Things to Consider Before Buying a Home Abroad
Buying a home in a foreign country has economic benefits, but the buying process is sometimes difficult. The idea of building a house that overlooks white sandy beaches or sits in the midst of a tropical rainforest may sound enchanting, but the price you pay might be higher than the asking price. Strange laws, unseen taxes, and even bribes are not uncommon when buying a home or property in a foreign country.
Research the Property, Title, and Country
The first step is to make sure that foreigners have the right to own property there. Some countries do not let foreigners own property. That does not mean they will not sell you a home. It just means that you won’t own the land on which the house sits. That is a big headache.
Check the ownership of the deed for both the home and the property. The United States has strict real estate laws. Outside of the U.S. those laws differ. Even in the United States, people have paid cold, hard cash and ended up with swampland in Florida. The best place to go for help is to an international realtor that is familiar with the laws of the nation where you want to buy property.
An excellent tip is to hit up the U.S. State Department about civil or governmental problems for the country where you want to buy property. A sudden government coup might leave you with nothing but memories.
Lenders, Cash, and Foreign Real Estate
Foreign property financing is difficult. The easiest route for financing a home or property in another country is paying for it with cash. If you get lucky and find a bank that offers real estate loans to Americans, expect a complicated and tedious loan process. Foreign lenders operate under different rules and laws. They are conservative at best and are often suspicious of Americans. Cash speaks loudly. If you have cash, consider using it.
Travel Costs or Permanent Residency
If you are moving to a foreign country and want to own your own home, than consider the additional taxation from both the IRS and your new host country. Both governments have an interest in your financial affairs. Understanding what the fiscal impact is helps you make informed decisions. The last thing you want to buy is a money pit.
Those who choose to live in a foreign country should maintain a link to the United States. That means transferring money from banks in the United States to banks in your new country of residence. Those transactions add up quickly in fees and conversion rates. An international money transfer option, like the one from Ria Money Transfer, can minimize most of the normal fees charged by banks. Even using your U.S. bank issued travel card will cost you.
If you are buying a vacation home, consider the costs of flying back and forth. Those costs help influence location choices for property.
Rental Taxation
If you are buying a rental property be sure that you understand exactly how the taxation on income will work for both governments. Start with the IRS and be sure to check with authorities on the local, regional and national level of your host country.
Rental Management Costs
Other considerations for rental properties in foreign lands include insurance and property management. When it comes to managing your rental property, you have three options. You can do it yourself, hire a local, or use a professional management company. There is a cost for each of those options. The real question is which option has the highest return on investment.
If you do it yourself, you will by paying in time and possibly in travel costs. If you hire a local to manage the property, then understanding what recourse you have if problems arise is important. The most expensive option is also the safest, and that is using a property management company.
If you opt to buy a home overseas, and you have thought through the entire process, then the best tip is to hire a lawyer in that nation to oversee the transaction. Whatever you decide, have fun! Your new home abroad is an adventure. Enjoy every minute of it.
Images via Flickr by Jim Limwood and Flickr by Fergus_B
James is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.