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 and rejuvenate or perhaps to move permanently after their service time 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 simultaneously. 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 purchase his property. German landlords were privy to the high OHA entitlements, so Scott was ready to be rid of the ever-increasing rental payments he made to his landlord. These are typical arguments for buying a home overseas, but he cautions other servicemembers to avoid jumping in without understanding the financial details.
If you have an overseas PCS ahead of you, read Planning Your Overseas PCS for helpful tips.
Due to Scott’s experience, he strongly advises assembling a qualified real estate team that includes an attorney, agent, and mortgage lender specializing 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 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.
1) What is the cost of living?
Although the property’s low asking price intrigues many, this price is likely only the top entry on the list of expenditures. For example, the perfect remote beachfront bungalow provides a low-stress quality of life, but shipping in the necessities could cost big bucks. Remote living requires transportation of everyday essentials like food and gas and could add significantly to your bottom line.
Lighthouse in Rota, Spain, photo from Canva.
Medical care and specialty items will also be challenging 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 community’s needs. For example, if you want to move “off the grid,” but the local citizens want community-wide technology updates, you’ll be hit with extra expenses for improvements.
2) 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 restrict the purchase. If sales are allowed, prepare to add more than the typical real estate paperwork to your to-do list. You may need a permit as a non-citizen or registration with the home government.
It’s not uncommon for a servicemember to have a spouse born in another country. Familial ties often lead to a post-military home purchase in the spouse’s country. Having a spouse who speaks the language and is a resident sometimes eases the burden of foreign property purchases.
Ask for professional help to understand the difference between common and civil law because they affect property ownership and sales in each country. The U.S., Belize, Australia, Canada, and Great Britain all practice common law, while Europe and Latin America practice civil law. The difference lies in the interpretations of deeds and titles.
3) How will I finance the purchase?
Scott mentioned that understanding how German lending worked was one of the trickiest parts of buying real estate. The entire system is completely different from that in the U.S. Don’t forget that VA loans are not eligible for foreign home purchases. Banking guarantees and fluctuating exchange rates were just two topics he had to delve into and master. The language barrier certainly didn’t help.
Photo from Canva
Finding the money to buy a property is significantly different than the process in the U.S. You may even run into a situation where foreign citizens are banned from financing real estate purchases.
Although non-resident financing is difficult to obtain, countries like 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. Developer financing is a trend picking up for foreign buyers. Vacation home hot spots like Nicaragua, Belize, and Mexico lead the way for this type of financing.
- Retirement accounts in the forms of 401(k)s and IRAs are used, but there are restrictions on the amounts withdrawn. However, you can potentially withdraw $10,000 for a first-time home purchase without penalty. Hire a skilled tax professional to guide you through this type of financing because this is your hard-earned retirement money.
Learn more home ownership issues to consider in this helpful blog post: 6 Factors to Consider Before Buying a Home Overseas.
4) What about the taxes?
Photo from Canva
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. Foreign real estate taxes are a tangled web that becomes even more ensnared when adding your financial situation in the U.S. to the mix.
5) What do I do if I want to sell my home overseas?
Scott had a frustrating experience while trying to sell his German home. He initially considered renting it after his time in Germany but found the rental laws unfavorable. A long distance landlordship didn’t sound enticing, especially because of how German laws regulated renovations and service providers. Upkeep was going to be very expensive.
Photo from iStock.com/waeske
After seven years of owning his home, Scott decided to sell. However, he waited many months to execute a worthwhile deal, as exchange rates weren’t 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. Scott said one of the pitfalls of owning a foreign property was the need for more 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 guidance for those considering a purchase: consider the home a very long-term investment. Don’t forget to factor in the costs and challenges of long distance travel to maintain the property.
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