Thinking of investing in real estate abroad by flipping houses? Everyone wants to be an entrepreneur, and why not? Bank deposits are paying nothing. Capital markets continue to be volatile, and not easily understood. Nothing like real estate, though. Bermudians have been obsessed with owning property, forever, it seems. So, nothing like using your business smarts and hard — sometimes back-breaking work — to earn your way to financial success.

You are considering investing abroad, buying distressed real estate property, flipping houses, and/or renting them out. Sounds like a great idea! Promoters, book authors, publishers, and reality show hosts galore in the United States, Canada, and UK have (and are) making huge paychecks — well, at least, we assume there are big payoffs while touting the benefits of this popular form of self-employed determination.

Who among us has not enjoyed, at least once — admit it — watching the television shows on house hunting, renovating properties, do-it-yourself home maintenance, buying a fixer-upper, staging the cosmetic changes, and then reselling it. Some real estate developers’ shows on finding the right property, at the right price, for the right couple, then refurbishing it to current cosmopolitan taste are fun to watch, and particularly interesting when the dubious purchasers spend considerable amounts of time whining when they can’t obtain a luxurious look on a very lean budget.

How tough can it be to try this new venture? Just a lot of elbow grease, spruce things up, in come those starry-eyed buyers and do we have a deal? In the reality shows, a mere five minutes after they make their agonising choices, generally with the backdrop of a gorgeous beach, mountains and incredible life panoramas.

But, what happens to the deals that go bust, or the house sits on the market without selling? Generally, we don’t get to find that out. These shows are after all, entertainment first, some possible reality second, with much of the grit and anxiety, like grinding it out watching the cash deplete if the house is not turned fast enough, carefully excluded. Television is the art of making reality less than real, where people seem more like avatars, with the implications that success is just around the corner.

Maybe it is.

However, it is one thing to work within your own country where it is assumed you know the rules, regulations, codes, and taxation structure — just about zero tax in Bermuda. It is an entirely different matter to walk into another country as foreign national, contemplating operations in jurisdiction where the rules of the game are entirely foreign (pardon the pun).

If this is a business venture you may be interested in pursuing in the United States, for example, there are many, many areas of US tax, regulatory, environmental, legal, insurance, finance, and operational information that you need to know from both US federal regulations and a state perspective. It does not matter whether you decide to operate as a self-employed sole trader, the majority shareholder of a corporation, or limited liability company, you cannot avoid the regulations without consequences.

Construction is the largest driver of the economy in the United States, and one of the most complicated for business operations and tax reporting. It is a cyclical industry that can generate severe booms (hooray) and busts, all contingent upon a myriad of internal and external economic, legal, tax, and related factors. In construction industry investments, there are rather stringent regulations, and timelines, often very different from state to state — fail to meet them and your property will not receive the “go-ahead green for sale” sign. You may then be in the predicament of sitting on an investment that is now rapidly depleting into your operating capital.

If you are going to consider operating a business in another country, learn everything, study the laws, the tax code, the regulations, take your time. Hire competent US professionals (Certified Public Accountants and attorneys in the area) who fully understand the strange new environment you are entering, who realise the foreign national issues you bring to the equation, and who will guide and protect you against the pitfalls of financial disaster.

Apply logic. Employ ‘what if’ scenarios, such as ‘what if I flip this house, no one buys it, but it stays empty and is vandalised?’ and ‘what if I have to stay longer in the United States than the ultimate 180 days allowed that trips the US resident for US income tax purposes’ calamity? A good place to start is your research investigation is with the Homebuilders Association in the state you plan to start your real estate development venture.

The excitement and advice of a promoter, a reality television show, get-rich quick books and you-tube videos can easily overcome common sense. It all sounds, looks, and feels so very glamorous, so exciting, so much fun, so right just for you; but honestly, how much of that reality is real when compressed into a one hour show, anyway.

Deal with this venture as a cold hard reality.

Never completely trust anyone, even professionals, when investing deals arise. In the end, you are the best manager of your money. Trust your instincts and do your homework, always.

Section two — next week. Overview of the six basic construction rules: know your demographics, understand your non-residency constraints, calculate your operational risks, thorough adherence to ALL tax compliance and building/business regulations, hiring competent experienced qualified professionals and have plenty of cash saved.

Sources for review:

National Association of Home Builders and the Home Builders Association in the state you chose for business operations.

US Internal Revenue Service website section for rules relating to foreign nationals conducting trade or business in the United States.

US Small Business Administration

US Economic Data on Housing

This article is for general information only, and does not begin to cover in any depth the detailed regulatory requirements for business operations in the United States. This information cannot be relied upon for any specific individual business or financial plan. Any individual thinking of investing his/her money in another country is forewarned; always consult with knowledgeable licensed qualified professionals with expertise in those industries and who understand the ramifications of foreign investment (and residency) in the United States and the tax implications therein.

Disclaimer: The author (Martha Myron) worked in, then worked with clients in United States construction industry, including small and real estate development and construction companies, ancillary tradesmen support companies, and a state home builders’ trade organisation, from 1984 — 1997 when the state experienced a severe recession and eventual recovery.

Martha Harris Myron CPA PFS CFP JSM, Masters of Law in International Tax and Financial Services

Pondstraddler* Life™ Consultancy provides independent cross border financial planning, publications and integrative presentations for Bermuda residents, international citizens (and businesses) living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre. Contact: martha@pondstraddler.com Bermuda Tel: 1 441 735 4720

* Pondstraddler. A person with one foot on each shore whose heart resides in both countries.