You don’t make money when you sell a piece of real estate, but when you buy it. This is true anywhere in the world. Therefore, before making a property purchase, you want to feel comfortable about the basic fundamentals: you’re getting a good value, you’re buying into a market where you expect values to increase over time and you have a clear idea of your exit strategy.
[See: 50 Affordable Places to Buy a Retirement Home in 2016.]
Beyond these three fundamentals, here are six important items you should consider before buying real estate in a foreign country:
Balance the location against the cost. You know that location is important when making a property purchase. However, you want to balance location against cost. Buying the most expensive piece of property in a great area can put you at a disadvantage when it comes time to sell. You’ll be competing with lower-priced competition. Instead, look for properties that are priced below the median for the area where you’re investing. That should help support value appreciation while also helping you to appeal to a broader market when it comes time to resell.
The style of the property is important. In addition to location, the style of a piece of property also matters. The trouble is that style is a matter of taste, and you don’t know what taste your future buyer might have. This is why investing in a uniquely designed custom home can be risky if your exit strategy is to resell. The house may have a great location, but if the style is unusual, you could have a hard time reselling.
I looked at a house for sale in Panama recently with a great location on the ocean. However, it was a custom house that the owner built for his family. The design was L.A. chic, with poor use of space. While the design and style worked for the owner, it probably wouldn’t work for many other people. I wasn’t surprised to hear that the guy had a hard time finding a buyer.
Another house on the coast of Nicaragua had been designed as a vacation house, so the architect hadn’t put much thought into making the space useful from a full-time living perspective. In this case, though, the owner was able to resell to someone shopping specifically for a vacation home on the beach.
Quality plays a role, but needs to fit your intended buyer. You also want to take into account the quality of a property. If you’re buying a local-style house that you intend to rent and eventually resell on the local market, the quality of construction, finishings and fixtures doesn’t need to be anything more than what locals expect. However, if you’re buying with the expectation of renting or reselling to an expat buyer, then you want to buy something built and finished to expat standards.
One development I know in Belize has targeted foreign buyers, but was built very inexpensively. This means pricing is attractive and the development has been able to sell to price-conscious buyers, but the quality isn’t what expats are looking for. Buyers who have tried to re-sell haven’t had an easy time of it. Prices are too rich for locals, but the finished product isn’t of the standard foreigners demand.
[See: 10 Ways to Reduce Your Housing Costs in Retirement.]
Size always matters, and in ways you may not realize. Depending on the market and who you think your potential pool of future buyers might be you are generally better off with more standard-sized properties of one, two or three bedrooms. In a retirement or resort destination, two-bedroom condos are often the most sellable. On the other hand, they’re likely also to be the most common property type, which can work against you. You may find a great deal on a five-bedroom property in the market where you want to invest, but how much demand, for rental or for resale, would a five-bedroom house command? And a 6,000-square-foot penthouse might be the deal of the century because the owner had to reduce the price to find a buyer, but, again, how big a market is there anywhere for 6,000-square-foot penthouse apartments?
Make sure your rental matches what’s in demand. Rental supply and demand should play an important role in your purchase decision when investing in a rental property. You want something you’ll be able to resell easily, but also something that will generate a good rental return.
In Paris, for example, the bulk of the short-term rental supply is studio and one-bedroom apartments. While those are the apartment sizes in greatest demand, two-bedroom units have more flexibility and less competition. You can rent a two-bedroom unit to someone who only needs one bedroom, but it’s hard to rent a one-bedroom apartment to someone who has a need for two.
Understand your four “pools” of potential buyers. Never buy a piece of real estate you intend to resell without understanding where you’ll source your eventual buyer. Generally, you’re buying for one of these future buyer pools: an investor, a second home buyer (typically a non-local), an expat buying a primary home for retirement or a local resident. The best case is when you’re able to buy a property that could conceivably find a buyer among more than one of those pools.
— Investor. The investor is going to care about upside potential. This is the case regardless of the property type, such as a rental property, agricultural investment or raw land for future development. The investor pool is generally the smallest and can be fickle when it comes to location and type of property.
— Second home buyer. People who buy multiple homes don’t necessarily need a new house, because they’re buying out of pure desire. Priorities for the second home buyer are location, ease of access and property style and size. They want a good deal, but aren’t always buying based on the numbers. However, an investment upside can help a second home buyer rationalize a purchase he wants to make anyway.
— Expat retirees. The expat looking to move or retire overseas can be a good market, but this buyer can be budget-conscious. If you want to target this pool for future resale, buying below the median price for the area becomes even more important.
— Locals. Locals aren’t generally looking to buy to live in gated communities or resort areas. When buying in an area where locals are part of your future buyers’ pool, consider access to public transportation, parking and nearby amenities such as restaurants and grocery stores.
[See: 10 Affordable Places to Retire Overseas in 2016.]
Few markets attract all four types of buyers, but when you find one that does, you’ll have an easier time selling, even in a down cycle. Examples of markets where you could potentially access all four buying pools are big, brand-name cities, including Paris, Buenos Aires, Medellín and Barcelona.
Keep these six criteria in mind, and you’ll greatly improve your chances of making a successful property purchase overseas.
Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group.
More from U.S. News
10 Best Places to Retire on Less Than $100 a Day
The Best Cities for Retirement Jobs
The High Costs of the Retirement Dream
6 Rules for Making a Property Purchase Overseas originally appeared on usnews.com
