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 abode 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/publications/p54/index.html.
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