International Real Estate: What You Should Know Before Buying Abroad

1. Do your homework. Familiarize yourself with the laws and customs of the country. Research the tax codes, currency restrictions, and the qualifications for residency. Having a local attorney is a must. Ask your real estate agent or a fellow expatriate to recommend an attorney. The local American embassy can also provide a list of referrals. If you plan of purchasing property in a place where English is not the official language, you should insist on a bilingual lawyer who is able to translate all relevant legal documents.

2. Research. Find out the specifics about your new home-to-be: from the local political and economic situation to the daily cost-of-living. The last thing you want is to sink money into a place that’s unstable. Check out the U.S. State Department’s site, www.state.gov, for up-to-date assessments of virtually every country.

3. Finding a realtor. Once you’re ready to look at property, you’ll need to find a competent local real estate professional. There are many horror stories of people who have either dealt with either unscrupulous or misinformed parties, costing them thousands of dollars (and in a few cases, their entire investment). Don’t be one of those who learn the hard way. Some U.S., UK and Australian firms have representatives or prescreened affiliates abroad. In some countries (Mexico, Honduras and Bali, for example), real estate agents are not required to be licensed and con artists abound, waiting to prey on cash-rich foreigners. A good resource for competent real estate professionals is the International Real Estate Contacts list, which is available at: www.thegloballife.net.

4. The process. While every place has it own set of rules and nuances, the process of buying abroad generally works like this: First, the buyer and the seller to agree on a price, a security deposit (generally, 10 to 25 percent) will probably be required to take the house off the market. Your attorney should then receive a copy of the title and verify that the property is free from any liens or claims against the property. They should also advise you of any strange archaic laws, like those in parts of Canada that allow anyone to fish on your land, those in England and France that allow sheep to pass through your property, those in rural Italy that give your neighbors first-refusal rights on any land used for agricultural purposes (which could leave someone else with the fruit in the vineyard or olive grove on “your” property), or historic construction bans that prevent you from making any external changes to a property (even installing a pool). Also, if you are buying anything in need of restoration (or more than a hundred years old), have a structural survey done.

5. Mortgages? Financing your dream home may not be possible abroad. Your U.S. bank will only lend you the money for your foreign home if you’re willing to use other assets for collateral, like your existing home or automobile, CDs or brokerage account. Some foreign banks will extend a mortgage once you’ve opened an account, but most likely, you will have to pay cash. If you decide to open a foreign bank account, you must report its existence to the U.S. Treasury Department. The IRS recently warned U.S. expatriates that they risk up to a $10,000 fine or 50 per cent of the value of the account if they fail to report overseas bank and financial accounts. For details, get IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad online at www.irs.gov

6. A word of caution about renting. You may be considering offsetting costs by renting out your foreign home while you’re not there or setting it up as a short-term vacation rental. While the extra income can be a big bonus, countries such as Mexico and France have strict eviction laws (in France it can take up to 3 years to evict tenants who decide to stay without paying, unless you demonstrate to the courts that you’ve found your tenant a suitable similar rental to move into).

7. About taxes. If you make a decision to rent out your property, you will be required to report rental income on your U.S. tax return (you may also be required to do the same with your “new” country of residence). Since the United States has reciprocal tax treaties with dozens of countries, you probably don’t have to worry about double-taxation, since any amount paid abroad will be credited against your U.S. tax bill. If you work abroad, you may even be able to sidestep Uncle Sam altogether by qualifying for the $80,000 foreign income exclusion (and by writing off the maintenance expenses on your new home). If you decide to sell your foreign property, be aware that capital gains taxes in some countries can reach as high as 40 percent. I suggest soliciting the help of an international tax specialist for information about your own situation. A top U.S. expert is: Jane Bruno, the author of The Expat’s Guide to US Taxes. She can be reached at (561) 222-9273 or via email: janebruno@adelphia.net. Just tell her I sent you.

8. Legal matters. After making your purchase, you should be sure to draft a local will to ensure your property is passed along to your heirs.

Complicated legal and financial issues, strange covenants, and squatters could make that villa in the south of France or farmhouse in Tuscany seem like more trouble than it’s worth.

If you do your homework and hire the right people, your foreign purchase should be smooth sailing.

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