How To Buy Real Estate Overseas
The falling markets worldwide are creating interesting buy opportunities (” Recession Buy Round-Up”), for both personal use and investment.
But…invest in a piece of real estate in another country? Yikes. How do you get started?
Here’s your guide to how to buy real estate in a foreign country:
First: Understand why you’re buying. For investment or for personal use?
The answer may not be clear-cut. And, in fact, the best case is when you find a piece of real estate in a place where you want to spend time that also holds out the potential for an investment return (in the form of capital appreciation and/or a yield from rental).
State your objectives and exit strategy expectations clearly for yourself and for anyone else buying with you. Every decision you make related to the eventual purchase is affected by the property’s intended use.
If you’re buying, straight-up, for profit, every decision is based on the numbers. If you’re buying for personal use, even part-time, you’ll make your choices based on many things, including some that can’t be quantified in a spreadsheet.
Now that you understand why you’re buying, you need to decide where you want to buy what. Here are some stars to steer by:
- Where in the world should you focus? I’ve been making specific “recession-market” recommendations over the past week-and-a-half (and will continue to do so). As you consider them (and the rest of the globe), think about:
- The Path of Progress. This is a key factor when buying for investment but important if you’re buying a retirement or second home abroad, as well. What infrastructure improvements are planned? A new airport, new train station, new highway, new hospital, etc., can mean a new universe of potential buyers…which is good news if you’re buying as an investor looking to develop or to flip. These things, though, also translate to better living.
- Inventory Supply and Demand. In Panama City, right now, for example, a glut of high-rise condos is coming online. These units were launched and sold pre-construction over the past two-plus years. Now they’re being delivered…and their volume is one reason Panama’s capital market continues to soften.
- Costs of Acquisition. Remember that they go beyond agent commissions. Depending on the market, they can also include: legal fees, notary fees, registration fees, title insurance (we strongly recommend it), and transfer taxes (sometimes called “stamp duty”). In Ireland, for example, stamp duty can be as much as 9% of the purchase price.
- Carrying Costs. Including: maintenance (a house on the beach requires a lot of it, for example); a caretaker (if you won’t be in residence full-time yourself); property taxes (not every country charges them, and, in some countries, they’re negligible); income taxes (if you’ll be earning rental income); capital gains taxes (when you eventually resell…again, not every country charges them); other local taxes; property management expense (you’ll need a property manager if you intend to rent); rental management expense (separate from property management and, again, necessary unless you’re going to manage all the details of your rental investment yourself…something I don’t advise); and homeowner’s association/building/condo fees.
- Economic Outlook. Critical if you’re buying for investment, but you don’t want to ignore the market climate even if you’re buying purely for personal use. Markets move up and down…and then up again. At what point in this cycle is the market where you’re thinking about buying right now? In which direction is it moving?
- Opportunity for Diversification. In terms of market, type of investment, type of property, and currency.
- What kind of property should you be shopping for?
- How much space do you need? If you intend to rent the place out when you’re not using it, understand what rents best on the local market. Apartment or house? One bedroom or two? Think in terms of cost per square meter when making comparisons.
- Where do you want to be? In the heart of downtown…or out in the country? On the coast or overlooking a river? In a gated community, a local neighbourhood, or off on your own with undeveloped acres between you and your nearest neighbour? Consider climate, traffic patterns, transportation (where you settle determines whether you’ll need to invest in a car, for example), the convenience factor, and nearby amenities (shopping, restaurants, nightlife, parking, etc.).
- Furnished or unfurnished? If you buy unfurnished, where and how will your source furniture?
- What’s your budget? Everything follows from this. Be clear on it before you start shopping. Don’t forget closing costs, attorney review, other due diligence costs, and title insurance.
“I’ve just read,” writes Costa Rica Correspondent David Stubbs, “that this country is (again) reconsidering the minimum requirements for its Pensionado and Rentista foreign retiree programs.
“The Costa Rican government originally began discussing changes to these visa programs in the fall of 2008. At that time, it was proposed that the minimum requirement for the Pensionado visa be raised to US$2,000 per month and that the minimum requirement for the Rentista/Inversionista visas be increased to US$5,000 a month.
“Furthermore, the proposed legislation included no provision for grandfathering existing foreign retirees in the country.
“Today La Nacion reports that these previously proposed minimum requirement amounts may be cut in half. That is, should the law change be passed as is now being discussed by Congress, Pensionados would need only US$1,000 income per month, Rentistas/Inversionistas only US$2,500 monthly.
“Since I’ve been living in Costa Rica, the minimum income requirement for the Pensionado visa has been US$600. This is too low.
“On the other hand, US$2,000 is too high.
“If the proposed new requirements are, in fact, revised downwards, as is now being discussed, it’d go a long way toward reassuring this country’s retirees, who have felt a bit betrayed since these discussion began last year.”
“Kathleen, I just can’t keep quiet any longer, hearing all of those horror stories about Mexico. Yes, some places, like Juarez (bordering El Paso, Texas, where my family lives), can be quite dangerous, and no one goes there anymore.
“But I just came back from a wonderful trip to San Miguel de Allende in March, my first time there, and let me tell you how fabulous it was.
“We rented a house on Animas Street, walking distance to the Jardin (the garden), and we would walk there during the day and go back at night, too. There was always something going on. I happened to be there for a festival with Aztec Indians dancing. What a spectacle it was! The loud beating of those drums, the muscular men and beautifully dressed women, all stomping their feet and dancing in circles. A sight to behold. All of this in front of the large church (called the Parroquia).
“On another day, there was a band playing, again at the Jardin, and a large crowd gathered. People began dancing with each other. I was asked to dance by a Mexican gentleman, and it was fun! The Mexican people are kind and friendly. Everyone talks to each other, and no one is a stranger.
“The same cannot be said here in the U.S. Pay attention the next time you go to a park in the States. Everyone is off in their own little corner, and people keep to themselves.
In San Miguel, I was constantly singing, whistling, dancing, walking, and talking to everyone.
“As far as safety, I would walk alone at night, back to my casa, and I never felt threatened.
“All in all, I had such a great time.
“Next adventure, I’ll be off to Ecuador!”
— Loretta M., United States