When I was young, we used to go on holidays to and stay in a flat my family owned. Now I am older and have a family of my own, I have sometimes wondered what it might be like to have a bolt-hole overseas, somewhere for either my wife and I to go or a safe space for the kids when they are older.
Of course, you might be thinking of buying a second home abroad. If so, this post is designed for you. We take a look at all of the pitfalls and hurdles that you might fall into if you’re considering purchasing real estate overseas. Here’s everything that you need to know:
The real cost is more than the sticker price
The first thing you’ll need to know is that the real cost is often more than the sticker price. Closing fees, product fees on expat mortgages and registration costs can all add up, depending on where you buy,
Because of this, you’ll need to think carefully about how much you spend. You’ll also need to consider exchange rate fluctuations if the value of the mortgage is denominated in local currency, but your earnings are in a domestic currency like the US dollar or British pounds. You also need to think about ghost expenses. Remember, seasonal travel costs for flights can add up fast, so all of this is going to subtract from your overall income and wealth pool.
Legal systems and invisible rules dominate
Another thing you’ll want to consider if you’re buying a property outside of the West is that legal systems can be different, and invisible rules can dominate.
For example, in developed markets, you can find out how much your property is worth by using a multiple listing service. It’s much more difficult in overseas territories, where houses could be one-of-a-kind. There could also be ownership restrictions. For example, some countries in Asia actually ban foreigners from owning more than 50% of a piece of property or the land that it sits on.
You need to be careful with these considerations, because you may be blocked from the market entirely, or you may have to sign up for a lease agreement that doesn’t really give you full ownership rights over the property. If you’re not sure what to do, always use an independent lawyer based in the target country. Make sure they understand the situation and genuinely work for you.
Taxes and residency issues can be a problem
Finally, you can run into various tax and residency issues that can become a problem for you over time when you buy real estate overseas. Double taxation can be a problem depending on your home country. If it doesn’t have a tax relationship with the destination country, you should think twice about buying a property overseas. If they don’t have a tax agreement, you may wind up paying taxes in both jurisdictions, which is no fun.
Buying a property can also grant you legal residency via golden visas, but the rules are constantly changing as countries try to limit the number of foreigners coming in. Previously, many Southern European countries required an investment of $250,000 or more in property to gain residency, but this has now increased to $500,000 or more.
Owning a property in a destination country doesn’t give you the right to live there, so you may need to think about using various rental platforms or renting it out privately in the local market.
