Buying A Dream Home Abroad? Look At The Hard Realities First
By Donna Howell
Investor's Business Daily
Published on Friday, August 19, 2005
An idyllic castle in France with sprawling grounds, price upon request.
Maybe that's how the musing starts, with a for-sale ad seen on vacation.
Fewer people purchase foreign property than harbor pipe dreams about doing so. Since it takes more than standard real estate expertise to get a good deal on a foreign home, such caution is well-placed.
Drafty castles with enormous upkeep needs aside, what are some of the options and pitfalls when buying abroad?
"Because we take our way of doing business for granted, one really has to examine in quite specific detail what the rules are for ownership in that country, and taxation," said Norm Flynn, the National Association of Realtors' coordinator for Western Europe. A prospective buyer should "ask a tax adviser and attorney for the picture, so they don't inadvertently walk into a buzz saw where they lose money."
Among the major points to consider are currency exchange rates, laws governing purchases by foreigners, taxes and residency requirements, if the plan is to move or retire there full time.
"I think some people are now starting to extend their search beyond the borders for better values," said David Hehman, president of property site EscapeHomes.com. "The logical extensions bring people to Canada and Mexico. Both have unique attributes and some fairly compelling values."
Hehman says foreign ownership in both Mexico and Canada has been simplified. That along with improved financing options appeals to Americans. While U.S. mortgage firms don't yet widely provide financing for foreign home purchases, some at least have started.
If you are contemplating buying property in Europe, consider Spain, Flynn said.
"It's probably one of the best-kept secrets in America," he said. "Spain is a marvelous place to buy. It's got some marvelous environments, great infrastructure and a good, solid government."
But currency exchange rates recently have spurred more Americans to avoid Europe in favor of places where the U.S. dollar buys more.
"Two or three years ago, you could buy in Canada and it was like getting 50% off because of how strong the dollar was," he said.
The dollar has fallen against foreign currencies, including the euro, in the last two years. It's one reason "you see a lot of European buyers in the U.S.," rather than the other way around, he said.
Exchange rates can have a dramatic impact. For example, a European home costing 250,000 euros would have cost a U.S. buyer $231,875 five years ago. Absent appreciation, it would now cost $303,125, nearly 31% more.
When looking to buy foreign property, Flynn said, try to find a U.S. real estate agent with foreign contacts, one who also can recommend foreign legal counsel.
"The way it works is there's normally a modest referral fee that's paid the American broker for identifying the person on the other end," he said. It's "not a huge amount of money," but provides incentive for an American broker to make sure a purchase goes smoothly.
Traditional fees paid to agents vary by country, Flynn said. The U.S. is on the high side at 5-7%. But the rate is closer to 3% in the British Isles and France, and around 4% in some other European spots.