First I will explain the general rule why retired expats should not buy real estate overseas. Then, I will explain a few exceptions to the general rule–a few examples of when you should buy real estate overseas.
I am usually “Mr. Positive” and I promise to return to my normal positivity before I end this post, but first I want you to know why most of us should not buy real estate outside of our home country (Why Not Buy). Then, I will explain a few reasons why some of us should buy real estate overseas (Why You Should Buy).
Why You Should Not Buy Real Estate
Some of these reasons are more relevant than others depending on what country you are thinking of buying real estate. But if any of these happen to you, you will wish you were a renter. If you were a renter you could just hand the keys to the property owner and walk away to another part of town or another part of the world. Tenants have more flexibility when these problems show up.
Liquidity
If you grew up somewhere like the United States, Europe, Canada, etc., you have likely not lived through a down market that extended for a decade or two when you or your family members were completely unable to sell real estate. In many of these retire cheap countries, it is not unusual for markets to go through political, economic, or banking emergencies that dry up the demand for real estate. You probably think of real estate as a safe place to keep your money temporarily until you decide to sell and move someplace else. That level of liquidity of real estate assets that you enjoy at home is much less stable historically once you get outside the economic powerhouse countries. You may not be able to sell the place and seek greener pastures if your plans change.
Nationalism
There are many examples in world history when political groundswells of nationalism rise up. During recessions and depressions, middle class and low-income workers often suffer a reduced standard of living. Although foreigners are rarely the true cause of these economic cycles, politicians often scapegoat foreigners because they are easy to see as ‘different’ by the locals. It is not unusual for such politicians to propose law changes that target foreigners. They could refuse to let the proceeds of foreign owner sales from leaving the country or just tax the proceeds so substantially that you may not even get your investment back. They could also just take the property from foreign owners. Nationalism is a social disease that has been repeated many times throughout history at varying degrees of severity. You will not see it happen as often in western democracy so it may sound extreme when you hear this. But it happens every 70 years or so in western democracies and potentially more often in developing countries.
Divorce Laws
If you decide to marry a local, and things don’t go well, you may later find out that the local laws may be unfavorable to you. Speak to a local lawyer before marrying or buying local real estate.
Finance Surprises
If you finance the purchase, whether, through the seller or through a finance company, the truth-in-lending laws vary enormously between countries. If you don’t understand the local laws and customs, you could easily end up with a balloon payment or floating rate at some point in the future. Are the documents even in English? Get your own local lawyer before signing on the dotted line. Don’t rely on advice from a lawyer that has a conflict of interest with you, such as a friend of the seller or your broker.
Land Use Restrictions
Some countries do not have land-use restrictions as you probably have in your home country. You could wake up one morning to unlivable conditions. A slaughterhouse could open down the street. A dusty windblown farm could cause dust in the air after harvest, they may burn the crops instead of till the soil, or a live music venue could prop up across the street a few months after you buy. Or you could build a beautiful home and have people living in cardboard boxes across the street in a few months. I am not kidding. You’ll wish you could hand the keys to the landlord? Once land-use conflicts occur, your beautiful house may become worthless.
Water, Electricity, Roads, and Internet
The city may be promising to put in roads, electricity, water, and the internet in the “near future?” The seller might tell you that the water and electricity are scheduled to be installed in the neighborhood in about 6 months. That may be the truth when they tell you. But, what if the city’s budget gets changed next year to account for other improvements.
Police and Government Corruption, Taxes
What if you end up in a dispute with a neighbor that says they own part of your land? Are the police straight shooters where you want to buy? Do you want to fight that out in court as a foreigner when not all governments around the world follow the rule of law? Don’t assume title insurance will just pay this in a foreign country. You have to sue to get reimbursed in some parts of the world and trials can be very expensive. You may not get reimbursed for your lawyer’s fees in many countries. Even if you win, it could take years. Will the taxes change once the property transfers into a foreign’s name? Can they attach your sales proceeds if you don’t pay?
