Many people assume that buying property overseas is the same as buying property at home; they find something they like, make an offer, sign papers, and voila! Done. But that’s not exactly the case – international property purchases come with their own rules – and what’s allowed and accepted back home may not even be legal, feasible, or practical elsewhere.
And it makes sense. They’ve been going to the same destination each year and are sick of spending money on hotel costs. They want to retire somewhere and don’t want to rely solely upon their home country’s real estate market. They have the means to do so and love a place so much, that renting would just be throwing money away. For whatever reason, more and more people are beginning to look into property ownership in foreign countries – even when they don’t have citizenship there.
But it’s not as simple as looking online and wiring money to the property owner.
Knowing What You’re Allowed To Buy In The First Place
Not every country welcomes foreigners with open arms to buy property. Some places have absolutely no restrictions – you can buy anything you want and have it wherever you want. Others will let you buy condos but not land. Some require you to live there for some set period of time first. Some strictly deny it unless a massive amount of legislation has been fulfilled.
This is where the buyers go wrong. They start planning their lives there after falling in love with a property only to find out they don’t have the rights to actually own it. There are distinctions between residential versus commercial purchases, freehold versus leasehold options, and sometimes even a distinction based on region or island within the same country.
The best thing to do is research what you’re allowed to buy before you even start shopping, seriously. Some countries even welcome foreigners explicitly – for example, you can buy property in Japan with far fewer limitations than other markets. But each market has its own personality when it comes to foreign ownership.
The Financial Aspects Are No Joke
Let’s be serious for a moment; you’re not just buying property based on purchase price – you’re purchasing it based on currency exchange, international wire transfers, tax structures that differ from your home one and more often than not financing that’s not provided the same way it is back home.
Currency exchange can add thousands onto the purchase price simply by what your home currency does between the time you agree to buy and when you send the money. Sure, the price of the property is set, but if your home currency weakens in that time, you’ve agreed upon a price but now it’s more than what you’re comfortable paying. Some buyers try to lock in exchange rates while others just build up a buffer with additional saved funds to mitigate any discrepancy.
Then comes the mortgage situation – is it possible? Sometimes yes, sometimes no, sometimes yes but the terms aren’t favorable (interest rates are higher for foreign buyers regardless). Downpayment percentages are often higher – 40% or 50% instead of 20%. Some banks won’t even consider non-residents.
Therefore, foreigners generally either pay cash or go through their home banks – which brings about a whole slew of paperwork issues, especially if they’re trying to obtain a mortgage.
Taxes Are Not The Same Overseas
Property taxes for foreigners buying abroad are not like home property taxes – and it’s a rude awakening for many people. Sure, you may pay an annualized property tax in your new country but are you also prepared to pay a tax at purchase (stamp duty in some areas), a tax at sale (capital gains) as well as income tax if you rent it out – and that income tax is also applicable in your home country?
Some countries have tax treaties which help foreigners avoid double taxation on things – some simply don’t care, and even if those countries do have treaties in place, all documentation must go through both governments which means you’re hiring tax professionals in both countries.
The issue arises because buyers are so excited about the purchase price that they don’t consider any ongoing costs; they justify the purchase based on their need for year-round living (or renting) there – but it’s not just an annual property tax. There’s insurance (building insurance, earthquake/typhoon insurance in some regions), management fees if it’s a condo, maintenance reserves, utilities (even if you’re not there), and if you’re away from your investment and need someone nearby to manage all aspects, that’s an extra cost as well.
Add it all up – 3-5% of property value per year – and suddenly a $300,000 property is costing you $9,000-$15,000 per year just to own.
There’s Paperwork Galore
Purchasing international properties come with paperwork from here to there. Everything needs to be notarized – sometimes translated – and three copies submitted to various government offices.
You’ll need proof of identity. Obviously. But also proof of funds – where that money came from and that it’s legitimate and meant to be transferred across borders. Some countries require bank statements looking back months at a time others want letters from employers, tax returns, certified (translated) versions of documents originally written in your language.
The title search process works differently as well; some countries have trustworthy public records others need lawyers involved because discrepancies exist from decades ago and in some scenarios, there aren’t any centralized titles – you have to seek out local officials where information is hand-written in ledgers in municipal offices.
This is where local expertise works in your favor; if you hire an attorney who’s familiar with foreign buyer purchases, they’ll keep you from making mistakes that cost far more than their fee.
Managing The Property From 6,000 Miles Away
One thing most people forget to think about until after they’ve completed their purchase is what if something happens and you’re 6,000 miles away?
If you’re purely looking at the purchase as an investment opportunity and you’re renting it out – good luck finding tenants from abroad. You need someone there to collect payments, facilitate repairs and complaints, and avoid your property going downhill in the several months you’re gone each year. Property management typically costs 8-12% of monthly rent; short-term rentals may be even more expensive due to more work involved.
If you’re using the property for personal use – we’ll hope you have friends or family who can go check on things; they’ll still need connections for emergencies – something as simple as pipes freezing can be devastating (and compound issues) when you’re gone for too long and someone needs to turn on a heater.
Even vacant properties need to be monitored – but this costs additional money. But having a property sit empty is guaranteed to kill its resale value.
Why People Still Do It
Regardless, overseas buying continues to become popular. For those people who spend significant time abroad anyway, it makes sense to purchase instead of wasting money on rent; build equity instead of essentially letting someone else take advantage of your consistent payments whilst dealing with hotels/vacation rentals in customizable rentals specifically geared towards your desires.
Moreover, diversifying helps; your home country’s market may be too expensive or stagnant; other markets may be more favorable or up-and-coming; spreading purchasing power across borders means one market’s performance doesn’t dictate how well other investments could perform.
Finally, some people simply want peace of mind knowing that they have a home there – not as an investment – not as a retirement plan – but rather something that’s theirs that’s truly theirs.
However, it’s important to note that international purchasing takes longer than domestic purchasing; it costs more due to fees/professional services; it requires more patience relative to bureaucratic red tape over weeks – and sometimes months – and unless you’re comfortable with uncertainty and unknowns – they’re better off without attempting this life goal altogether. For those who pursue it anyway – it’s just added complexity on top of everything else.