Things To Know Before Buying A House Overseas
7 top tips for purchasing overseas property
Buying property overseas can be a fantastic lifestyle change and a great investment, but it’s not something that should be jumped into without knowing the facts.
Currency differences, local governments and communities, taxation and borrowing issues, can all be the difference between your overseas dream or nightmare.
We’ve put together our 7 top tips to think about before investing on property internationally.
1. Do you have enough capital?
Make sure you know how much capital you’re going to need to purchase your overseas property. While in your own country, you may only need a 10% or 20% downpayment, oftentimes the capital requirements for overseas properties will be larger than this. Sometimes capital requirements may be over 60% depending on where you’re buying and how you are financing your purchase.
Other settlement fees may also apply to your purchase, and these will often need to be paid on top of your down payment. Stamp Duty, for example, can be over 10% in some countries.
2. Find a broker who will allow international purchases
If you’re wanting to set up a mortgage to manage the purchase of your overseas property, you’re going to have to find a mortgage broker who will allow for overseas purchases. Make sure you shop around for the best deal, as interest rates, fees, and terms of international property loans vary dramatically between brokers.
3. Know the laws and traditions of the country you want to purchase in
That super cheap beach-side property, with sea views and 30% annual rental return may seem like a great idea, but it’s sometimes too good to be true. WIth most good returns, comes risk. Here are a few things to keep in mind:
- Can you buy there? Many countries have restrictions on if and how foreigners can invest in property
- Even if a countries government allow a property to be sold to international buyers, there may still be issues on a local level. It’s always a good idea to check with the community elders or governers before purchasing foreign houses.
- Is the countries government stable? Unstable governments have been known to take back foreign-held property
4. Shop around for the best exchange rate
Purchasing property is inherently a costly task. Every percentage point difference in the exchange rate that you receive is going to have a dramatic effect on the cost of your property. Don’t just accept whatever rate your bank is offering you – make sure you shop around!
Banks and most FX brokers will usually charge a percentage margin from the ‘market FX rate’. This can sometimes be over 5%!
Purchasing a house overseas usually means that you’ll be needing to send a fairly substantial volume. Don’t be afraid to leverage this with your FX broker to get a better rate out of them. WorldFirst, OFX, and TorFX all have very personal service, and will sometimes be able to negotiate on rates, depending on your circumstances.
5. Should you lock in a forward rate?
Usually, when you purchase a property, money won’t change hands for some time after you agreed to buy.
So your new property in the south of France might cost 200,000 Euros. If you’re in the US and the USD/EUR exchange rate is 0.90, then you’ll be expecting to pay USD$222,222. But what if the exchange rate moved to 0.85 by the time money changed hands? You lovely French house just became $13k more expensive!! One way to avoid this risk is to take out a Forward Contract. A forward contract allows you to lock in a future exchange rate at a future point in time.
However, by using a forward contract to minimizing downside risk, you also miss out on any gains were the exchange rate to move in your favour. You can read more about forward contracts here.
6. Lifestyle change or returns on investment?
There may be different issues that arise from buying either a lifestyle property or an investment.
If you’re buying a property to live in or visit occasionally you will have to make sure you have proper visas or residency status in place. Rules for visiting or staying in different counties vary drastically. Make sure you speak with the embassy or travel professional before making any decisions.
If you’re purchasing overseas property for an investment, there are a number of things to consider:
- Does the country allow foreign investment?
- Where will you be taxed? Your home country, the properties country, or both? Some countries have agreements in place to reduce the effects of double taxation.
- Will you need to pay taxes on rental income and capital gains?
- How difficult will it be to sell the property?
If you’re receiving any type of revenue from the property, have you thought about how it how you will do so? It’s often not easy to set up a bank account in foreign countries. There are some products out there, such as the TransferWise Borderless Account, which allows you to open virtual bank accounts in different countries. This can be very helpful when receiving foreign income. Check out our guide to Virtual Accounts here.
7. Do Your Research & Ask The Locals!
It is so so important to do your research! when it comes to buying a house overseas, impulse buys can be damaging to your wallet.
If you can, spend as much time in the local area as possible before making your purchase, and ask the locals as many questions as you can. Forums and Facebook groups can also be a handy source of knowledge for information on local areas. There are a lot of expat groups out there that can lend a helping hand.