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

Consider the cost of your desired location

“I have no problem living in a rental property if ... I'm generating revenue [somewhere else].” Butcher said. "I have no desire to go out to a small town...I'd rather have it in the [United Kingdom] so I can rent it out knowing I have family nearby to check on it."

Depending on whom you ask, now could be considered the best and the 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, that doesn't remain true everywhere, as we've seen here in Canada, where housing prices continue to rise.

Yet as Butcher describes, the idea of renting at home and buying abroad is appealing to many millennials like himself. It's something Margaret Leong, senior investment counsellor and portfolio manager for BMO Private Wealth, sees plenty of these days.

"I’m seeing more millennials inheriting money from their parents as a wealth transition starts happening," Leong said in an interview. "[Real estate] has a lower co-relationship with the financial market, and it also has a good ability to keep up with inflation in the long term. So for this reason, it's actually an excellent asset class."

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

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Research the market, rules and regulations

Some questions Leong suggests potential investors consider would be to ask how would this investment fit into a person's overall wealth and goals, and what would their exposure be? For Butcher, the average cost of a home in England stands at about £268,349 as of October 2021, according to Statistica. That's about $445,000 in Canadian dollars. Compare that to the $748,439 average in Canada as of January 2022.

To get started then, Leong recommends finding a local real estate agent to provide both information on the area, and some comparisons. This will help you figure out what kind of return you'd need from such an investment.

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"Real estate is generally a long-term investment, so have that mindset. In terms of the risk, we have all learned from the pandemic this could all of a sudden end. So we have to stress test this what-if situation of this worst-case scenario," Leong said.

Then there's the understanding of the costs associated with the property to consider. It's not just a mortgage and property taxes, but the potential for something like the "Non-Resident Speculation Tax" that we have here in Canada. This tax charges 15% on a purchase or acquisition of residential property for those who aren't citizens or permanent residents of Canada. Still, there are even ways around this, Leong said.

"Between Canada and some of these countries there are tax treaties, so you may not have to pay dual taxes. But there are other jurisdictions that don't, so this is something that would have to be figured out," Leong said. "In say China, 10 to 15 years ago we could go there as a foreigner and buy with cash. But now, foreigners aren't permitted to buy these properties."

There are also potential legal challenges with inheriting foreign properties.

"[S]ome countries may not recognize a Canadian will," Leong said. "If you want to make sure your children or family inherit this property, how would that work?"

Is it business or pleasure?

Then there's the biggest question of all, Leong said, as to whether this absolute ownership across the world is a desire, 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.

"But if it's a pure investment point of view, real estate is a great opportunity for cash flow and growth potential," Leong said. That's why the first step in any investment decision should be to meet with a financial advisor, and discuss what's possible in the first place. Especially for millennials, whose lifestyles are only getting busier.

For Butcher, it's the real estate that's the investment, but the location that matters. The goal is to have roots near his family, but live in Canada where he now has a partner, a job, and a life. But owning in Canada is simply not as appealing as owning back in Devon.

"You have to be realistic. For me, it's all about family. It's either Devon, or close to [my partner's family]," Butcher said. "I have no desire to go anywhere else."