There is a mantra that overseas property buyers should repeat to themselves: buying a property overseas is not the same as buying back home.
If buyers reminded themselves of that fact on a regular basis, they’d avoid many of the pitfalls when buying real estate in a foreign country…mistakes that can be costly and time-consuming to fix. But there’s an easy way to avoid the most commonly-made mistakes. Just follow my top tips on how to avoid those pitfalls.
1. Profile yourself. How will you use the property? Is it a second home, a retirement property, an investment vehicle, or purely for rental? You need to decide this before you buy. Otherwise, you risk falling for an attractive property, that’s completely unsuited to your needs. With a rental, buy a suitable property in the right location that fits with local demand. Do the math and make sure you’re happy with the projected yield. Distance yourself emotionally from the property: you won’t live in it. With a second home, figure out your big-picture priorities. Is it affordable medical care…living near the beach…or a low cost of living? Focus your search in areas that fit with those requirements.
2. Choose the right location. This is a prime factor, and should fit with your profile of how you will use the property. For short-term rentals, choose locations with high visitor numbers (preferably a mix of tourists and business travelers), and a shortage of hotel rooms and short-term rentals. You don’t want a property in a location with a saturation of hotels and condos for rent: that’s too much competition. With a second-home or retirement property, you have more flexibility…but bear in mind that you might want to sell or rent it at some point. Think of where you’ll find that future renter or buyer.
3. Choose the right unit. This also ties back to profiling yourself. Buying a 500-square-foot city condo could maximize your rental yield…but you probably wouldn’t want to live in one year-round. Similarly, penthouses look gorgeous…but won’t net you as good a rental yield. Buy a unit that works for you…that makes a comfortable second home, or that gives you a good rental yield, or that offers the best potential appreciation.
4. Hire a good, in-country attorney. I really can’t say this often enough. Don’t assume that because you have a good grasp of legal terms, or you purchased back home without an attorney, that you can do the same overseas. Most countries in Latin America don’t have the same consumer protections you take for granted back home. Once you sign on the dotted line, there’s no going back.
5. Carry out your own due diligence and buy title insurance. You’d do this back home…and you should to do it abroad. In fact, you need to do more thorough checks. Title insurance is available in Latin America, but most sellers (and many attorneys) are not aware of that.
6. Pay true market value. Don’t take a seller’s or real estate agent’s word that you are getting your money’s worth. Do your own research. Checking for accurate market comps is not easy in Latin America. You can’t do online searches to see what your neighbor’s property sold for, as you can in the US and UK. But you can usually find websites with multiple listings, from private sellers and brokers, and use them to get an idea of average pricing in your area. You can ask your attorney, too, if they handled recent sales in the same neighborhood.
7. Do the math. Figure in all the costs, not just the purchase price. Calculate closing costs, sale taxes, or capital gains when you come to sell. In a condo or private community, find out what your monthly dues are. For a rental property, check out furnishing costs and property management fees. If you have a mortgage or developer financing on the property, figure out your monthly payments. Factor in adjustments for inflation, and currency exchange fluctuations. Then re-run your figures, and re-calculate your return to see if it still makes sense.
8. Make sure you can do what you want. If you buy a property for rental, make sure you’re allowed to rent it. Some areas restrict short-term rentals, and some condo buildings don’t allow it. Can you sell the property freely, to any buyer? If buying pre-construction, can you sell before completion? Not all developers allow that. If relocating and running a business from home, check that you can do so.
9. Check out your developer. When buying pre-construction, don’t assume that your developer will finish the project and deliver what he promised. Check his track record. Get written recommendations from existing buyers (decent developers will happily provide such recommendations). Go have a look at his previous developments…
10. See for yourself . This is crucial. Don’t rely on advertising promises, the word of the seller, glossy sales brochures, or dreamy photos. Go and see the location, and your chosen property, in person. Remember, much of Latin America doesn’t have strict laws governing property advertising. A brochure can show an ocean-view, even if the property doesn’t have one. Good renders can look like actual photos, deceiving you into thinking that roads, utilities, and amenities are done, when in fact there’s only a cleared site. You need to see the place for yourself, and make sure you’re comfortable with what you see.
Following these easy tips will eliminate the most common mistakes that overseas property buyers make. It involves some homework upfront—but that little extra time spent before you buy can maximize your potential rental returns or appreciation…and help ensure that your second home is an asset to enjoy, not a liability.
Editor’s Note: Learn more about international real estate, as well as retiring and living overseas, in International Living’s daily postcard e-letters. Sign up for these free daily postcards here and receive a special report “International Living’s Insider Guide to Buying Real Estate Overseas.”