Globalization has made the world a smaller place, and the number of expats and foreign residents in many countries is increasing every year. Many people now look for long-term educational, career, business and retirement options across the globe.Some expats also decide to purchase a second home in a destination of their choice, since an investment such as this is likely to reap not only financial returns but also other benefits (like a residency permit). At times, real estate in a foreign location comes at a much cheaper price than those in an expat’s home country. Even if you are not planning to live overseas, renting out a property that you only use as an occasional vacation home can be a great way of earning a little extra cash.
Of course, buying real estate can be quite a complicated procedure, especially if the property is located in a different nation. In some cases, the deal could take several months to go through. Some transactions also fall through after an initial payment is made, mainly because of inadequate documentation. At times, people find it quite easy initially to purchase a house or land overseas but may face problems after a while. A majority of issues crop up when people try to renovate, rent or sell their properties.
Fortunately, most of these challenges can be eliminated with some amount of planning and preparation. Below are some of the most common property pitfalls that expats face and a few tips to avoid them.
Language and communication barriers
A number of investors find it difficult to interact with vendors directly, mainly because they don’t speak the local language very well. At times, certain terms may mean completely different things for the buyer and seller. Since the paperwork in most countries is also in the vernacular, it poses a huge challenge for many foreigners. Language and communication barriers could cause delays in the completion of the deal.
One way around this problem is for you to gain some level of fluency over the local language; however, this option could take a while. Alternatively, you could engage a local representative you trust, who can also act as an intermediary.
While the thought of owning a holiday home in a foreign location is highly tempting, it is important to consider several aspects before investing, like the location, resale value of the property, and available amenities and facilities. It is nearly impossible to get this information when you are far away.
How much do you really know about the place you are planning to invest in? Conduct some thorough research about the real estate market in that country and look at the trends for the last few years. Try to connect with expat home owners who have been living there for several years and ask them what you need to know before you pay a deposit.
Differences in laws and policies
Every nation has a different set of rules when it comes to purchase and ownership of real estate. For example, in France, a homeowner’s children inherit the right to the house, instead of the spouse, unless there is a will specifying otherwise. Moreover, in some countries a buyer is held liable for purchasing property against which there are outstanding debts.
It may be best for you to consult a lawyer in your home country and list all the potential risks that you should eliminate when you are planning to buy property overseas. You should then also engage an attorney in the country of purchase and make sure that you understand all relevant aspects of the local law.
Finance and funding
Mortgage rates and terms in a number of countries are not very feasible for buyers, especially foreigners. Expats may find themselves in a sticky situation when they realize that they cannot get finance after paying an initial deposit on the property. In such cases, they either have to take out a private loan at high interest rates or forfeit their down payment.
When trying to figure out if you can afford property overseas, assume that you can only pay cash. Even if you choose countries where the financing mechanisms are quite straightforward, only make an offer if you can put down at least 40% of the price in cash.
Several nations require their citizens to pay tax on worldwide incomes, so any amount that you earn from your foreign property could increase your tax bracket in your home country too. Depending on the region you are planning to purchase real estate in, you may end up paying taxes in two places. Home owners in certain nations are made to pay a land tax as a condition of their mortgage.
Consult a tax specialist to know what your liabilities are likely to be once you make an investment in a foreign location. Check if you are entitled to any exemptions, deductions and rebates to reduce the amount you pay each year.
Currency conversion and fluctuations
When considering the cost of real estate, it is only natural for expats to convert the amounts into their local currency and see if the deal is worth their while or not. In such situations, it is essential to understand the value of the exchange rates associated with each currency. If the currency in your home is much stronger than the place of purchase, the deal will seem very cheap, even if you are paying more than the market value of the property. Do think about the effect it will have on your investment if the currency in either country falls or rises drastically. In fact, even a 10% fluctuation may put the property out of your reach. This is likely to happen in places where the economic or political conditions are unstable. Speak with foreign exchange specialists who can highlight potential risks and suggest appropriate actions.
Moreover, in some nations, the local banks and financial institutions are known to offer poor foreign exchange services, which may interfere with your transaction. It is therefore best to open a bank account in the place of purchase and obtain a Certificate of Importation, so that you can bring in the necessary amount of money from your home country without too much trouble.
