Buying real estate overseas can be the beginning of an exotic adventure. Investing in a home in the country where you want to retire allows you to set up a rent-free retirement. Your U.S. dollar-based retirement income is also better buffered against currency exchange rate movements that otherwise could increase your cost of living beyond affordability. However, foreign property owners don’t have the same rules and safety nets one has when buying real estate in the United States.
Here’s a look at how to buy real estate overseas:
— Stay within your budget.
— Hire an attorney.
— Find out what is included with the property.
— Determine how much space you need.
— Think about outdoor spaces.
— Pay attention to zoning rules.
— Find out if there is a HOA.
— Consider the HOA fee.
— Find out whether you can rent short-term.
— Estimate proximity to day-to-day services.
— Consider the “Path of Progress.”
— Calculate the total carrying costs.
— Consider whether you need a car.
— Be cautious when buying into a private development.
— Understand that building a home overseas can be challenging.
— Consider environmental factors.
— Think about living overseas part time.
Stay Within Your Budget
Be clear on your finances before you start shopping, and if your budget is strict, don’t be tempted to consider properties outside your price point. You’ll only be disappointing yourself unnecessarily.
In addition, remember that every purchase comes with closing costs that must be included as part of your overall budget for buying. Having $100,000 in your pocket doesn’t mean you can buy a $100,000 property overseas. Factor in all expenses and leave a little room in your budget for unforeseen costs that might come up.
Hire an Attorney
Engage an attorney who speaks fluent English and is experienced in helping foreign buyers navigate the local property purchase process. Don’t use the same attorney as the seller or the developer you’re buying from. You want to find an independent attorney who works for you. The best way to find an attorney is through expat referrals.
Find Out What Is Included With the Property
Confirm what is included with the purchase. Sometimes furniture and appliances are included in the sale, but in many markets it’s common for the seller to take everything with them, down to the lighting fixtures. This can be a negotiating point when deciding how much to offer. Some developers don’t include air conditioners, kitchen cabinetry or even the kitchen sink and countertops when delivering newly built properties. In this case, adjust your budget to allow for the cost of new installation.
[READ: Best Places to Retire Overseas Where English is Spoken.]
Determine How Much Space You Need
Think about whether you want an apartment or a house, one bedroom or two, and two levels or only one. You might want a guest room or even a guest house if you will have visitors often, but consider whether you want them to be able to stay with you, or would prefer that they come and go from a hotel nearby.
Think About Outdoor Spaces
You might want a front yard, a back garden or a swimming pool. All of these things require care and maintenance and add to your monthly budget.
Pay Attention to Zoning Rules
If you’re investing in a gated community, there are probably rules about what owners can build. However, if you’re buying in a mountain town in Ecuador, you could wake up one morning to find that the house next door has been converted to a disco. Should that happen, you have no recourse, as Ecuador doesn’t impose zoning regulations. Before you commit, find out what your neighbors are prohibited from doing with their properties.
Find Out if There Is an HOA
In the United States, you might take for granted that any apartment building or housing development operates according to the rules of a homeowners association. Don’t assume the same rules exist when buying an apartment or house in a private community overseas. Ask to see the HOA documentation, including recent financial statements showing ongoing expenses and cash on hand, and have your attorney review it. If the HOA isn’t properly registered, the HOA rules are unenforceable. That can put your property value at risk.
Consider the HOA Fee
You don’t want to pay any more than you have to, but you also want to make sure the HOA fee is high enough to cover HOA expenses. If it isn’t, property maintenance will be deferred, putting your investment at risk.
Find Out Whether You Can Rent Short-Term
Don’t assume that the property can legally be rented short-term. Check relevant municipality legislation and the rules of the HOA. Short-term rentals can be restricted or disallowed by the local government or by building management.
[READ: Best Affordable Places to Retire Overseas.]
Estimate Proximity to Day-to-Day Services
As part of your property search process, take time to walk the neighborhood and explore the surrounding area to confirm services and amenities nearby. Look for the nearest grocery store, pharmacy, hospital or medical center, public transportation, bank and hardware store. These things can be as important as the property itself.
Consider the “Path of Progress”
If you are investing in property in a developing country, try to determine which stage of the “Path of Progress” it is in. The “Path of Progress” refers to infrastructure, gentrification, and government incentives that improve the overall quality of life in that place. A new airport or highway, for instance, can make an area more accessible, opening up opportunities for further real estate development. It’s difficult to time your investment with the “Path of Progress.” You want to buy before the appreciation created by the progress occurs, but not so early that you have to wait a long time to see the progress’s effect on prices.
Calculate the Total Carrying Costs
Put pen to paper to calculate the total carrying costs, including property taxes, utility costs, internet and cable, property management fees and the HOA expense. You’ll have these costs whether or not the property is rented. You should feel comfortable that you can cover them even without any rental income, and you should remember all of them when calculating your projected net rental yield.
Consider Whether You Need a Car
If you need a car to live in this location, your monthly budget must allow for the expenses of owning a car.
Be Cautious When Buying Into a Private Development
Find out how security will be provided, what construction and design standards are in place and whether the development company is financially sound. Understand which amenities exist and which are promised, but recognize that you’re buying only what exists. If there’s no marina when you buy, there may never be a marina, no matter what the developer’s nice brochures and pretty drawings indicate. Consider whether you will be happy with your purchase if it’s never anything more than what it is at the time you buy.
Understand That Building a Home Overseas Can Be Challenging
If you’re buying land with the intention of building your own home, consider whether you will be in the country during construction. If not, someone will need to oversee the work for you. Keep in mind that you will need a contingency plan if the project takes longer and costs more than you’re planning.
[See: The Cheapest Places to Retire Abroad on $1,000 Per Month]
Consider Environmental Factors
Is the area prone to natural disasters? If so, are there measures in place to mitigate the impact of those disasters? If you’re investing in a place that’s prone to earthquakes, for instance, ensure that the construction meets local earthquake-resistance standards. The impact of certain natural disasters like droughts and hurricanes is exacerbated by climate change. Try to predict how your area might be affected, and determine your risk tolerance level early on.
Think About Living Overseas Part Time
If your plan is to live in the place only part of the year, you may need to hire someone to look after the property while you’re away. Consider whether you will be able to rent the place out while you’re elsewhere. If so, you could earn enough in rental income during the months you’re living somewhere else to cover the property’s annual carrying costs. It can be a good idea to engage a professional property manager to pay the bills, check on the property, supervise cleaning and oversee maintenance and repair work.
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How to Buy Property Overseas for Retirement originally appeared on usnews.com
Update 04/28/23: This story was published at an earlier date and has been updated with new information.
