Don’t Rent A Home Overseas Unless…
If you’re moving overseas for fun rather than profit—that is, if your agenda in considering the world map is lifestyle before investment—we say rent before you buy.
Renting first wherever you relocate overseas gives you a chance to try the place on for size and to confirm or reconsider.
Lief and I have done this for each of our international moves, and, in each case, we’ve been glad we did. In Ireland, renting first saved us from making the big mistake of settling in Waterford City. It took only a few months living there to realize that we preferred Irish country life to Waterford city living.
In Paris, we positioned ourselves first in a rental on rue de la Huchette. Rue de la Huchette is one of the oldest streets in Paris… historic, charming, lined with restaurants and caveaux… and maybe the most touristed little rue in all Paris.
One year of living above the all-night goings-on that make rue de la Huchette the attraction it is was enough. From there we moved into a place of our own… on rue de Verneuil, another of the oldest streets in Paris but this one virtually unknown. The only tourists who make their way down rue de Verneuil are lost.
We’ve been renting here in Panama, as well, since our move from Paris nine years ago. We’re now in our third rental. The first two turned out to be in neighborhoods that didn’t suit us for different reasons. This third location is a perfect fit.
Note that, while we are well invested in Panama property markets and own rental properties in Panama City, agricultural and timber investments in the interior, and the beachfront community we’re developing on Panama’s Pacific coast, we’re still renting the place where we’re living.
This is for many reasons, including the ones I’ve suggested. First, in Panama we’ve kept our investment agendas separate from those to do with our day-to-day life here.
And, second, renting our home in Panama has kept us flexible.
These serial rental experiences over the past two decades have taught us that, just as buyer should beware in a new market, so should renter. Not all properties are created equal, and neither are all property owners or property management companies.
Here are five things to keep in mind when renting long-term in a foreign country:
#1: Think twice before renting new construction or just-completed renovation.
You don’t want to be the first person living in a place. It makes you a guinea pig, left to work out the kinks.
This was our frustrating experience in the second home we rented in Panama City, in Casco Viejo. The owner hadn’t done a punch list after the extensive renovation he’d undertaken just prior to our moving in. In effect, we did. We suffered through a long list of things that didn’t work and that hadn’t been properly addressed (including a roof that leaked in six places, no hot water in the guest bathroom, and bedroom doors that couldn’t be closed because they bumped into the ceiling fans).
We discovered too late that the long-distance owner didn’t seem to care whether anything worked or not, leaving us to deal with his incompetent and unresponsive property manager. Thus our third (and current) rental.
#2: Investigate the reputation of the management company responsible for the property.
Speak with current clients of the group managing the rental you’re considering moving into. If the feedback is largely negative, find another place to rent.
Same goes for building management in the case of a high-rise apartment building.
In Panama, most new buildings come with loads of amenities (swimming pools, grill areas, children’s playrooms, basketball courts, tennis courts, spas, gyms, even putt-putt golf). However, if the building administration isn’t maintaining the amenities, and you therefore can’t use them, what’s the point of paying for them (as you will, as market rents take into account a building’s amenities even if they aren’t usable)?
#3: Understand what documents you will need to be able to rent.
Depending on where you’re moving, the answer could be none. On the other hand, in some markets (France, for example), you’re going to have to prepare a dossier of paperwork (including, for example, recent bank statements, pay stubs, reference letters, even, sometimes, letters of guaranty) to submit for approval before you’ll be able to sign a lease.
In Panama, you generally don’t need any documentation to rent. You find a place, sign a lease, pay your deposit, and move in.
In Paris, on the other hand, again, you’ll need a folder full of paperwork—unless you rent on the black market. Renting long-term on the black market can be more expensive, but it overcomes the dossier hurdle, which, depending on your situation, you may not be able to meet.
#4: Understand what deposit you will be required to make.
The general rule is that you’ll have to pay the first month’s rent plus a deposit equal to one month’s rent. Sometimes, the deposit can be one-and-a-half or two months’ rent.
Whatever the deposit, don’t expect to see it again. Friends in Paris joke that the best way to think about any security deposit you make in that market is to amortize it over the lifetime of your rental. In other words, consider it part of the rent. (I’m speaking about long-term rentals, not short-term tourist stays.)
In Panama, if your landlord is following the law, your deposit will be posted with MIVI (Panama’s department of housing). MIVI holds the funds and then releases them at the end of the rental term. If something is to be deducted for damages, the landlord informs MIVI, and the renter (you) is given a chance to sign off on the amount to be withheld for repairs.
Unfortunately, not all landlords do this (many foreign landlords aren’t even aware they’re supposed to do this). This means your deposit is at risk.
In the case of our first rental in Panama City, an apartment in a high rise, the landlord returned our deposit within a couple of weeks of our moving out. He made no deductions, and we got our deposit back in full.
In the case of the house we rented in Casco Viejo, the property manager refused to return our deposit, citing “damages.” However, he refused to tell us what the damages were (we weren’t aware of any) or to itemize the costs for repairs. He kept the full amount. As he hadn’t posted the amount with MIVI but had kept it himself, we were out of luck.
#5: Use an attorney.
You know to use an attorney when you buy property overseas, but you should also use one when signing a rental agreement in another country. Unless you are very familiar with tenants’ rights and the particulars of rental contracts in the country where you’re renting, it pays to have someone review the documents before you sign.
Plus, the rental agreement will be in the language of the country where you’re renting. Unless your Spanish, French, Portuguese, etc., is really strong, you want someone fluent in the language and familiar with the local laws related to rentals to review the document for you.
A good attorney will also inform you of any negotiable clauses—that is, any opportunities for you to adjust the terms of the agreement to your benefit.