Too many people tend to overcomplicate the issue of buying property overseas, especially those of us who’ve been doing it for a while.
The reality is that in many ways, it’s not much different than buying a property back home—in some respects, it’s easier. But what makes it difficult is having a blank slate to work from, as strange as that may sound.
I moved a number of times in the United States, back when I had an actual job. But I was always moving to a new work location, so the country, state, and often the city were already chosen for me. My selection of neighborhood was based more on convenience for living and commuting rather than any expectation of fun and adventure.
You’ll find that it’s actually harder to pick a property when you have no restrictions whatsoever on where you might buy—when you have the whole world to choose from. So you’ve got to consider a number of factors that didn’t usually come into play when making moves within the United States.
Here are a few tips that I use to get started on an overseas purchase.
Examine Your Underlying Reasons For Buying Abroad
The most important step in the entire process takes place before you even know what country you’re focused on. You’ve got to really think about why you’re buying and how you intend to use the property.
At one end of the spectrum, we have buyers who are only interested in a retirement home, a place that will be a more-or-less permanent residence. Those in this category have it easy because they only have to please themselves.
You can get a property that’s just what you need—no more and no less—without being concerned about what a potential renter might want. You can ignore the vacation rental market, look in non-tourist areas, and stay as far off the beaten path as you like.
I’ve bought a few overseas properties that were intended to be our residence, and they were the easiest to choose.
At the opposite end of the spectrum is the investor. In this case, your personal preference for the size, location, and style of your property should come last, after the preferences of your potential renter or resale buyer, as the case may be.
In the middle, between the pure residential buyer and the pure investor, you’ve got everyone else who has some kind of mixed agenda, such as a part-time resident who wants to rent a property when he or she is not there. With this kind of mixed agenda, it’s imperative that one aspect of it—either the investment side or the personal-use side—have priority.
And this means that you’ll likely have to make some compromises. For example, you may have to buy in a location that’s busier or more touristy than you like in order to be in an active rental area.
To use a Medellin example, if I bought here simply to enjoy a nice place to live, I’d probably buy in a quiet area of Laureles or Sabaneta. But to earn a good rental income in a highly liquid market, I’d opt for the busier, upscale, and more bustling El Poblado.
This self-analysis of your motives is important because it will determine where you look and what you look for. And while it sounds easy, it’s not. It can be hard to be honest with yourself about your motives. If the property’s just for fun, that’s great, just remember this when you’re buying and don’t complicate the picture with investment data.
Pick A Country That Fits Your Needs
No matter what kind of a buyer you are, you’ll need to pick a country that meets some basic criteria. Here are a few to consider:
- It should be a stable country where the rights of foreign buyers are secure, and the process is well-regulated and safe.
- The process for moving money in and out of the country must be reliable, with rights to expatriation of funds.
- You’ll need the ability to come and go freely to the extent that you need to in order to manage your property.
- The country should have an agreeable climate, either for you or for your renters and/or resale buyers.
- If you want to diversify outside the U.S. dollar, you’ll want a country that trades real estate in its local currency.
Additionally, if this is a retirement home, you’ll need to pick a country where you can obtain residency and will have access to the banking system. If you’re planning on part-year living, make sure you can stay as long as you’re planning to each year.
Focus In On The Right Market
The city and neighborhood where you buy will be determined by your self-analysis in step one. As I said, if your only agenda is to find a pleasant place to live, your task is much easier. Here are a few other things to consider:
- If you’re planning on renting your property, then you’ll need to pick a location with an active rental market, even if it’s not your favorite area for living. The same applies if you’re planning to profit from a near-term resale: Here you’ll want to look for undervalued areas and strong market trends.
- And, as with your country selection, local climate is important. Whether you’re on the beach in Ecuador or buying a ski cabin in southern Chile, make sure the climate fits your needs, at least for the time of year you plan on being there.