Lack of inspection
Any potential buyer is strongly advised to conduct a thorough check of the premises before making an offer. Structural surveys and valuations from recognized bodies are common occurrences in the UK and many other nations. In fact, seeking assurance about the integrity of the structure and obtaining an independent valuation (from a private entity) are fundamental parts of any property deal. Many people tend to skip this step when purchasing real estate overseas, because of the logistic difficulties and high costs involved. Unfortunately, failure to do so could prove much more costly for an investor in the long run.
In almost every country, you should be able to find a private representative who specializes in the inspection of properties for sale. Alternatively, you could send someone from your home country to that place to conduct a structural valuation. Look at the additional costs as a small price you are paying to protect the bigger investment.
Acquiring real estate is not a very easy process and you may need to liaise with the seller, agents and government officials on a regular basis for a number of weeks. Doing this from a distance is likely to make things even more challenging.
Fortunately, you can overcome this problem by hiring a licensed local attorney to represent you. Make sure that you choose someone who is fluent in your own language as well as the local one, and who can validate all the documentation on your behalf.
While a number of home owners close property deals in foreign locations through their agents or attorneys, they are still required to make at least a trip or two in order to complete the procedure. You will therefore need to stay overseas for a few weeks or travel a couple of times before the deal goes through, which could increase your expenses by a great extent. Fortunately, the bulk of the work can be managed by a local representative.
When people evaluate the amount they have to pay to purchase property, they usually only consider the value of the house or land. It is essential to take the taxes, stamp duties, lawyers’ fees and agents’ commission into consideration too. The percentage paid towards these amounts will vary from one country to another.
In most developed countries, greasing palms or paying a bribe is regarded as a strict no-no. People could end up in legal trouble and be fined heavily if they even try to offer money or gifts for getting their work done. However, this isn’t the norm everywhere. In fact, you may find it impossible to get anything done unless you pay a huge amount, in cash or kind, under the table in some locations. Unfortunately, in some countries government officials are more likely to take advantage of the situation if they know that they are dealing with a foreigner.
You can actually save yourself a lot of money by hiring a local lawyer or an agent who can deal with government officials on your behalf. Take some time to find out everything you need to know about the whole procedure and which documents are required, so that you can be prepared when you are ready to make the purchase.
Mismatch in expectations
This is probably one of the most common challenges faced by a number of British and American expats who move to countries such as France, Spain and Italy. Some families get a great deal on property and make the move, believing that they will live the ideal, relaxed life in an exotic foreign location.
However, once they relocate, they realize that integrating themselves into the local society isn’t as easy as they had imagined. Not everyone is welcoming towards foreigners, and making friends can be quite difficult. This problem gets much worse for people who are not fluent in the local language. Being away from their family and friends, many expats therefore experience loneliness as they struggle to fit in.
It is also important for everyone to be absolutely sure of how much they are likely to earn once they settle down in a foreign country. Many expats have had to shut down their businesses, sell their properties (at a significant loss) and return home after incurring huge financial losses, mainly because their setups weren’t generating adequate revenue.
Before you sign on the dotted line of any property deals, check what the expat population is like in that location. If it is low, are you sure you want to purchase a house there? If there are many expats living in the area, try to get in touch with them and find out about their lifestyle. Keep in mind that even if you are planning to open your own business, it is imperative to have at least one fixed source of income which can take care of your monthly expenses.
The problems listed above are just the most common ones faced by foreign nationals when they try to purchase property overseas; unfortunately, there can be others too. On the other hand, many expats have bought homes abroad without any trouble. You should also keep in mind that the property purchase procedure in some places is much easier than others. It is therefore important to conduct thorough market research about the region that you are interested in before you decide to invest your time and money there.
Don’t just rely on websites, as a number of them have been created by builders and estate agents with the intention of attracting foreign buyers. These resources are not likely to give you a complete picture and will only show you the rosy side of owning real estate there. Connect with other expats who have been in a similar situation and check what kind of experience they had when they purchased a house or any kind of property in that country.
Also, it may be a good idea to spend at least a few months, or even a year, in the location before you make any investment. Not only will you get a good idea of the laws, policies and markets, but you can also see what kind of lifestyle you are likely to lead if you do ever choose to live there.