Whether you are thinking about traveling and settling in another country, or you simply want to invest in international real estate, buying a home in another country requires a lot of thought. For first time buyers, it can be intimidating getting into such unchartered waters with little guidance.
To keep the process smooth and avoid setbacks that may jeopardize your dream of owning a foreign home, below are some of the things you need to know before buying a home in another country.
1. Cost of Living
One of the most important considerations you need to make is the cost of living in the country you intend to buy a home. You can find this out by comparing the cost of living in different countries. This way, you figure out if you are financially ready to move or not. By knowing the cost of living, you can plan your finances and budget accordingly so that you don’t suffer financial surprises after you have committed yourself to buy a home in a country whose cost of living will hurt your bottom line.
Consider moving to an area with the same or lower cost of living as yours if you want to realize savings. If necessary services like transport, healthcare, food, and education are much more costly than your current location, it might not be in your best interest to move. Remember, you are not only looking at the cost of your house but also the long term expenses you will incur in your new country.
2. Foreign Ownership Laws
Before buying a home in another country, you need to be conversant with real estate and property ownership laws. Some countries don’t allow foreigners to own property, such as Switzerland, while others don’t give you the freedom to choose whoever you want to leave your real estate to. These laws will not only affect ownership of property but also the buying and selling of real estate. You may be required to register with a government agency or seek particular residence in countries with restrictions on foreigners owning homes.
Since real estate laws and regulations vary and can be complex to understand, an excellent real estate attorney can help clarify issues and advise you on the legal frameworks of buying a home in the country you want to travel to. The lawyer will also help in checking your papers and finalizing any other paperwork you may require before you can own your overseas home. This way, you can establish whether or not to go ahead with your decision and if you are comfortable with the regulations in case you want to dispose of your real estate in the future. This is because although countries like Malaysia allow foreigners to own property, they have to keep the proceeds of selling the property in a Malaysian bank.
3. Financing Options
Before buying a home in another country, you need to perform due diligence on your financing options. In most cases, approaching an international bank may expose you to not only huge down payments and interests, but also extra financial responsibilities. This is because you may be required to take up a life insurance policy just in case something happens to you before you can pay off your mortgage. With some countries placing age limits on life insurance, financing may become a bit difficult, depending on your age.
You can decide to finance your foreign home with cash, developer financing, or a self-directed IRA. Cash is your best alternative for an already built home as you will not only close the deal faster but also may benefit from discounts. However, it isn’t recommended to pay cash for a home in the pre-construction stage due to the risk of delays and stagnation when the owner lacks the funds to complete it as expected. Developer financing, on the other hand, is ideal for homes on the pre-construction stage and might be applicable when buying a site or a lot. The good thing is that they have low interests and are flexible payments as you can pay monthly, per construction phase or on fixed dates.
You can also use money from your self-directed IRA to pay for your home. However, you will not be allowed to live in it or use it for vacations as it is recognized as an investment property until you can qualify for distributions from the account. Being knowledgeable of your real estate financing options before buying a foreign home will help you pick the most suitable financing for your situation. You can take advantage of home buying contingencies like mortgage and inspection contingencies to protect your interests. Just don’t offer too much home buying contingencies as it might put off the seller, and you lose out on your foreign dream home.
4. Your Tax Responsibilities
Tax laws vary from one country to the next, and your tax responsibilities can quickly become complicated after buying a home in another country. You may be required to pay taxes during the purchase and sale of your home, as well as recurring property taxes, which you’ll need to pay throughout the year. In the event that you rent out the home, you will also be responsible for income tax obligations. Some countries even have tax laws that determine who inherits your property in case of death. In such a case, you may also be liable for inheritance tax
Keep in mind that the purpose of your home will play a huge role in determining your tax liabilities. It is, therefore, essential to know what your tax obligations will be before committing to buy a home in another country. Talking to a local tax expert is a great way to get the insight you need for you to clearly understand how buying a home abroad is going to affect your tax situation. This way, you can add all your taxes- be it a title-transfer tax or land tax to your budget so that you are not caught on the wrong side of the law.
5. Exit Strategy
Sometimes, what you may think of as a permanent residence may turn out to be temporary due to one reason or the other. Whether your business prospects do not go as expected, or you get tired of traveling to the same place for vacation every year, you must have an exit strategy in place. Planning for the long term is key to a smooth transition, and a well-strategized exit plan will ensure you are not stuck in a foreign country when you want to move on.
If you decide to sell your home, consider the prevailing market conditions first. Sometimes, homes can stay on the market for long without buyers, which may derail your plans and add to your financial stress. Speaking to real estate professionals about the housing market and knowing all your options when you decide to leave is a necessary process when planning for your exit. This way, you get to know what to expect and make informed decisions when the time comes, such as the best time to sell off your home.
The above considerations, coupled with professional advice from lenders, attorneys, and real estate agents conversant with foreign home buying, will adequately prepare you for your first home abroad. If you are a first-time buyer, this guide will help break down the home buying process for you for a smoother home buying process.