Renovating a property overseas is something many of us dream about.
But I can’t go any further without asking you one question…
How are you with getting things fixed around your own home?
It’s important to consider that whatever you may find challenging about maintaining your current home will take on a whole new level of challenge in a foreign country.
Today, we’re going to look at some important factors to consider before you commit to buying a fixer-upper overseas.
But, first, let’s take a step back and regroup…
Why do so many buyers fall for renovation properties in the first place?
Apart from the personal satisfaction that comes from restoring an old property, buying a fixer-upper is often an opportunity to secure a place at well below market value. Then, by keeping your renovation costs in check, you could position yourself for a tidy profit when time comes to resell.
This is especially true in countries with low labor costs. In Latin American markets like Ecuador, Colombia, and Brazil, you can make improvements to the property that add much more value than the cost of the work. And you come out of the project with a beautiful property—something that feels more special than a shiny new construction.
If you’re in the market for a fixer-upper overseas, it’s important to keep in mind the following…
1. Location is still king.
As with any real estate purchase, location is your top priority. It’s the only attribute of the property that you can’t change. Location is especially important with a restoration project where you intend to sell at a profit. At resale time, buyers will overlook a multitude of sins for a good location.
With a city property, think about walkability. Look for a property that’s convenient to restaurants, cafés, grocery shopping, and home supplies. Resale buyers and renters usually want the same thing.
2. Identify your potential resale buyer or renter.
Unless you’re planning to stay in the home forever, do your best to imagine who your resale buyer might be. If you plan to rent the property out, identify your target renter. If your resale buyer will likely be a retiree, you’ll make different choices than if it were a family with children… both in the work you do and in the location you pick.
If the property is for you, make sure you’re happy with proximity to entertainment and public transportation, as well as the level of noise and activity nearby.
3. Check the structural basics.
Verify that the house is structurally sound where it counts. Problems with things like the foundation, structural members, or termite-damaged framing may be too expensive to make it a viable investment.
In fact, the perfect fixer-upper (with the most upside potential) will have a solid structure but horrible curb appeal… in an otherwise attractive neighborhood.
Things like an overgrown yard, peeling paint, and broken windows are nickel-and-dime items that can change the eventual resale value dramatically.
4. Set your target budget in accordance with the market.
Location aside, you want your restoration project—in its finished condition—to fit in with its neighborhood.
Let’s say that you want to buy a house for US$50,000, then invest another US$50,000 on renovation work, and ultimately sell it for US$150,000 (a reasonable expectation for profit margin). Make sure the other homes in the neighborhood are selling in the same range.
5. Spend on items that add value.
It’s easy to overspend on non-value-added items. A modern kitchen, granite or ceramic counters, paintwork, and updated bathrooms are worth the money. That is, they’re usually worth more at resale time than you spend on them. But a swimming pool or an epoxy-finished garage floor—while nice upgrades—are expenditures you’re unlikely to recover at resale time. Installing some of these luxuries is inevitable; things that you simply want for yourself. But keep track of them to make sure that they stay in check.
Remember, too, that the value you’re adding will vary with the country and the neighborhood. A gourmet kitchen would be expected in a rental property in the upscale neighborhoods of Medellín… but in an old-fashioned neighborhood in Loja, Ecuador—where your Ecuadorian buyer will have a maid who does the cooking—the gourmet kitchen is of little value.
Also, anything that contributes to openness is a sure winner… especially in countries where the rooms are small and kitchens are closed (normally the maid’s domain), but your end buyers are Americans or Canadians.
6. Get used to using local materials and methods.
In the United States and Canada, wood is cheap and plentiful. But, in most of Latin America, lumber is expensive and rarely used as a bulk building material. To keep the cost down (and get a solid home), plan on using masonry for the construction and saving the wood for trim.
Try not to be too directive with local craftsmen until you’re familiar with how things are done locally. For example, you may find the traditional way is to build kitchen cabinets out of brick and ceramic tile (with wooden doors)… which gives you a much sturdier construction. Sometimes local methods will surprise you—in a good way.
7. Be there while the work is going on.
Drawings with measurements are invaluable, but make sure your workers or their supervisors are reading them correctly. The biggest cause of error is often not because the contractors or workers are inept… but because the difference in our standards and expectations can be vast and is compounded by the language barrier.
If at all possible, be there when the work is going on, unless you have a trusted associate who knows your standards for quality. If you don’t speak the language of the workers, enlist the help of someone who does. If you just hand a project over to a local craftsman or contractor, you’re sure to find unwelcome surprises when you return.
If This Is Your Dream… Follow It
I’ve doled out a lot of cautionary advice today. But it’s important that you take time to understand the market, the potential of any property you’re interested in, and in engaging reliable workers. For recommended contractors or tradespeople, reach out to other expats in the area. If you don’t know any in person, online expat communities can be helpful.
If you’re planning to spend time in the property yourself, another benefit of doing up a property is that it’s a great way to become part of your new community. You’ll get to know the local tradesmen and vendors, and, immediately, you’ll have a circle of acquaintances who likely will become friends.
Where Should You Look For Renovation Opportunities?
From France and Italy to Malta and Montenegro, the inventory of old historic properties for renovation is vast in Europe… but this opportunity isn’t limited to the Old World.
Colonial towns in Latin America also offer interesting options. Great places to be looking right now are the historic quarters of Santo Domingo, Dominican Republic; Mazatlán, Mexico; and Granada, Nicaragua.
Editorial Director, Overseas Property Alert