Monetary Devaluation, Inflation, or Deflation
What if you are relying on your pension to pay the mortgage payments? Are you relying on a great conversion rate from the Euro or Dollar into local currency? What happens if the foreign source currency or the local currency devalues or inflates? Will you wish you could just hand the keys back to the landlord and seek greener pastures?
Repairs and Improvements, Corruption
What if you something breaks like the plumbing or electrical? Will you be charged double because you are a foreigners ad you don’t know what it should cost? What if you need to make changes to the structure? Can you do that without a permit? Will the official that comes out to inspect the improvements expect a bribe? Will they charge you triple because you are a foreigner? Did you know that if you pay a bribe to an official in a foreign country you are breaking US federal law? Does the city official know that you aren’t allowed to pay a bribe? Will they threaten to tell the US embassy that you offered a bribe to a foreign official if you don’t pay them even more?
Low Gross Rent Multiplier
Because of higher savings rates and higher mortgage rates in many foreign countries, real estate is often not a good investment. It is often overpriced relative to the gross rent multiplier.
For example, a house in Portland, Oregon that sells for about $500k will rent for about $1800 month. If you divide $500k by $1800 month, you get about 278. That means that the monthly rent multiplied by 278 gives you the value of the house.
In Kuala Lumpur right now, you can rent luxury condo for about $500 USD per month. If we use the Portland gross monthly rent multiplier of 278, that condo would sell for no more than $139,000 in the USA. But it is selling for about $400,000 USD in Kuala Lumpur.
That means Portland Oregon is a better return on your investment than Kuala Lumpur Malaysia. In reality, Kuala Lumpur should be a better return on investment to pay you for the additional risk of investing in a foreign country that is not pegged to the dollar.
Put more simply, would you rather pay $500k and get $1800 a month return or pay $400k and get $500 per month return? But it is even worse than that. The interest rates are lower in the USA. Figure that out?
Do this calculation if someone is asking you to invest offshore. If it is like most places around the world … it is better to keep your money in your own backyard. Have a property manager collect the rents and wire you proceeds into your account each month. This is a no-brainer for most foreign countries.
When You Should Buy Real Estate
Asset Protection
There are some expats that need asset protection. You may have heard that the USA is the lawsuit capital of the world. If you own or owned a business in the USA and there is a possibility that someday you might get sued, you might not want to have all of your eggs in one basket. But you need to talk to your lawyer before trying this because the law in this area is complex and nuanced. If you don’t have more than enough money to hire a legitimate US lawyer to solve this problem, then this exception does not apply to you–so do not buy expecting this protection.
Small Investment Eliminates Accommodation Costs Permanently
We have all read the stories when someone buys a small piece of land for $7000 USD and builds a small house on it for another $13000 USD. If the land has enough space to grow most of your own food then you might be able to eliminate 80% of all expenses permanently. If you save $300 per month in rents by paying cash for this place, it wouldn’t be long before you had your $20,000 USD back.
Rents Are Disproportionately High
If the rents are disproportionately high as compared to the mortgage payments and all other expenses of owning that property, then you may consider buying. That means you could run a very positive cash flow after making a low down payment. If that is true, then, if you had to leave, you could give the property to a local property manager and the property would pay its own payments. There is still some risk here. What if the tenant’s trash the property, or a recession makes the place go vacant for 30% of the time? Then you will wish you were a tenant.
Conclusion
When you start investigating the best retire cheap in paradise locations around the world, there are organizations that will try to convince you to buy real estate overseas. The funny thing is … that recommendation to buy, often comes from organizations that will get paid a commission or kickback if you buy. So I think their advice may be biased.
I am not a professional. I am just a guy that reads a lot when I travel. And I have a different recommendation for you. I recommend you buy in your home country, rent it out, and live off the rents in one of these retire cheap in paradise destinations. Why would I say that? Because all of the problems that I mentioned above are less likely to happen to you in your home country. Why is that? Because you probably know whether or not it is hard to sell a place in your home country (liquidity). You know whether or not financing has any tricks in your home country (truth in lending). You know whether or not the land-use restrictions will protect your investment in your home country. You are not a foreigner in your home country so nationalism may not be as big a threat to you. You lived there your whole life. If you buy at home, you could hire a property manager. They could take care of the place while you are in another country. You are not as likely to be surprised by anything in your home country.
