Congratulations!  You’ve made the decision to buy a holiday home abroad.  You decided to buy rather than rent because you plan to use the home often, or because you think renting is throwing away money (not the case). Perhaps, you think there is some financial advantage that owning gives you that renting doesn’t.  After careful evaluation, you’ve also decided where to buy.

This is all great, but now you have a few more decisions to make.  There are organizations specializing in real estate abroad that suggest setting up a timeline and working backwards from your target move date.  That works if you have a target move date. If not, take your time and work through a process like the one below.

I’ve mentioned in earlier blog posts how my wife, Joy, and I are getting very close to purchasing our own holiday home abroad. This is something we have been working toward for many years. Now as the decisions are here before us, it’s also an opportunity to share our process to help others who, like us, want to enjoy extended periods of time living in another country during our retirement.

What can you afford? 

What is your budget?  Could you pay cash?  Do you need to finance the purchase?  Do you want to rent out the house when it is not in use or do you prefer being the only one using it (assuming this aligns with your budget)?

Set your price range according to your budget.  When you are buying a home in the U.S. you establish the price range based on what you can afford in mortgage payments, property taxes, insurance premiums, upkeep, and utilities.  It is similar abroad.  Don’t forget the closing costs might be somewhat higher abroad.  Overseas properties may have purchase taxes, stamp duties, notary fees, wealth taxes, attorney fees, and other unique outlays at the initial purchase, as well as on-going things like property taxes.  My search in Portugal suggests these can be as much, if not more than 10% of the purchase price.

You should consider all the factors of the initial cost and the on-going costs and make sure they fit within your monthly spending plan (budget).

What type of home do you want?

Are you wanting to buy a villa, a house or a condo/apartment?  How many bedrooms, baths, living room or modern open floor plan?  New construction or existing?  Recent construction or older construction maybe needing some updating?  When we built our current home, we were sure to make it ADA compliant (Americans with Disabilities Act), so  we could age in place.  If you’re buying a home abroad, do you plan to own it long enough that issues such as access (elevator), and wheelchair accessibility are of concern?

How big do you want the property to be?  Will family and friends be visiting and staying with you while you’re there or will a studio apartment do just fine and the family and friends stay in other accommodations?  COVID-19 has renewed peoples’ interests in outside spaces.  Do you want a garden, terrace and/or balcony?  And since location is so important what kind of view do you want?  Lots of questions.  Consider making a list of what you feel is a must have versus what are nice-to-haves.  Answering these questions will make it easier for your real estate agent overseas to help identify opportunities to consider.

Let’s dig into the six steps I’ve outlined in an easy-to-follow process after you’ve addressed the questions above.

1. Pre-qualify for a mortgage. 

You want to be able to move quickly on a property once you find what you are seeking. If it is possible, get yourself pre-approved for a mortgage within your price range.  This will help reduce the time to closing, and it could make the difference if there are multiple offers on the property you select. Save yourself potential heartache by planning ahead.

Many of the documents needed for a mortgage in the U.S. are also required for one overseas like tax returns, pay-stubs, bank statements, investment statements and the like.  Gather these together to simplify the process.  Mortgage rates right now are competitive to U.S. mortgage rates and loans of 80% or more (loan to value) are common as are loans to Americans buying property abroad. If you are keeping your U.S. home and have enough equity, you might consider refinancing the U.S. home and using the proceeds of the equity cash-out to buy the overseas holiday home.  Of course, that presumes there is enough equity in your U.S. home.  If the terms are better in the U.S. you might consider that as an option.  Watch out for fluctuations in foreign exchange between the offer acceptance and closing dates.

Mortgage rates right now are competitive to U.S. mortgage rates and loans of 80% or more (loan to value) are common as are loans to Americans buying property abroad.

2. Choose your Realtor. 

Get a realtor who has been recommended to you and check their references.  Ideally, you want to select someone accustomed to working with Americans and their advisors.  A good resource are the people you know who live there (i.e. access expat communities) and have recently bought properties.  Also, attorneys, accountants, financial planners are other resources.  Organizations like Property Guides and International Living can be a good resource as well. During COVID-19 with many countries locked down, the realtors have more work to do, so anticipate it may cost somewhat more than their normal fee if you can’t travel and be engaged in the process personally.

