Real estate investing for economic citizenship

This is Week Eight of the 26 week series #MyEconomicCitizenship. Each week I give you a glimpse into my life as I share the ups and downs experienced in pursuit of a second passport through economic citizenship. Each feature includes my weekly journal walking you through the process of obtaining economic citizenship, followed by an in-depth look at some of the most important topics people considering economic citizenship should understand. The series is presented by Nomad Capitalist in partnership with Peter Macfarlane & Associates, whom I worked with to obtain my passport. To read the entire series, just click here.

Dateline: Kotor, Montenegro

A while back, I mentioned to a few select people that I was going through the process of buying a passport. When I mentioned that I was looking at the programs in the Caribbean, many of them guessed that I was considering Dominica since it is the program most Americans know — and it’s the cheaper option.

One guy who is in this business brought up Dominica’s newer real estate option and asked if I would be taking the real estate route toward economic citizenship. My answer was a resounding “NO!”

Let me explain why that is…

For the longest time, Dominica — which is the second-longest-running economic citizenship program in the world — owned the donation option. They just wanted $100,000, plain and simple. However, St. Kitts and Nevis had the option of buying real estate and Dominica eventually adopted a similar program.

A lot of people like the idea of getting something for their money, particularly when they’re told that in a number of years (generally five) they can sell their estate and cash out. Since the typical mindset of many people who want economic citizenship is to figure out how to put in as little as possible, the idea of recouping their investment is obviously very attractive. I understand that. I’m not complaining. I’ve been there.

That particular mindset can be smart. It’s like Donald Trump when he said in the debate that paying no taxes makes him smart. But here’s what’s also smart: Getting the best economic citizenship and the best value without trying to be smart… and failing to be so.

Is it worth it?

Back in 2012 when I was first considering getting economic citizenship I read the book Emergency and interviewed its author, Neil Strauss. He had gone down to St. Kitts and Nevis and bought real estate for $400,000 for their economic citizenship program. Unfortunately, the lawyer eventually ran off with his money.

The first lesson I learned from Neil’s experience is that working with a western intermediary is a good idea. Often with real estate overseas, working with a western intermediary is a bad idea because it just adds on extra expenses. In Colombia, for example, all the American guys who sell real estate there will overcharge you every time. If the word “American” is in the name of the company, it’s a ripoff. But in the case of economic citizenship, you will want an intermediary who understands your deal because people in the Caribbean can be a little slow and you never know what can happen.

The second lesson was that the real estate offered through these programs is very low quality. Neil Strauss said that when he went down to St. Kitts and Nevis to check out the properties his first thought was, “Wow, this is horrible. This real estate is ugly.”

Since talking to Neil I’ve talked to half a dozen other people who have looked at the real estate options at these various projects in St. Kitts and Nevis — including one person who actually bought it. I’ve also talked to some of the folks who are involved in projects down in Dominica (although there aren’t very many). The general consensus? It’s not worth it.

Quality, supply, and demand

People might think that because I’m developing properties in Georgia, Montenegro and elsewhere that I would like the option of investing in real estate in exchange for citizenship. There’s just one small difference: quality. Everything that I’ve learned from all the people I’ve talked to and my own research is that these properties down in St. Kitts and Nevis just aren’t attractive. Everyone I talked to is just appalled at how bad it is. And in Dominica, it appears to be the same thing so far.

Sure, you can pay an extra $120,000 – $150,000 and instead of just donating the money you get a house. But if you’re counting on the idea that you can resell the property five years down the road, you’ll discover just a little too late that it was a terrible investment. There are and definitely will be more people doing programs like this, but the demand won’t be enough.

Not enough to outpace supply at least.

The inventory in these countries is growing quickly and there are other programs popping up with new pitches every year. The number of people interested in comparison to the programs available isn’t going to keep up. Besides, your real estate will be used, not brand new. A new buyer might as well buy poor quality new real estate instead of poor quality old real estate. No one is going to want to buy your approved real estate from five years ago when the supply of new properties is so abundant.

Plus, they’ll know you just want to dump it. It’s not like you’ll be able to say that the home has been in the family for twenty years and that you really want to keep it unless someone makes a great offer. Any buyer will easily see that you just want out. How are you going to make that kind of sale?

