How To Vet A Foreign Real Estate Buy
“Once you understand why you’re interested in buying a piece of real estate in another country,” writes resident global real estate investing expert Lief Simon, picking up where he left off yesterday, “and where you want to own, you’re ready to launch your overseas property search.
“Here are the key factors to keep in mind as you scout opportunities:
- The real estate agents you encounter may not be licensed, and they may have next-to-no relevant experience (maybe they were travel agents or mechanical engineers in previous lives…I’ve known real estate agents in emerging markets who were both those things as recently as two weeks before I made their acquaintance)…
- The real estate agent you decide to work with probably isn’t working for you. In emerging and unregulated markets (like the ones I direct you to regularly), the property agents don’t work for the buyer, and they don’t work for the seller. They work for the commission, which they want to be a big as possible…
- This can lead to something called “net commissions,” whereby the seller tells the real estate agent what he wants to net from the sale. The agent sells for whatever he can sell for. Then the agent pockets the difference (which can be substantial, as much as 20%, 30%, 40% or more)…
- Likewise, in the markets where I direct you, you’ll typically find no multiple listing service and no tradition of shared listings…
- Don’t take clean title for granted. Invest in title insurance where it’s available. I recommend First American Title Insurance, www.firstam.com…
- In particular, be careful about purchasing ejido land, cooperative land, or rights of possession property…
- Don’t take the seller (be he local or gringo) at his word. Maybe he owns the land he’s offering to sell you, maybe he doesn’t…maybe the right-of-way through the neighbor’s property has been agreed in writing, maybe it hasn’t…maybe the boundaries are drawn where he says they are, and maybe they’re not… You want to verify all important points of fact with the help of your own independent attorney…
- Which means that you need to: Engage your own independent attorney. Don’t use the seller’s attorney and don’t use the developer’s attorney…
- Buy what you see. If electrical lines have been run to the property, then you’re buying with electricity. If a clubhouse has been built, then you’re buying into a community with a clubhouse. If you don’t see a marina, don’t count on a marina…even if it’s promised and pictured in all the developer’s materials…
- Research restrictions related to foreign ownership of property, particularly in Asian markets…
- If you’re buying on the water, understand restrictions on ownership of beachfront property. In most countries, you cannot own the stretch where the water actually meets the land. This strip is called different things in different markets, and it’s measured in different ways (typically working from the high-tide line). My point is, don’t believe someone who tells you that you can “own” it, because, in most cases, you can’t. It’s owned by the state…
- Understand all costs of acquisition. These can go well beyond the agent fees. Remember transfer taxes (sometimes called ‘stamp duty’), titling fees, registration fees, attorney or notary fees, etc. These fees are not all relevant in all markets, but you want to understand, up front, which ones you’ll be responsible for paying and include those costs in both your purchase budget and your projections for investment return…
- Think through what will be required to accomplish whatever you are hoping to accomplish with the property you’re looking to buy. If you intend to rent it out when you’re not in residence, you’ll need rental and property management. If you intend to be in residence only part of the year but don’t want to rent while you’re away, you’ll need a full-time caretaker on-site. Again, include these costs in your budgeting and your ROI projections…
Kathleen Peddicord
