7 Keys to Buying Overseas Retirement Property
While some retirees head straight for America’s sun districts—Florida, South Carolina, California, to name a few—others travel clear across the border to launch their postcareer lives. And since many overseas retirement hubs combine a reduced cost of living with a delightful tropical climate, it’s no wonder they’re so appealing.
Here are seven tips for retirees considering buying property overseas:
1. Beware the market trends: While American real estate is experiencing a protracted swoon, some world property markets are moving in the opposite direction. Likewise, the dollar is in the midst of a multiyear slide against foreign currencies. Combined, these trends suggest that selling your U.S. home to buy property overseas today would be unwise, says Michael Englund, the chief economist for Action Economics. “Making that switch now would appear to be classic herd-mentality behavior—jumping out of and getting into markets that have already moved sharply in one direction—theirs being up, ours being down,” Englund says. Financially, it would make more sense to wait—perhaps a couple of years—for real estate and currency cycles to reverse course. However, Englund cautions, “it’s no easier predicting currency markets than it is predicting real estate markets.”
2. Think proximity, safety, and health: When selecting a destination, retirees should look for a politically stable country in relative proximity to the United States. This will help minimize hassles when they return home for visits, says Deb Andrews, the editor of the Caribbean Property & Lifestyles magazine, an online publication that specializes in issues involving relocating to the Caribbean. But another consideration, healthcare, is just as important. “You have to make the decision: Either you are going to go home [for medical treatment]—in which case you don’t want to be [a great distance away from the United States],” Andrews says. “Or you you’re perfectly willing to migrate your primary healthcare to wherever you are moving—so you’ll want to know that the hospitals are pretty solid around you.” (In the event of an emergency, of course, you won’t have the option of returning to the United States for treatment. That makes good, in-country healthcare essential.) Countries such as Costa Rica, Panama, and Mexico generally score well on these standards.
3. Give it a tryout: Even if you’re convinced you’ve found the land of your dreams, it’s a good idea to spend at least a couple of months as a renter before buying property in that country. There are a number of challenges to overseas life that might not be immediately apparent. By renting, you have much more latitude to return to the United States if you sour on your new location. “I have seen quite a few people really entranced with the idea of retiring in Mexico or Spain—somewhere exotic—and they change their minds after a while,” Halcomb says. “Either something goes wrong or they miss the community they had in the United States.”
4. Make in-country connections… : While exploring your potential new home, seek out others who have left their homelands to live in that country. “You’ll certainly meet expatriates,” says Roger Gallo, the founder of Escapeartist.com, a website on life overseas that is affiliated with Caribbean Property & Lifestyles Magazine. “Find out what they went through—most people will offer advice.” Expatriates can help you learn if the country is right for you, as well as provide information about properties, financing, and legal issues.
5. …or enlist a pro: A large, international real estate brokerage should be able to put you in touch with an agent based in the country that you’re considering. “If it’s a global organization, then they probably have offices in various countries,” says Brent Lipschultz, a principal in Eisner LLP’s personal wealth advisory practice. In addition, you can find a list of agents with a certified international property specialist (CIPS) designation from the National Association of Realtors here. A CIPS agent will be able to refer you to a qualified agent in the country you’ve targeted. “That way they will have a reputable realtor that [potential buyers] can work with just like they would in the housing process in the U.S.,” says Manfred Chemek, the CEO of international real estate firm Manhelm International. Buyers You can also locate a qualified in-country broker at WorldProperties.com, a website run by the International Consortium of Real Estate Associations, of which NAR is a founding member.
6. Know your buying options: Most retirees buying property overseas pay cash—using either their retirement savings or the proceeds from selling their U.S. home, Gallo says. However, “if it’s a newer development—like [Donald] Trump and a lot of [developers] who have come in here to Panama—they are going to have their own financing [for borrowers] in place,” Gallo says. With bankers becoming increasingly stingy with credit these days, it can be difficult—but not impossible—to obtain a mortgage on an overseas property, Lipschultz says. He recommends first reaching out to lenders in your destination country (your agent should be able to provide you with contacts). But retirees can also speak to their U.S.-based financial institution to try to arrange “creative” financing. “Some banks are not comfortable securitizing foreign property,” Lipschultz says. “But if you’ve got money in a financial institution, they may be able to give you a loan by collateralizing a securities [portfolio] as opposed to the real estate.” In addition, if your U.S. residence has appreciated enough, it may be possible to obtain a home equity loan to cover the cost of a second home, Gallo says.
7. Establish a brain trust: With legal codes differing from country to country, it’s important to find a good lawyer based in your retirement destination. “They understand the laws there and they can make sure that you’ve covered all the legalities,” Chemek says. (A CIPS or in-country agent should be able to recommend a couple of qualified attorneys.) At the same time, retirees should discuss the potential tax consequences of the purchase—which, again, will differ depending on the country—with their tax consultant. “The tax side is very important—not only from your vantage point here in the United States. You need to understand the tax laws in the [destination] country,” says Ruth Krinke, a CIPS at Steamboat Real Estate, in Steamboat Springs, Colo.
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