10 Questions To Ask Before Investing With A Developer Overseas
Investing in a piece of foreign real estate can be a rewarding and even profitable part of a retirement move overseas. For most retirees, the easiest and safest way to take the overseas property plunge is buying into a development. Typically, developers in markets appealing to foreign retirees build to the standards those foreign retirees want and expect, speak English, and sometimes even offer developer financing.
But buying from a developer in a foreign country is not without its risks. How can you be sure you’re working with an honest, reliable developer who is representing his project fairly? Remember that overseas developers are often not subject to the same regulations and oversight as developers are in the United States, meaning you don’t have the built-in protections that you’re accustomed to.
Here’s a checklist of items to consider when selecting or vetting an overseas developer.
Does the developer have full and clear title to the property?
Verifying this should be your attorney’s first order of business, especially in a country with a history of title problems. Have your attorney check the title records to see if they agree with what the developer is telling you. Also find out if the developer guarantees the title in the contract.
What assurances, if any, are built into the transaction process in the country where you’re buying?
Many countries have built-in protections that provide you a degree of assurance. Much of Western Europe for example, is heavily regulated. In the Bahamas, the buyer’s attorney actually indemnifies the transaction against any title issues after the title research has been completed. In Uruguay, the escribano performs a complete and comprehensive title search on behalf of the buyer. (An escribano is the public official who records the sale.) Likewise, in France, your notaire will review and vet the property title on your behalf.
Have all required plans and permits been approved?
Verify, for example, that the often-overlooked environmental impact study has been submitted and approved. In Northeast Brazil, I once saw a project stopped in its tracks for the want of the required environmental sign-offs… long after buyers’ down payments had been received.
What infrastructure is already in place?
Developers in emerging markets, especially, can make a lot of promises about planned amenities and infrastructure. Pin down what infrastructure is promised versus what infrastructure is already in place and understand that the only certainty is the infrastructure that’s already there.
What is the source of water and electricity and what is the plan for waste?
Is water being contractually supplied by the developer or will you have to provide your own? Is electricity already run to the development? If not, find out from the municipality when the lines will be installed.
If it is up to you to install a septic system, take steps to understand the local requirements. If the developer is promising Internet service, verify that it’s available to the project. Same goes for telephone and for cellular service.
How much experience does the developer have?
Has he done this type of project before?
What are the developer’s financial resources?
This is important. Does the developer have the capital to keep the project moving forward on his own, or will he be relying on sales revenues to progress the infrastructure?
If financing is being offered, what are the terms?
One of the great advantages of buying property overseas from a developer is that it’s often the only way you’ll get financing abroad. Be sure, though, to understand the particulars of the terms before committing. They may be very different from what you’d expect from a U.S. bank, for example.
Can you speak with any previous clients of the developer?
Ask if the developer will put you in touch with any past buyers from either the project you’re considering or previous projects.
What happens if the project fails?
I’ve seen a number of projects go under in countries around the world, for various reasons. With a recent failure in Uruguay, buyers are left without the amenities promised (including a spa and a restaurant), but at least they own attractive lots with magnificent ocean views. By contrast, one failed high-rise sitting on the beach in Ecuador is worthless, a hulking concrete shell that is of no value to the jilted buyers.
When considering your overall risk, take into account what you’ll be left with if the worst happens.
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