’ll also start to receive our popular weekly publication, Nestmann’s Notes. If you don’t want to receive that, simply email or click the unsubscribe link found in every message.
Turning Potential into a Plan
Foreign property can be a smart, enjoyable part of a portfolio — if you do the homework. It’s not just about owning a beautiful villa; it’s about ensuring the asset fits your broader wealth strategy. When structured correctly, it can deliver income, diversification, and sometimes even residency options. But done poorly, it can become an expensive mistake that’s hard to unload.
Most first-time foreign investors underestimate the complexity. Laws differ by country, tax reporting doesn’t line up neatly with US rules, and even basic logistics — like banking, property management, or compliance — can be a challenge. That’s why one of the biggest risks isn’t the property itself, but going in without the right experience or support.
For many investors, it makes sense to start alongside an experienced team:
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Partnerships with established operators mean you benefit from professionals who already know the legal, tax, and management landscape.
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Foreign REITs and real estate funds provide diversified exposure, with professional oversight and lower entry costs. They may not give you the personal lifestyle benefits of direct ownership, but they often provide a safer, more scalable first step.
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Direct ownership still has its place — especially if you have a clear lifestyle goal, such as part-time residency or long-term relocation. But going solo without guidance in a new market is usually the hardest, riskiest path.
If you’re considering foreign property, don’t go it alone. Our team has helped US clients structure, vet, and manage cross-border real estate for years. A short conversation can save you years of frustration — and thousands in avoidable costs.
Are these the best International Income-Producing Properties?
That’s for you to decide. But enter your email address below to receive a summary of pre-vetted, turn-key short-term foreign rental properties available right now.
The Nestmann Group does not sell, rent or otherwise share your private details with third parties. Learn more about our privacy policy here.
By signing up for this briefing, you’ll also start to receive our popular weekly publication, Nestmann’s Notes. If you don’t want to receive that, simply email or click the unsubscribe link found in every message.
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
