As the stock market becomes increasingly volatile and low-risk bonds continue to offer tiny rates of return, investors are desperately seeking to find vehicles that produce decent yields. In normal times, many savvy investors would turn to the residential and commercial real estate markets in the United States. Several past recessions have been mitigated and eventually ended thanks to the efforts of committed groups of powerful real estate investors. After all, construction and maintenance spending promotes hiring and increases economic vitality at the local level.
Unfortunately, these are not normal times. Although the American property market appears to have turned a corner, it remains unhealthy and probably can't support the influx of cash necessary to boost the economy. As such, thousands of domestic property investors are setting their sights overseas. This has been going on for some time: The foreigner-fueled Irish commercial real estate boom coincided with the American residential real estate boom of the mid-2000s and ended in similar fashion.
Although yields on foreign property investments tend to be lower today than in the past, they remain attractive by domestic standards. The emerging "buy to let" market enables American investors to purchase commercial or residential properties overseas to rent to local business owners or residents. Likewise, plenty of American families own timeshare-style vacation homes in other countries. When they're not using these properties, they rent them out to locals or other expatriates. Even if these aren't traditional profit-focused real estate holdings, they produce substantial and predictable streams of income for their owners.
For U.S.-based investors, the ownership of foreign property has special tax implications. These are often determined by the laws of the country in which the property lies and the citizenship status of the investor in question. In general, investors who have United States citizenship or permanent-resident status must pay American taxes on any income earned from foreign property holdings. This is true for ongoing rental income as well as for the capital gains realized from the sale of such property.
Most foreign governments also levy taxes on income and capital gains earned within their borders. The United States maintains treaties with certain other countries to help mitigate this "double taxation" problem. While each of these treaties is different, most stipulate that American citizens can't be required to pay the same taxes twice. American-owned property in countries without these treaties may still be "double taxed" according to the laws in each jurisdiction.