So most people should own real estate in their home country and live off the rents in a retire cheap in paradise destination. If you already own property, you should just keep it. Have your property collect rent and wire it into your account.
Then if political, economic or other troubles pop up in a retire cheap country, you just hand the keys back to the landlord and head to greener pastures. You have probably heard about all the expats exiting Thailand. Imagine if they had to sell their Thai property before leaving town. This is not a good time to sell real estate.
Don’t turn your retirement into a financial mess. Just live easy-peasy now. Grab a few of our retire cheap reports and find your own retire cheap in paradise heaven. Come to VagabondBuddha.com and relax into all the research and ideas we have for easing into your international retirement. Okay, thanks for listening.
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Well said Mark. When you leave your home country you can’t rely on all the best advice you received all of your life. “Renting is stupid.” “ownership is security.” “Ownership fights inflation.” That all makes sense when you are in your home country. So if you must buy real estate, buy in your home country for inflation protection and use your home country rents to pay your rent in a foreign country. That is a better more predictable solution for most people. Thanks for sharing the long view for people. Everyone else is going to use the fear of loss and urgency to get them to buy real estate overseas. Thanks, Dan
It is unfortunate that some of the most popular ex-pat on line magazines are sponsored solely by those who sell foreign real estate, because from personal experience, I can tell you that buying foreign property is more risky than they would have you believe. The central theme is always that these properties are a bargain, which they are. But what is not said, and often denied, is the reason they are such a bargain is that ownership comes at a great uncertainty of loosing the entire property, or even more. I agree with Vagabond Buddha’s advice not to buy in most foreign locations, and here is my story explaining why.
About 20 years ago, I started my search for a low cost retirement haven abroad. At that time I had been married over 25 years and was in my 50’s. We traveled to a wonderful tropical paradise called Margarita Island, which is a vacation destination off the coast of Venezuela near the island of Trini dad. The place of gorgeous and it was just being to develop first world amenities like fast (for that time) internet and duty free importation of most goods from the USA. .
Life on Margarita was very inexpensive for those who paid in American dollars. The cost of a full fish dinner on the beach with beer and appetizers and desert was about $12 US. The island even featured a fantastic class A sir conditioned enclosed mall built by the Cohen family of Caracas that had indoor restaurants, a water fountain, and a host of American name brand stores selling state of the art electronics, inexpensive name brand casual clothes like Tommy Hilfiger and LaCross (made in Panama for the USA market), and all sorts of other goods a person could want. The supermarkets were packed with American and European products all at an incredibly reasonable price. For some unique reason, there was no sales tax or VAT on goods sold in Margarita Island, and main landers from Caracas would go on shopping vacations, justifying the cost of their vacation with the tax savings on purchases.
In addition, the island had decent medical facilities at a fraction of the cost in the states. I found a cardiologist who trained at Baylor University in Texas and now teaches residents at Massachusetts General in Boston. I also used a Urologist who trained at McGill in Canada. The costs for a full physical including echo stress test for the heart was 99 dollars US. My cataract surgery was $ 1,100 US per eye, a tenth the cost in the USA. A cat scan of my knee was about $100 US. The machines were all last year’s models, but well within the standard of care of any hospital in the USA. And most non-narcotic drugs didn’t require a prescription, and where extremely inexpensive. Likewise, blood tests didn’t require a prescription so a full cholesterols panel would cost $10 US money, less than my insurance co-pay at the time back home.
I thought I had found retirement paradise. I met an ex-patriotwho came from a suburb in the US near where i grew up, and who had lived on the island for years before, married a Venezuelan born wife, and spoke very little Spanish. We soon became friends, and I started looking for property to buy. After all, Venezuela had a 50 year history of stability and democracy. The rumor was that the island would soon host direct flights from Miami, instead of going through Caracas, which made the possibility of frequent visits to see the kids and grandkids extremely realistic.
