Answer These Questions Before Buying a Home Overseas
If you watch any international-vacation-home-finder-show, you’re likely impressed with just how simple the portrayal of buying a home in a foreign country can be. In fact, many military members long to retire with a property to relax in and rejuvenate or perhaps even move into permanently after their time in service is over.
No doubt, the investment can be very lucrative! It's easy to find examples of investors who become exorbitantly wealthy by acquiring international properties. But--and here comes the big but--for the everyday military member, the process is fraught with hurdles to jump. Expect to encounter legal and financial matters, long distance travel, and language translation barriers all at the same time.
Scott R. Tucker is an Army veteran and former German property owner with first-hand knowledge of buying and selling a home in Stuttgart. Although he no longer owns property in Germany, he walked away with a wealth of knowledge about international real estate procedures. Some of his experiences abroad led him to become a financial coach who exclusively serves the military and veteran populations.
Eager to be financially independent, Scott intended to spend his monthly Overseas Housing Allowance (OHA) to pay for his property purchase. German landlords were privy to the high OHA entitlements, so Scott was ready to be rid of the ever-increasing rental payments he was making to his landlord. These are typical arguments for buying a home overseas, but he cautions other service members to avoid jumping in without thoroughly understanding all of the financial details involved.
Due to Scott’s experience, he strongly advises assembling a qualified real estate team that includes an attorney, agent, and mortgage lender who specialize in providing clients worldwide with outstanding representation. Tapping into any network of military friends or expats who happen to own foreign property is also a wise place to start for vetting professionals with your best interest in mind.
Scott quickly found that the transaction of buying and selling a home in Germany was challenging, lengthy, and not necessarily beneficial to his goal of becoming financially independent. His advice and know-how are woven into the following answers to questions you should ask yourself before diving into the foreign real estate game.
Questions to Ask Before You Buy a Home Overseas
What will the cost of living be?
Although the low asking price of the property is what intrigues many, this price is likely only the top entry on the list of expenditures. The perfectly remote beach front bungalow provides the low stress quality of life, but could cost big bucks to ship in the necessities.
Remote living requires transport of everyday necessities like food and gas and could add significantly to your bottom line.
Medical care and other specialty items will also be a challenge to obtain in foreign countries. Islands aren’t the only difficult places to receive goods, so be sure to inquire how the locals get the things they need for affordable prices.
Quality of life also comes into play.
Contentious topics like the lack of infrastructure, inadequate electrical grids, and community plumbing are all issues if they are not meeting the needs of the community. If you’re moving to get “off the grid" and the citizens are hoping for more technology, then you’ll be hit with extra expenses for improvements.
What are the real estate laws for non-citizens?
Real estate norms and laws vary widely across the globe.
Some countries outright refuse the privilege to foreigners, while others place restrictions on the purchase. If sales are allowed, prepare to add more than the typical real estate paperwork to your to-do list. Obtaining permits as non-citizen or registration with the home government is a possibility.
It’s not uncommon for a service member to have a spouse born in another country. Often, familial ties lead to a post-military life home purchase in the spouse’s home country. Having a spouse who speaks the language and is a resident sometimes eases the burden of foreign property purchase.
Ask for professional help to understand the difference between common and civil law because they affect property ownership and sales in each country.
Common law is practiced in the U.S., Belize, Australia, Canada, and Great Britain. Civil law is typically found in Europe and Latin America. The difference lies in the interpretations of deeds and titles.
How will I finance the purchase?
Scott mentioned that one of the trickiest parts of buying real estate for him was understanding how German lending worked. The entire system is completely different from that in the U.S. Don’t forget, VA loans are not eligible for foreign home purchases. Banking guarantees and fluctuating exchange rates were just two of the topics he had to delve into and master. The language barrier certainly didn’t help.
Finding the money to buy a property is going to be significantly different than the process in the U.S. You may even run into the situation where foreign citizens are banned from financing real estate purchases.
Although non-resident financing is difficult to obtain, countries such as France, Mexico, the Dominican Republic, and New Zealand have a history of working with foreign buyers.
If you’re considering using a foreign bank, expect some combination (if not all) of the following differences.
Many banks require a large down payment, have much shorter loan terms, higher and adjustable interest rates, and do not have the tax write-offs enjoyed in the U.S. It’s possible the government will require a specialized life insurance policy to ensure payment of the house after your death.
Buying with cash is simpler and affords more wiggle room with purchasing negotiations but might leave you refinancing, taking a second mortgage, or using a home equity line of credit to make the purchase. Typically, these options have lower interest rates than foreign financing.
Retirement accounts in the forms of 401(k)s and IRAs can be tapped, but there are restrictions on the amounts withdrawn, coupled with the fact that the IRS won’t allow borrowing. However, a potential withdraw of $10,000 for a first-time home purchase can be accessed without penalty. Hire a skilled tax professional to guide you through this type of financing because, after all, this is your hard-earned retirement money.
Developer financing is a trend picking up for foreign buyers. Vacation home hot spots like Nicaragua, Belize, and Mexico and are all leading the way for this type of financing.
What about the taxes?
You can expect that every government is going to want some sort of tax payment.
It's common practice in other countries to pay taxes on the property both at the time of purchase and then again later at the time of sale. This is in addition to potential property taxes that you would pay year-round. Taxes are a tangled web that becomes even more ensnared when adding your financial situation in the U.S. to the mix.
Get more information on paying taxes on a home owned abroad at Investopedia.
What do I do if I want to sell my home overseas?
Scott had a frustrating experience while trying to sell his home. He initially considered renting it out after his time in Germany was up, but found the rental laws to be unfavorable. A long distance landlordship didn’t sound enticing, especially because of the way German laws regulated renovations and service providers. Upkeep was going to be very expensive.
After seven years of owning his home, Scott decided to sell. However, he waited for many months to execute a worthwhile deal, as exchange rates weren’t regularly in his favor. Additionally, he hoped the expensive improvements he made to the home would pay off, but was disappointed when the final numbers came through.
There really isn’t a perfect way to predict the overriding real estate trends in a foreign country when you intend to sell, but factor in local market oddities, and you might just be waiting for much longer than you hoped, perhaps even years.
Your lifelong dream of a vacation home could become a nightmare if the decision to sell becomes unattainable. If fact, Scott said one of the pitfalls of owning a foreign property was the lack of freedom to sell on a predictable basis.
For first-timers, investing in a foreign property shouldn’t be a journey you go on alone.
Professional services and sound advice from other service members who hold international properties will help to avoid many pitfalls. Scott offered a bit more advice for those considering a purchase: consider the home a very long-term investment in order for it to pay out and don’t forget to factor in the costs and challenges of long distance travel to maintain the property.
Although you won’t find global properties listed on MilitaryByOwner, you will find information on just about all the scenarios military members find themselves in while pursuing the home buying, selling, and renting processes. Head over to the home page to read our resource collection of articles, blog posts, or browse available properties at your next destination.