How to Buy Property Overseas for Retirement

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Buying real estate overseas can be a fulfilling experience for retirees. Plus, having an investment property in the country where you want to live later in life 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 do not have the same rules and safety nets that one has when buying real estate in the United States.

When buying real estate overseas, follow these guidelines:

Establish Your Budget

When buying property overseas, be clear on your finances before you start shopping. If your budget is strict, resist the temptation to consider properties outside your price point. You’ll only disappoint yourself unnecessarily.

Be aware that cash payments are the norm in the majority of overseas markets. Securing a mortgage as a non-local in another country can be difficult, although not impossible. While you can get a mortgage in Belize, Panama, Mexico and parts of Europe, the terms won’t be what you’re used to in the U.S. For example, a 95% loan-to-value mortgage is unlikely, as is a 30-year fixed-rate loan. More common are fixed rates for a short term before they convert to a variable rate.

Having $100,000 in your pocket doesn’t mean you can buy a $100,000 property overseas. Every international real estate investment comes with closing costs that must be included in your budget. Factor in all expenses and budget a little extra for unforeseen costs.

Do Extensive Research to Find the Perfect Property

Whether you’re buying a home abroad for personal use or pure investment, you should filter your options based on a strict set of criteria. Start by making sure that you’re able to own property in the country you’re considering. In many Asian countries, such as Vietnam, Indonesia and Thailand, for example, foreigners are restricted in home and land ownership. Next, make sure that the property purchase process is regulated and that you’re able to move money in and out of your country of interest.

Before getting on a plane, do as much online research as you can to get an idea of property prices. Most overseas markets do not have a multiple listing service that’s comparable to the one in the United States. Nor do they have websites like Zillow. You should plan on traveling to your country of interest to get an idea of what’s available in the market. Take several trips if possible, and try to visit at different times of the year to get a sense of the place during different seasons.

Plan to speak to several real estate agents and see a range of properties. Agents generally don’t work together, so working with several different ones is the only way to get a property overview of the market.

Determine How Much Space You Need

When choosing a home overseas, consider whether you want an apartment or a house, one bedroom or two, and whether you want a two-level or single-level property. If you anticipate hosting frequent visitors, you may want a guest room or even a guesthouse. If you prefer not to host, a property with a decent selection of nearby hotels could be helpful.

Additionally, your wish list might include a front yard, back garden or swimming pool. All these things require care and maintenance and will add to your monthly budget.

Pay Attention to Zoning Rules

When investing in a gated community, be mindful that there are often rules about what owners can build. On the other hand, if you’re buying in an Ecuadorian mountain town and one day find that the house next door has been converted to a disco, you have no recourse. Ecuador doesn’t impose zoning regulations. With that in mind, find out what your neighbors are prohibited from doing with their properties before you commit to buying.

Learn About HOAs

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 HOA documentation, including recent financial statements that show ongoing expenses and cash on hand, and have your attorney review it. If the HOA isn’t properly registered, its rules are unenforceable. That can put your property value at risk.

Prospective buyers should also ask about HOA fees. Make sure the HOA charges are high enough to cover related expenses. If they aren’t, property maintenance could be deferred, putting your investment at risk.

Find Out Whether You Can Rent Short-Term

If you buy a property overseas and rent it to tourists or travelers, you could offset some of the expenses. However, don’t assume the property can be legally rented for short-term stays. Check the relevant municipality legislation and the HOA’s rules. Short-term rentals can be restricted or disallowed by the local government or building management.

Calculate Ongoing Costs

Put pen to paper to calculate the property’s total carrying costs, including property taxes, utility costs, internet and cable, property management fees and HOA fees. You will be responsible for these expenses, regardless of whether the property is rented. Be sure that you can cover these costs even without any rental income, and factor them in when calculating your projected net rental yield.

If you need a car to live in this location, your monthly budget must include the expenses of owning one.

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 buying property in a developing country, try to determine its stage on the path of progress. 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 can be difficult to time your foreign real estate 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 value.

Evaluate Environmental Risks

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, such as droughts and hurricanes, is exacerbated by climate change. Consider how your area might be affected and determine your risk tolerance early on. This may impact your decision on whether to buy property overseas.

Find Out What Is Included With the Property

Confirm what is included with the purchase. Sometimes furniture and appliances are included in the sale. However, in many markets, it’s common for the seller to take everything with them, including 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 the new installation.

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 brochures 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.

Hire an Attorney

Engage an attorney who speaks fluent English and is experienced in helping foreign buyers navigate the local purchase process. Some countries, including Mexico and Portugal, may offer more English-speaking attorneys than others. If possible, try to find a reputable attorney through a referral from fellow expats. Don’t use the same attorney as the seller or developer you’re buying from. You want to find an independent attorney who works on your behalf. You can also check the U.S. Embassy website for that country, which may include a list of English-speaking attorneys by specialty. Plan to interview at least two attorneys.

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 estimated.

Think About Living Overseas Part Time

If you plan to live in your property only part of the year, you may need to hire someone to look after it 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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