To be fair, Margarita Island was not the most popular destination on these other international property websites, but it was certainty mentioned a fair amount as a great place to be. Perhaps the fact that none of the regular advertisers on these other websites were selling property in Margarita had something to do with the lack of attention, but who knows. Anyway, no one said a bad thing about the place.
So I bought a gorgeous condominium — a penthouse on the ocean with a view of the Hilton Hotel’s marina within walking distance on the beach. The place was on two floors, 3,000 square feet with a two story layout. The living area ceiling was two stories and the place was almost all sliding glass doors onto a 1,000 square foot balcony, including a built in hot tub (which never really got that hot as those who live in the tropics think American style hot tubs with 102 degree (Fahrenheit) water are crazy.). Utilities were cheap, as Venezuela was one of the biggest oil producers in the world at that time, and subsidized energy prices to its own residents.
As part of the buying process i hired a local lawyer. He formed a corporation to hold title, and found me a “Hestor” or facilitator to get me a resident visa. In many countries, the local officials don’t make enough at their government job so they moonlight by filing out the right forms for permits and similar things in a way they know will be approved. There is no sense of conflict of interest in that culture and it is common to hire an agent who fills out your forms correctly who may also be the very official who later approves the forms when they are submitted. . Many businesses will simply hire an employee of the taxing agency to figure out their tax liability after his official work day is over, knowing that the chance of being audited is greatly reduced (or of surviving an audit increased) even if the audit is by another person or even another branch office. These guys know the system, and they are the best at getting you through it. All they ask is a nominal fee for their services, not really enough to be a bribe. It’s the system in much of South America, and its perfectly legal, above board, and disclosed.
I thought I had made it- a beautiful apartment in a low cost foreign resort destination with a resident visa all approved by local attorneys. But then Jose Chavez happened and all the rules changed- retroactively. A revolutionary, Chavez was communist inspired dictator who rose to power quickly based in part on anti-American rhetoric. At the time Venezuela was prosperous, but Chavez turned the country upside down economically in a very short time. The “poor” would be given the wealth of the rich. So all the “rich” left the country. No doctors, no professionals would stay. Manufactures were leaving. Venezuela had a good educational system that now was teaching Maxims instead of science and maths. The brain drain was very noticeable.
So, what did Chavez do— he blamed foreigners, and went after minority groups. My corporate lawyer was gay so he fled to Europe where he was born. The stores were empty with no goods on the shelves as Chavez decided to impose duties, in order to support local manufacturers— of which there were none. And the government decided not to pay its bills while Chavez took billions of dollars worth of gold in a private plane to Cuba for safe keeping. In exchange, the Cuban government sent in nurse praticitioner to help the indigenous people in the jungle, while at the same time arresting fifty doctors and nurses from “doctors without boarders” for practicing medicine without a license and working (for free) without a permit.
While the government owned the oil wells in Maracaibo bay, large US and European companies operated the wells and maintained them. Soon, 23 out of 24 wells closed for lack of maintenance. When parts broke, there were no replacements because Chavez had nationalized the local assists of these foreign corporations and refused to pay their bills. Halliburton, a giant in oil well maintenance, announced it was leaving he country. Chevron and others successfully brought billion dollar arbitration claims against the government for non-payment. The economy collapsed.
As a result, freedom to travel became restricted. While gangs ruled the streets of Caracas, foreigners were leaving Venezuela in droves. The government was determined to blame everything bad on America— and in particular the American president at the time, George Bush. When Obama became president, much of the rhetoric about American racism rang hollow, but it continued daily nonetheless. The popular leader purged all opposition from the Venezuelan legislature, and the Courts, and conducted an eight hour marathon talk show every week so the people would see their great leader in action. My little paradise turned to a third world slum overnight, and there was nothing i could do about it.
When I next visited Margarita island, I had to fly through Caracas. At the airport, customs officials seized my passport and detained my wife and I for 24 hour because the residency visa was issued by an out of favor bureaucrat. When i went to the US embassy to get a replacement passport, the US official laughed and said i was one of 50 that month whose passport were seized by the government upon entering the country. I later had to hire a Venezuelan lawyer to make sure that my record was cleared of any implication of wrongdoing. For about $10,000 US, I received a determination that I had been the victim of a corrupt official, who, by the way, remains in his position to this day. As an American, I can’t live in a country where freedom depends on the politic whims of a megalomaniac dictator and his cronies. Chavez eventually died in office, but I am informed his successor is no less intolerable.
