Owning real estate overseas is often a lifelong dream. It can look different for everyone. For example, maybe your goal is to retire in Tuscany, or perhaps you want to buy a second home but keep your primary residence in the U.S. You might want to purchase property now where you’ll live later, or you could want to move overseas full-time.
Regardless of your situation, many specifics vary depending on where you want to buy, but the following are some general considerations to keep in mind.
Buying Property Overseas Is Complex
No matter where you want to buy or when, you should go into it with an understanding that it’s complex. There are legal and financial issues, as well as travel-related logistics. If you think you’re going to have a completely smooth process, you’re probably wrong.
To help streamline it, you should work with local professionals. First, a local lawyer can be extremely helpful when you’re buying property as a foreigner. You should also use a buyer’s agent who specializes in international transactions.
There are very specific rules dictating who can buy what in most countries. For example, there’s a rule in Mexico that if you’re a foreigner, you can’t own property on the coast, but there are ways to go around this by using a Mexican bank trust.
Some places won’t let foreigners buy property altogether. For example, Switzerland has very strict restrictions on foreigners buying property. You can only buy property if you’re an EU or EFTA national who has a Swiss residence permit and lives in Switzerland, or have a Swiss C permit.
Financing Foreign Property
In many cases, mortgages overseas aren’t available to U.S. buyers, and U.S. banks typically won’t lend you money to buy something internationally. Even if you can find a location where you might be eligible for mortgage lending, you’re probably going to have to make a down payment of anywhere from 30% to 50% and your terms aren’t going to be very favorable.
You may also have to get a life insurance policy that totals your mortgage, and the bank lending you money will have to be named the beneficiary. At the same time, depending on your age you may not be eligible for life insurance in some countries.
What this means is that you should have cash if you plan to buy overseas. You might be able to get developer financing, or you can use the proceeds of a self-directed IRA if you plan to use the property as a rental or investment only.
If you buy property in a foreign country, you may be taxed both when you buy it and sell it. You may also have to make payments throughout the year, similar to property taxes in the U.S.
Finally, before you buy anything overseas you need to have an exit strategy you can turn to if necessary. You may think you’ll never sell, but unexpected life and financial situations can arise. What taxes would you owe if you did sell? Would you even be able to sell? What is the market like where you’re buying and what is it likely to look like in the future?