By Michele Lerner | The Washington Post
Whether you’re an experienced home buyer or a novice, buying property overseas involves research and planning to avoid making a costly mistake. Living abroad or being a long-distance owner necessitates changing your perspective and familiarizing yourself with local real estate customs.
“People fall in love with their vacation destination before they do the research that should be done before buying abroad,” says Bryant McClain, director of sales and marketing with Itz’ana Resort & Residences in Belize. “Often they don’t even realize that they may have to overcome complex legal issues about foreign property ownership.”
Here are eight questions to ask yourself before you take the plunge.
Can you legally buy property in the country?
Every country has its own regulations about noncitizens owning real estate. In some countries, you need to establish a trust or corporation to buy real estate. Other countries restrict foreign ownership.
“Having a good local lawyer is as important abroad as it is at home,” says Dan Prescher, senior editor of InternationalLiving.com. “If you’re not an expert on local legal and financial matters, hire one.”
Erika Berry, a teacher at Sidwell Friends School, and her husband, Curtiss Kolodney, who has a computer services business, purchased a home in Greece about five years ago. They hired a local attorney and a local accountant to help them with the transaction.
“The attorney had power of attorney for us in absentia,” Berry said. “The attorney basically bought the house for us after helping us get a bank account, do a title search and set us up with a tax number. After that, the accountant paid our taxes, which involved trips to town hall.”
What kind of residency can you establish?
If you’re purchasing an investment or vacation property, you won’t need to establish residency, but check visa restrictions on how many days you can spend in the country. If you plan to retire or work abroad, inquire about qualifying for residency.
“Almost all Central and South American countries offer retirement residencies with a minimum age, sometimes as young as 45, and the need to prove some level of income or assets,” says Mike Cobb, CEO of ECI Development, a developer of residential real estate in Central and South America who is based in Shepherdstown, W. Va.
How will you finance your property purchase?
Buying property overseas typically requires cash. Fluctuating exchange rates can have a big impact on your purchase.
“High local interest rates make local financing of property purchases a rarity, especially throughout Latin America,” says Prescher. “Developers of new projects will sometimes offer private financing deals, but transactions are often done with bank-to-bank transfers at closing.”
Most Latin American transactions are done in U.S. dollars, says Cobb, except for Brazil.
“Most people pay cash,” he said. “The other predominant strategy is to buy a place with your home equity, vacation in it and rent it out sometimes. Then, when you’re ready to retire, you sell your house in the U.S., repay the home equity loan and have your house overseas.”
Will you be able to rent the property to vacationers?
If you want to rent your house when you’re not using it or if you’ve purchased it as an investment, pay attention to local laws and tax rules. In some places, limits on rentals are under consideration.
“Many expats rent out their properties abroad, but just as many local hotel, hostel and property owners are becoming aware of the competition from foreigners,” says Prescher.
How will maintenance or repairs be managed?
Maintenance issues in a foreign country can be challenging, particularly if you don’t live there full time or don’t speak the language.
“Living in a planned or gated community will often have maintenance services built-in,” says Prescher. “A place with an active local expat community will often have formal or informal networks for finding the best local maintenance resources.”
Berry and her husband made friends with residents who did repairs for them and kept an eye on their place when they were in the United States.
“We Skype with a guy who we pay to do maintenance on our place while we’re away,” says Berry. “He sends us photos if there’s anything we need to look at.
There’s really no such thing as a management company there. But we have great relationships with people who live there full time, and they’ve helped us find the help we’ve needed.”
How can you keep your property secure when you’re not there?
Political and economic disruptions as well as natural disasters can impact your property value.
“There’s upheaval everywhere, but most of Central America is more stable than it was in the past,” says McClain. “You need to understand your own tolerance for risk.”
Owning a vacation home or an investment property in an area prone to hurricanes can be risky. Windstorm insurance — which lenders require if you have a loan — is often expensive and carries a high deductible. Jared Warren, broker and owner of Unique Island Assets in St. John, said the U.S. Virgin Islands are recovering quicker than the British Virgin Islands, in part because of the support the United States has provided in its recovery from the back-to-back hurricanes that struck the island last year. But even those owners with insurance are finding it a struggle to rebuild.
“Often people don’t insure for loss of use or loss of business in the case of rentals,” Warren said. “In addition, people don’t insure ‘other structures’ like fences, electrical monuments, car ports, garages etc. This leaves the insured technically underinsured and most owners short on cash for recovery. When claims get settled, many owners will simply look at those numbers and then call their Realtor to get out.”
U.S. homeowners insurance doesn’t cover overseas property, says Prescher. But homeowners insurance is easy to buy locally and often costs less than in the United States.
How will your taxes be affected?
Prescher says the tax implications for owning property overseas can be complex. How you are taxed depends on the country where you own property and their rules, as well as whether you use the property occasionally, live in it for part or all of the year or keep it as an investment.
“Qualified accountants both at home and abroad are valuable resources,” says Prescher.
You’ll also need to learn about tax rules associated with owning rental property. In some countries you’ll have taxes withheld from your rental income and in others you will need to file taxes separately for rental income.
Will there be adequate health care — and health-care insurance — available?
Check to see if your American medical insurance covers you while you’re abroad on vacation. In some countries, foreign residents can purchase health insurance locally. A local insurance agent can help you find the appropriate policy.
Colin Kirkpatrick, managing director of the European Division of International Medical Group, a global benefits and assistance company based in Indiana, recommends U.S. citizens living overseas research the requirements for joining the national health-care system in their country, if there is one, and purchase international private medical insurance.
“For a U.S. citizen to obtain a European Health Insurance Card (EHIC), for example, you must legally reside in an EU state (i.e. have a residence permit) and pay or be covered by social security,” Kirkpatrick wrote in an email. “That can take months or years, and may not even be possible. IPMI plans provide worldwide healthcare coverage, plus plans can cover medical services that a national healthcare service may not. Or, if you are planning on visiting your overseas home only a few months out of the year, purchasing a travel medical insurance plan might be your best option. These plans are specifically designed to provide temporary coverage while traveling outside of your home country.”