3. Arrange viewing trips.

Some viewing “trips” can be remote, but I recommend you go there to make the final choices.  Visit properties that meet your objectives, so you don’t waste time.  We recently reached out to a realtor in Porto Portugal who was referred to us to help us look at properties when we are visiting there later this year.  If COVID-19 is still prevalent and travel is restricted, we will postpone everything.  We would not consider buying a property we have not physically seen.

4. Make an offer. 

Prices vary on many factors besides location.  Condition is a big variable.  It will cost you some additional money to have physical inspections by professionals, but I want to know how long the roof is good for, what is the condition of the structure, the heating and air conditioning systems, internally that everything is in order.  The home may require extensive updating or just a bit of tender loving care. Get estimates and adjust your offering price accordingly.

If you are buying a condo unit overseas what is the financial condition of the HOA (Home Owners Association)?  How many people live in units they own versus units that are rented?   We owned a property in a condominium complex in South Florida that was limited to owners 55 years old or older.  The average age of the owners in our building was well north of 75.

One day, the condo manager who was about my age was having lunch with me.  Attempting to understand my ownership risks a little better I asked him what concerned him most about the condo; what did he lose sleep over?  He shared with me that his biggest concern was that most of the unit holders would die in the same year leaving those few of us on the younger side holding the bag should some catastrophic event occur.  We have friends who own a unit in a waterfront condominium property that suddenly required major sea wall repairs. Not everyone in the condo HOA could afford their share of the costs for making the repairs and that delayed the repairs, increased the cost of the repair, and dramatically lowered the prices of units in that complex.

Condos can be great, but they can also be horrible.  Check everything out.

Buying a foreclosed property that a bank owns (hopefully has owned for a long while) might open an opportunity for you.  Get your estimates and make a low enough offer that may still be interesting to the bank but represents a solid value for you.

If the home is privately owned, negotiate the price on the property.  Above all, make sure that the price you agree to, along with any repairs you make or updates, is at or below the value of the property – don’t overpay.  If you cannot make these evaluations on your own, then get help.  Remember the real estate agent works for the seller and is not advantaged by you paying less for a property.

5. Sign a reservation contract and provide a deposit (earnest money). 

Make sure you allow for inspections of the property and surveys of the land and ownership.  Last year we stayed with friends at a villa in Tuscany.  Driving to that villa, we had to make our way (driving under less than ideal conditions) over private dirt roads before we found the property.  If I were going to buy a villa like that, I’d make sure I would have a right-of-way so that we or our guests could drive through private property to get to our property.  Access is important.  Don’t forget to consider it.

It isn’t all that uncommon for disputes to show up from family members who feel they have an interest in property you’re thinking of buying.  Better to know now than one day in the future when you want to sell and discover you may not own all of it!  Engage the services of a knowledgeable attorney.

6. Complete the final contract and Close. 

When money changes hand, taxes are paid, and your Notary arranges for your ownership registration it is then you take possession and move in.  Won’t it be nice to have electricity and hot water?  Back in the days of dial telephones a couple friends of ours moved to Israel to live there for a few years.  It took weeks just to get a telephone installed.

You will need to plan how to furnish your new home and whether you will need appliances installed, utilities turned on.  I wouldn’t suggest waiting until the last minute.  These can take time to get done.  Not everywhere in the world can you call for service and expect it the next day.

When you’re buying overseas there are some additional steps to consider:

If you’re planning to rent out your property when you’re not using it your revenue will be higher and more consistently reliable if you buy in an area that is popular and well located.  Not every property allows rental through organizations like Airbnb so check out the details. Do your due diligence.

If you have an idea that you may be interested in considering living abroad whether temporarily or permanently then look for future articles from me. Check out my past blog posts, too.

Stewart S. Koesten, M.S.F.S., CFP®, CIMA®. is Executive Chairman of Aspyre Wealth Partners with more than 35 years of experience as a wealth management advisor. Stew especially enjoys working with people who travel or live abroad, or those who want to travel or live abroad. Contact Stewart Koesten at (913) 345-1881 or visit our website at AspyreWealth.com. We are here to help
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