- Accessibility is also key, both for your own convenience and for that of your renters or buyers at resale time. Make sure you’re reasonably close to a convenient airport with good connections.
- A local expat community may or may not be important to you, depending on how you’re using the property and on your personal preferences. If it is important, check out the expat scene firsthand while you’re looking for properties.
- Keep an eye out for neighborhoods that are close to any special interests—either your own of those of potential renters. I’m thinking of things like golf courses, ski slopes, lakes, beaches, or hiking trails.
Once you’ve settled on the right neighborhood, it’s time to hit the pavement. I’d suggest staying in the neighborhood that you’re considering buying in, if possible, in order to give yourself day-to-day, firsthand experience in the area. If available, I try to stay in a furnished rental apartment, so I know what it’s really like to live there.
Finding The Right Property
This might be the easiest part of the mission or the hardest depending on your experience level. Counterintuitively, the more experienced you are at buying abroad, the harder it will be to find a property. A relative beginner will pick a property that they like and that fits their criteria, while an experienced buyer will nitpick dozens (or more) properties throughout a period of weeks (or more) before they settle on something. At least that’s been my personal experience with my own buying trips.
Here are a few things to keep in mind:
- Look at enough properties to get a feel for the market. Any single property (or two) may not be indicative of what the market holds or of a fair price. Look at enough to be comfortable that you know what things are selling for.
- Keep track of the cost per square meter of each property so you can spot the outliers. I like to keep a spreadsheet with prices, sizes, costs per square meter, Homeowner Association fees, and property taxes for easy reference and comparison.
- Remember that the real estate business abroad is often far different than it is back home. In Medellin, everyone I worked with was professional and honest. In Uruguay, I had realtors inflate the prices by as much as 30%. To get a feel for what you might encounter overseas, have a look at this article on real estate agents abroad.
- Ask the advice of any expats you meet. They’re a great source of info on neighborhoods, lifestyles, and good realtors.
- If you’re planning on renting, interview a property manager or two. They’ll be happy to point out the locations where they could use more rentals, and, in my experience, there’s no better way to find out.
And speaking of property managers, if you’re planning on renting, the selection of your property manager will probably be the most important decision of your entire experience. A good property manager will make owning a rental a relatively carefree experience that makes you money, while a bad one will do just the opposite. For more information, read this article on selecting an overseas property manager.
Buying a property abroad will be one of the most rewarding and exciting experience of your lifetime. It will open the door to amazing opportunities for profit, lifestyle, and adventure. And once you’ve clearly identified what you want, making it happen will be fun and easy.
Editor, Overseas Property Alert
I have recently come into some money and would like to invest abroad. I have considered the United States and South America and would ideally like to buy two that I could rent out, preferably in a growing market.
I would be looking at around US$100,000 max for each. I would be interested to have your thoughts and whether you reckon I should be looking at Europe.
Kind regards from Scotland,
Coming up with a rental property for under US$200,000 would be fairly easy, while two properties each for US$100,000 is a good bit harder, although I appreciate your desire for some diversity.
I do think that Europe is worth considering. Aside from the fact that a European property would be easier to manage from your home in Scotland, there’s a lot of opportunity in Europe now.
Algarve (Portugal) is a good choice, with one of the world’s best price-to-rent ratios. It’s a long-proven market, thanks to its great weather and prevalent sunshine. Spain is also a good choice right now, with all recent indicators pointing to a market turnaround in progress. There’s a lot of junk on the Spanish market, but there are also some good values if you look, including some for less than US$100,000.
To go further afield, suitable rental condos in the Philippines and Thailand are available for well less than US$100,000.
Cuenca, Ecuador, is also a good option right now. Prices have levelled off—so there are some good deals there—while rental demand has increased lately.
For a nonstandard income investment, I recently saw a good offer for fractional ownership of a French chateau with an entry point of less than US$100,000. You can find out more about the chateau offer here.
Have a question? You can write to Lee here.