Everyone has a crazy aunt or uncle. When I was 18, I had the incredible fortune of my own aunt Pam sweeping my small group of former girl scout friends off to India for the Summer. Six extraordinarily different cities and four travel diaries later I was sold on the country. Leaving was a wretched affair, and my dramatic teenage crying as I departed my first foreign country is what gave my future adult self an insatiable attraction to the dream of investing in a home outside of the United States.
If your dreams of buying property in a foreign destination are becoming a reality, firstly, cheers. Secondly, we have broken down some basic steps to get you started.
1. Determine the Purpose of the Investment.
Will you be relocating full time, ex-pat style? Or will your new piece of paradise be utilized as a rental or investment property? Knowing what category the purchase is going to fall under is an ESSENTIAL starting place. Really put some thought into this, and be realistic because the implications of a resident vs. nonresident acquisition can be extensive.
As an example, financing for non-residents who wish to obtain a mortgage in Italy is usually limited to borrowing about 50-60% loan to value (LT V).
2. Learn the Legal System.
There are three forms of legal systems in the world; common law, civil law, and religious law. (Disclaimer: this is a generalization as systems are nuanced, and countries systems are often pluralistic). Countries like the United States, England, and Australia follow a common law system. If you live here this is what you are most familiar with. France, Germany and Greece are some examples of countries that follow a civil law system. Morocco and Egypt are examples of countries whose legal systems are strongly influenced by religious law. Know what system the country operates under, and learn the implications for land rights, contractual obligations, inheritance laws, etc. before you buy.
Example. Here in the US we can take a lot of liberties with our contracts. You can leave terms out, add terms in, restrict the parties’ remedies, etc. But use the same contract in France and excluded clauses may still apply to the transaction if they are written into the country’s civil code. So, generally speaking, there is a lot less freedom with contracts within a civil system.
3. Learn the Local Laws.
Learn the local laws and any restrictions that you may face prior to investing. Proper due diligence into the region and the municipality’s regulations will save you substantial amounts of aggravation post purchase. And understanding local regulations regarding everything from eminent domain rights to historic district restrictions will prepare you to deal with any limitations accordingly.
As an example, we were in Barbados earlier this month. While navigating through Bridgetown we were struck by the lovely defunct remains of a crumbing oceanfront hotel. We are informed that, as a historic structure, it could not be demolished despite its condition. Any investor acquiring the land it sits on will need to restore the original building. (As a restoration junkie, I loved this, but I can see how it could be a major deal breaker for many buyers).
4. Get to Know the Country’s Infrastructure.
I.e. is it a functional one? Figure out the municipal resources that your property will have access to. (Electrical/sewer/water/etc.). If the Parkroads are a hot mess, will they be fixed in the near future? Do you have to “know a guy” to get your building permits approved? You get the idea.
Example. A few years ago a friend of ours purchased a to-be-constructed condo in Morocco. Title to the unit was not transferable until the project’s completion. Once completed, the buyer moved in and requested the now technically available title to the unit. It took A YEAR for him to receive the title. He was retroactively informed by locals in the area that the documents would have been processed in a timely manner had he utilized a personal government connection or provided a financial incentive to the clerk.
5. Understand your Tax implications.
Generally speaking, your foreign assets will need to be reported. Electing to take ownership as an individual, or as a corporate entity will also impact reporting requirements and taxes differently both here and in the country where the purchase is made. Purchase and property transfer taxes also vary by Country and even region. The list goes on. Your tax implications are of course going to be the concern of your accountant – we recommend delving into this one with them.
For example, in some countries you’ll have taxes withheld from any rental income and in others you will need to file taxes separately for rental income.
6. Understand how listings descriptions differ outside of the US.
So I thought I would wrap things up with a lighter, yet important, final tip. Get to know the differences in how properties are marketed in the country you are purchasing in. When you see a listing here that says “needs TLC,” you probably know you have a project ahead of you. In France it’s not that unusual to buy a pile of rocks that has been left to preserve a foundation. But the listing may have a similar description as our “TLC” listings. In sum, go see what you are actually buying in person before you buy it.
Another example. Here in the northeast, a home’s interior heated square footage is all that is calculated into your total “living space.” In other countries, both unfinished spaces and outdoor areas may be calculated into a property’s “total living space.”
There are several other factors to take into consideration when making a foreign investment and this list could go in many different directions depending on your personal circumstances. Our team is here to help you enter into the international market well prepared and ready to find your home away from home. For an overview more tailored to your specific needs, you can get in touch with us at firstname.lastname@example.org.