In recent years studies examining international mixed-asset portfolios have failed to uncover any significant benefits from foreign real estate. These papers have concentrated their focus on foreign exchange rate risk as "the problem" with respect to foreign investments, and therefore they sought solutions from traditional hedging tools such as leverage, options, forward contracts and even currency swaps. This study considers differences among countries in national income tax rates as a plausible explanation for the interest in foreign real estate investment. Hypothetically, it may be possible for investors to move a portion of their wealth to a foreign country and take advantage of lower marginal tax rates. After-tax returns from mixed-asset portfolios consisting of (1) domestic financial assets only, (2) domestic financial assets plus foreign financial assets, and (3) domestic financial assets, foreign financial assets and foreign real estate are evaluated. The findings indicate that there are no significant after-tax benefits for foreign investors from investment in U.S. real estate.
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