Top 10 Considerations for Cross-border Buyers

For many reasons, buying property in another country can be an excellent decision. But it should never be a simple decision.

As a CIPS designee, you have the education, network and resources to help buyers work through all the most important considerations before completing a purchase. Most importantly, remind buyers to never assume that real estate practices in other nations mirror those in their home country. Every market is different, in terms of how properties are marketed, how ownership is secured, and who gets involved in completing a transaction.

Start by reviewing the following topics with your clients:

1. Objectives

What are your clients' primary objectives? Are they seeking an attractive investment? If so, what are their investment goals (income, appreciation, etc.)? Is the property intended for vacation purposes? Retirement? Mixed use? Clarifying objectives provides an essential reality check (can objectives be attained?) and an initial filter for narrowing down options.

2. Intended Use

Will this be a cozy retreat for quiet relaxation? A place to entertain friends and family? A hub for golf outings? A place to practice a favorite hobby or write a book? The answers to these questions and others will shape your clients' preferences on location, size, floor plan, related amenities and much more. Also, how often will the property be visited and how will the frequency of visits change in five years, ten years, etc.?

3. Location

The phrase "all real estate is local" applies just as much, if not more, to purchases in another country. Most people already have some ideas about where they want to purchase a home, but the smartest buyers will make several extended trips to their preferred destination to get very familiar with the local market.

Your clients will also need help establishing connections with local professionals who can offer valuable purchase assistance, including local real estate agents, attorneys, notaries, inspectors, property management professionals, etc. (Remind your clients that CIPS-designated agents have a distinct leg up in providing these contacts by working through the CIPS Network and identifying the most knowledgeable and trustworthy professionals.)

4. Property Type

Some buyers will insist upon a newly-built home, especially if it offers the latest amenities and technologies. (Many renters feel the same way.) Additionally, if a home is purchased pre-construction, owners enjoy the advantage of selecting finishes that reflect their personal tastes.

However, new homes also typically come with higher price tags, potentially including higher taxes. They may also lack the charm and character of an existing home, particularly one of a historic nature. For any purchase abroad—and especially for resale properties—make sure your buyers get a thorough professional inspection to avoid hidden problems, as well as an appraisal.

Buyers also need to decide between standalone properties or units within a multifamily complex. Each offers a distinct set of trade-offs, especially for long-distance owners (or landlords).

5. Rental Potential

How many weeks of the year will your client make their home available for rental (during peak and off season)? What is the minimum rental income the property must achieve? In addition to basic property management services, will your client also need assistance marketing the property and handling bookings?

To determine whether a residence will meet an owner's minimal rental income goals, attempt to capture all related property ownership/rental expenses, including agent fees, taxes, insurance, housekeeping services, etc. Above all, make sure local laws permit owners to accept rentals and that the property is conveniently located in an attractive tourist area.

6. Legal Factors

First and foremost, buyers need to ensure their future home is in a country that honors private property rights. If foreigners can't hold secure title—or there's a legitimate risk that a change in political direction could restrict or revoke foreign property ownership—buyers should look elsewhere.

Other legal considerations:

  • Does the contract include related financial obligations (such as community fees)?
  • Do local laws restrict modifications to the property or the materials that can be used in a restoration?
  • Are there any restrictions on using the property for rental income?

Language and translation issues may arise if a buyer isn't fluent in the language used in the legal documents. Before signing any documents, buyers may wish to translate all written documents using a trusted translator in order to review the provisions (keeping in mind the agreement may be enforceable in the original language only). In order to attract buyers, sellers may be willing to conduct the transaction in the buyer's preferred language. In that case, buyers should review local laws to confirm that legal documents in a non-local language are legally binding. Regardless of the language, you may wish to encourage buyers to consult a local attorney to explain the documents' provisions and ensure the documents are compliant with local laws.

7. Purchasing Costs

Regardless of where a home is located, numerous expenses must be added to the purchase price. These include:

Related professional assistance. This potentially includes attorneys, inspectors, appraisers, and financial/tax professionals.

Closing costs. Procedures and fees vary by country, but may include sales/transfer taxes and title/notary services. Additionally, if the purchase is financed, mortgage origination expenses will be added to closing costs.

8. Continuing Expenses

If a property is financed, monthly mortgage payments will likely be an owner's largest expense. Other items that your buyer should factor into the equation:

Utilities - Buyers shouldn't assume that the utilities they're accustomed to back home are automatically available abroad, even if they're purchasing in a new development. In addition to ensuring access to water (potable? running hot and cold?), electricity (available 24/7?), heat/air conditioning, telecommunications (connection speeds? analog/digital service?), etc. also investigate all costs related to installing and maintaining these services.

Community fees - Similar to homeowner's associations in the U.S., many developments in other countries assess monthly fees to manage the community's infrastructure, maintenance costs and related services.

Taxes - In addition to foreign taxes (property? income?), how will any income earned on the property be viewed by tax authorities back home?

Insurance - Homeowner's insurance is always a good idea, but certain levels of coverage may be mandatory in some developments.

Security - Gated communities may provide better property protection, but if the property is truly local, who will look after it when the owner is away? A security system monitored by a professional firm may be one viable solution.

Maintenance - How will seasonal yard and exterior maintenance be managed? What about repairs? Property management firms may be able to assist with this, as well as general housekeeping services if the home will be used for rental guests.

Travel - Don't forget that using a property also includes the cost of round-trip travel.

9. Costs to Sell (or Inherit)

Before entering into a purchase, buyers should also have a solid understanding of their exit options and related expenses.

Questions to ask:

  • When this property is sold, can the proceeds be freely moved out of the country without taxation?
  • What are the tax implications of repatriating an investment back to the home country?
  • If a property moves into an estate, how will ownership and taxation be treated among the heirs? Can inheritance/transfer taxes be avoided by including heirs on the deed?

While some countries have no taxes on capital gains or estates, others impose high tax rates—and those rates can vary greatly depending on whether the owner (or the owner's heirs) are considered legal residents or foreigners. Every country has a different set of rules governing who should benefit when someone dies.

Encourage your client to plan ahead and seek expert advice on the most effective way to handle such matters before signing a sales contract. Further, such laws are always subject to change, making it essential to have a reliable source to guide the buyer throughout their term of ownership.

10. Other Factors

Currency fluctuations - Cross-border transactions always involve an element of currency risk which can enhance or detract from an owner's related income and expenses. See a further discussion of recent international currency developments.

Transportation - Are there convenient and economic options between major transportation hubs? Safe and reliable local transportation options? Are the roads to neighboring destinations in good condition? Beyond affecting how easily an owner can use his/her property, transportation plays a major role in attracting visitors (including rental customers) into the area.

Medical facilities - This factor may not be on the minds of younger buyers, but it should be, especially if their long-term goals include retirement. Besides, emergencies can happen at any age.

Government - Does the country welcome and encourage foreign investment? Are social services available to foreigners? Do property owners gain special visa or residency status? Is the overall political climate stable?

Discussing each of these ten topics and related questions with your clients will help them make a more informed and successful purchasing decision—and help you earn their trust as a valued and reliable expert in the process.

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About Global Perspectives

Global Perspectives in Real Estate is a resource for global professionals, aimed at helping them globalize their local markets. Produced bi-monthly, this newsletter serves as a how-to guide and is full of useful and actionable tips. A free subscription is given to all Certified International Property Specialists (CIPS) designees.

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