![](https://realestateinvestingnewsonline.com/wp-content/uploads/2024/05/Untitled-54-750x420.png)
According to a recent Trend Report by Coldwell Banker Global Luxury, nearly 40%, or almost four out of ten, American millionaires plan to buy a property overseas within the following year.
The survey polled over a thousand (1,053) U.S. consumers aged 18 and above, with a household income exceeding $1 million, between November 27 and December 11, 2023. The report also revealed that an additional two-thirds of those surveyed aim to purchase a home abroad within the next five years.
______________________________________________________________________
- Nearly 40% of American millionaires plan to buy a house overseas next year, but it’s a big decision that requires planning.
- Financing, currency exchange, and using the property (as an investment or rental) can all impact the cost and taxes.
- Living in a foreign country full-time is different from vacationing there. Consider renting in the area first to get a feel for daily life before buying.
______________________________________________________________________
Almost 40% of American Millionaires Eye Homes Abroad
Understanding the Realities Beyond the Vacation Buzz
Certified financial planner Jude Boudreaux, a partner and senior financial planner at The Planning Center in New Orleans, emphasizes a key distinction: living in a country full-time is far from a delightful three-week vacation.
Unlike the familiar U.S. market, where 30-year fixed-rate mortgages are commonplace, financing overseas property can differ. Obtaining a mortgage might prove difficult, and many Americans invest their foreign property purchases entirely with cash.
However, if you decide to pursue financing, carefully assess the available options. Foreign mortgages are more likely to have variable interest rates, which means your monthly payments could fluctuate based on the prevailing interest rate environment.
Short-term fixed-rate loans might also be an option, but these are less common than the long-term stability offered by 30-year fixed mortgages in the United States. Boudreaux, a CNBC Financial Advisor Council member, refers to these long-term fixed mortgages as a “very American phenomenon.”
Currency Fluctuations and the Cost Equation
Another critical factor is the exchange rate between the U.S. dollar and the currency of your chosen country. The dollar’s value can fluctuate, impacting the overall cost of your property. Experts recommend using a bank wire transfer, which is often the most economical way to exchange your currency. Larger banks might have special programs that can reduce the cost of foreign transfers by offering favorable exchange rates.
Opening a bank account in the foreign country you’re interested in is often necessary, but this process can also present hurdles. Some banks hesitate to work with U.S. citizens due to the Bank Secrecy Act, a U.S. law requiring foreign institutions to report on American assets held overseas.
According to Boudreaux, smaller regional banks may need to be equipped to handle this reporting, making it more likely that U.S. citizens will need to seek out larger financial institutions.
Before acquiring a property outside the U.S., it’s also vital to understand how you plan to use it. Your tax obligations to the foreign country and the U.S. can vary depending on your intended use of the property.
Taking the Right Steps: A 3-Point Plan for Overseas Homeownership
Experts recommend a three-pronged approach for navigating the complexities of buying a house overseas:
- Deep Dive Due Diligence
Bojan Mujcin, a real estate associate with Sotheby’s International Realty in Barcelona and the nearby Costa Brava region, emphasizes the importance of extensive exploration when visiting the city or town you plan to buy.
“Get familiar with the city, get familiar with the streets … do a lot of due diligence,” advises Mujcin. Boudreaux recommends renting a place in the area for a substantial period to understand daily life before committing to a purchase based solely on a dream.
Considering the country’s political climate is also crucial, as it can significantly impact the long-term investment value of your property. Erin Boisson Aries, a global luxury real estate advisor with Douglas Elliman, underscores this point. “Less spontaneity and more study is important,” she advises.
“It’s wonderful to go on vacation and have a wonderful time, but the long-term geopolitical stability is essential.” Boudreaux echoes this sentiment, acknowledging the presence of “political risk” and the importance of being prepared for its potential impact on your investment.
- Understanding Your Needs
According to Boisson Aries, it’s vital to “understand what your needs are.” She asks a series of critical questions: “Is this an investment? Are you planning to retire there? Are you planning to visit and rent it out? … You have to understand the environment you’re purchasing into.”
Zoning regulations, for instance, can significantly impact your ability to rent the property for short-term stays. B… Giroux explains that these regulations can change over time. “Buying these direct properties for that purpose comes with far more risks than people realize,” he warns. Furthermore, using the property for rental income may subject you to additional tax burdens in that foreign country.
- Local Experts and Expat Communities: Your Support Network
“Make sure you have local experts and professionals advising you” when venturing into foreign housing markets, advises Boisson Aries. There’s a multitude of factors that can influence each purchase, including ownership rights, zoning implications, and potential investment opportunities.
“You might go over and fall in love with the property, but without really understanding the overall market and all of the other implications of purchasing and ownership, you’re flying a little blindly,” she explains. Just as we’re experts and advisors in Manhattan, you need that level of expertise.”
Sotheby’s Mujcin recommends consulting a legal advisor in a foreign country to navigate tax issues and other questions you may have. “You always need legal support from some type of lawyer in the transaction,” he says. Boudreaux also suggests seeking out established expat communities in your target country. These communities often comprise other Americans who have undergone a similar process and can provide valuable recommendations and resources.
The Dream Within Reach: Careful Planning is Key
Owning a house overseas can be a fantastic way to fulfill your dream of living abroad. However, carefully planning and considering the potential challenges can ensure a smooth and successful experience.
Remember, it’s not just about finding the perfect location and price; it’s about thoroughly understanding the local environment, the financial implications, and the legal landscape. By taking the time to research, secure the proper guidance, and ask the right questions, you can turn your dream of a foreign property into a reality.
Subscribe to our newsletter for expert tips, essential resources, and up-to-date insights on the overseas housing market.
Leave a Reply