Can you make real estate investing work?

On top of the fact that the building projects in St. Kitts and Nevis just aren’t very nice, there are a lot of newer projects that they are trying to make a little bit nicer. The catch? You only get access to the property for a month out of the year. It’s basically a timeshare. You pay $420,000 into a $5 million condo and you get a month’s worth of access each year.

The positive is that that kind of purchase will qualify you for economic citizenship. In places like St. Kitts and Nevis they don’t really care if you have a house there, they don’t care if you live there and they barely care if you ever go there. The one exception is Antigua and Barbuda, where economic citizens are required to spend five days living in the country during the first five years after obtaining citizenship in order for their passport to be renewed.

But the only way I see a real estate investment of $420,000 being worth it on one of these islands is if you plan to live there full time. St. Kitts and Nevis is tax-free — including on income tax — so you could live there full time and that would be fine. Just understand that everyone I’ve spoken to who’s looked into the real estate in these countries has said it wasn’t worth $400,000. If you’re not committed to living there full time, there are just too many better options out there to justify investing your money in Caribbean real estate.

Go where you’re treated best

These countries are very trusted when it comes to issuing citizenship. There is one country I don’t recommend because they once had problems renewing people’s passports. Because of that problem, they canceled their program for a time, but they have since brought it back. I’m still not too keen on recommending it. In general, however, if you stick with the programs that I recommend, you’ll be fine. You’ll get your passport renewed.

You can trust their citizenship programs, but the real question is whether or not you can trust these countries’ economies. Do you want government bonds from countries that have huge dept-to-GDP ratios? Do you want to buy real estate there when the supply is being out-stripped by a bunch of developers? Do you really think you can spend more now on a real estate purchase and get more out later? You don’t know more than the developers and you don’t have the inside track like the developers do. So stop trying to be a developer.

Pay the money, admit the money is gone, make the donation and you’re done. That’s the best way to do it. Your other option is to put something on your balance sheet and watch it slip away every year. Unless you plan on living there full time and it’s worth it to you in a non-economical sense, you will never get the full payback on the extra $120-150,000 you’re going to pay. You will not get that money back. I can almost guarantee it.

Instead of pouring your extra money into real estate developments in these Caribbean countries, keep the money and invest it elsewhere.

An unnecessary investment

As much as I like real estate, my approach to real estate investing for economic citizenship is that it is unnecessary. I’d much rather be doing the deals that I’m doing in Georgia where I can buy a hotel building for $75,000. I’d rather do those kind of projects. I’d rather do properties on the beach in Montenegro where I’m looking at a whole portfolio of properties and it’s barely $100,000. That’s what I would do with the extra money instead of suffering the opportunity cost of buying real estate in these economic citizenship programs.

The only time I would buy real estate for economic citizenship is with a program like Austria’s that basically requires you to impress them enough by investing inordinate amounts of money in the country. I would also not rule out a real estate purchase to obtain residency in certain countries. I don’t particularly care for Latvia (more about that later), but Ireland’s program that combines real estate investment and government bonds is actually attractive. I’m not saying those programs don’t work.

For economic citizenship, however, buying real estate to get the passport is generally a bad idea. That’s what I’ve learned and that’s why I’m not doing it. I’m putting my money somewhere else.

Get your own economic citizenship and second passport

My goal in doing this series is to help as many people as possible become global citizens by obtaining second citizenship. I live this stuff, in part, so that I can better help individuals like you reduce taxes, obtain a second passport and experience more freedom.

If you’d like to work with me directly to create a wholistic global citizenship strategy, then click here. We’ll go through an entire deep dive process to determine exactly what you need — from passports to residency to where you’re going to live — all so we can get you to your end goals.

If you’re just interested in getting a passport and already know which passport is the right choice for you, then you can go directly to Peter MacFarlane & Associates’ website and contact them by clicking here.

If you’re still determining which approach you should take, feel free to keep reading this series to garner all the knowledge you need to form a vision and actionable plan for the future.

Andrew Henderson

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The Nomad Capitalist team has helped hundreds of people create and execute holistic offshore plans to help them legally reduce their taxes, become dual citizens, and live the Nomad Capitalist lifestyle of success

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