My wonderful penthouse was worthless. I couldn’t go to Venezuela to live in it, even though my record was cleared and i would not be stopped at the airport with a new passport. Nor would any European or American rent it from me. I finally was able to “rent it” to an American who was married to a Venezuelan and who chose to stay in margarita but the terms were merely to keep the bills paid, the taxes from accumulating and to pay the HOA dues. In sum, it was a total loss.
The point of my story is that you are completely correct when Vagabond Buddha says Americans should not to buy property in a foreign country, no matter how stable you think it may be.I have heard of whole tracks of developed areas near Rosa Rita Beach in Mexico re-classified as being originally owned by someone else, thus making every single home the property of the heirs to the newly discovered owners. I know that the real estate agents sell you American style title insurance, but last I heard, no one was getting their claims paid. While the matter drags through the Mexican courts, the value of the property is diminished by the uncertainty of title.
But I didn’t see the other international lifestyle publications mention these failures of investment. Perhaps I am skeptical of these publications because their only sponsors have a vested interest in encouraging readers to buy property in third world countries. Perhaps I just didn’t read them carefully enough. But, in any event, i am very glad to find a resource on foreign living experience that doesn’t have an economic interest in whether or not the readers buy property in that location. Thank you for being listener supported.
I have toured all over Mexico. See link below. And I love Mexico. But I still believe the right thing to do is to invest in your home country where you know the laws and rules and rent in foreign countries in retirement. The freedom and flexibility that gives me exceeds any perceived benefit I would receive buying in any other country outside my home county. We (USA) have this idea ingrained in our heads from birth that we have to own our own home in order to fight inflation and have the joys of ownership. But when you are living in a foreign country and you don’t know all the unspoken rules to solving problems it is easier to just call the landlord when something breaks and let them negotiate with local repair men and government officials. I say let your retirement stay easy-peasy. Just move if a landlord doesn’t treat you right rather than sell. The inflation in the USA in general on a rental property will keep up with most of the world when adjusted for exchange rates, in my opinion. But in the end, I think you should decide based upon your own ut. That is just my take. Here is that tour map: https://vagabondbuddha.com/best-place-live-mexico/
Great info and blog. Curious: of the places in Mexico which you have visited, which would you be most likely to purchase property in which to live, and why?
I have always loved to travel. I like exploring the world. It also happens that many places in the world are cheaper to live in than the USA, my home country. So I not only get to do what I love but I save money doing it. Thanks for commenting Craig! Dan
I can see a huge surge of peoplr leaving the USA in the future either advent of socialism and the loss of personal freedom with our corrupt government. The price of goods has gone up so high for just groceries and energy that my retirement income will have me eating ramen noodles and going to the foodbank this year. On some things i am paying double this year! It’s $6 lb for hamburger and diet coke has doubled in price.
This is pushing many to buy travel trailers and live in BLM and National Forests. It’s just really bad here now!
You have to have a good property manager. I have had the same one for 13 years. What other faults do you see?
I see many faults with your idea of being an absentee landlord!
Absolutely. And yes, you must speak to a lawyer (without a conflict of interest) before making a final decision. What are the conflicts to avoid? A lawyer you are referred to by a broker receiving a commission, a lawyer referred to you by someone making a referral fee, a lawyer recommended by your new fiance’s family, a lawyer that sells real estate, etc. etc. etc.
First off you should always see a lawyer first no matter what country you are in when considering real estate. And second but not least, not everyone wants to be a vagabond and live in several countries in their retired years!
You are welcome Harry. 🙂
Thank you so much for the valuable information!
Yes. Not just the rental prices but how foreigners are received if locals are pushed out of city centers. We will have to keep an eye on that.
Practical and valuable approach. One wonders how the surge of baby boomers hitting 65 will affect the rental markets of retirement age expat havens like Mexico.