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Retiring Overseas May Not Be as Dreamy as You Think

Christine Benz

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. What do you need to know before buying property overseas? Joining me to discuss that question is Ilyce Glink. She is CEO of Best Money Moves, and she is also author of a new book, 100 Questions Every First-Time Home Buyer Should Ask.

Ilyce, thank you so much for being here.

Ilyce Glink: Sure.

Benz: I wanted to talk about the topic of investing in property overseas. I think many of us have probably walked past the real estate offices in foreign countries and peeked in the window and thought about what it would be like to own a home overseas. I wanted to talk a little bit about the financial implications of that. Let's talk about the potential positives of buying some sort of property overseas.

Glink: A lot of people have figured out it's a lot less expensive to retire in other countries, countries where you might have healthcare paid for in part or it's much less expensive from the government, or places where property prices are less, you could get waterfront property for a fraction of what you might be able to get here, and where there's just a different feel, ambience and culture. I f you want to live in Provence, I mean, what's bad about that?

Benz: Who doesn't? Yeah.

Glink: Who doesn't? That's really great. There's lots of wonderful things to explore around the world. Americans have moved all over the world to retire.

Benz: There are some quality of life considerations, but it's complicated, right? There can be drawbacks. Let's talk about some of the financial things that someone should think through before pulling the trigger on an overseas property.

Glink: First and foremost, how easy is it going to be for you to qualify or get financing to buy that property or do you have to have all the cash upfront?

Benz: I have to get my mortgage in that country where I'm buying the place? Is that how it works?

Glink: You may have to do that. Or you might be able--let's say, your house here is all paid off, you may be able to get a home equity loan, a refinance, do a cash-out refi here, and then you've got cash that you can take to get over there. In some countries, like in France, I understand that it's relatively simple. It's a mortgage market that's very similar to the U.S. Down in Latin America, not as much. Up in Canada, they are going to require maybe 20%, maybe more, plus there's other issues with Canada that they have layered on like a foreign buyer tax. Down in Australia and New Zealand, they are now limiting the number of foreigners, and they have also taxed the people who can come in. You have to ask yourself, am I thinking about moving to a country where the government wants me, and my dollars, or really they've decided, no, they are not that interested, because the amount of extra cash, extra fees, extra taxes that you will have to pay for could be significant.

Benz: How about the U.S. tax implications? Say, I continue to be a U.S. taxpayer even though I own this property overseas, what will be the tax impact for me as a person filing in the U.S.?

Glink: Part of that is where are you going to make your primary residence, and are you going to live abroad. Then you are going to have to follow tax law for there but also declare back here? Are you just investing in the property--you are going to rent it out? There are specific tax laws, and the new tax law, I think, is going to have an effect on that as well, where if you sell the property and you make money on it, declaring that and being able to be upfront with the U.S. government is another thing you are going to have to think about.

One thing I would warn people is that the world works in different ways around when it comes to real estate. While there are wonderful U.S. brokerage companies like Century 21 and Coldwell Banker that are available at Sotheby's, you know, they are available in these other countries, that really helps because you get a U.S. introduction …

Benz: A support system to some extent.

Glink: Support system, certainly, a support system--and they may become your best friends--but there's a familiarity to working with a U.S.-based company that's abroad that's used to all of those rules and regulations and can walk you through them so that you don't trip up on something along the way.

Benz: Another dynamic I would have to consider is what's going on with currency fluctuations relative to my dollars. If I'm buying this place in dollars, how does the foreign currency fluctuation potentially affect my purchase?

Glink: What happens, you won't buy your property in dollars if you are buying in France, right? You are going to buy in French francs or you are going to buy in a Canadian dollar. Whatever it is, wherever you are, they have their own currencies. Currency fluctuations are important because you are going to pay in the local currency, so whatever the transfer is on that date. You may also have to transfer money into a local bank ahead of time. They may want to see 30% or 40% of the purchase price since you are coming from out of the country, that may be a condition of sale. You will need to take that cash, whether you are cashing out investments or you have cash in the bank, and move that into that country, which is fine in some countries. In some countries, you might be a little more worried about having cash in a local account and what that really means. 

Thinking of currency devaluations in Latin America, for example and what that might mean to the purchase price of your property if you have already transferred into the local currency and then something happens. And so, understanding what the looks like, what strategies there are to hedge that problem and how to find partners that you can trust in the area where you are going, that's an important, big step.

Benz: Obviously, a lot of moving parts here, more complicated than a domestic real estate purchase. Do you have any--and I know you have written about this topic--are there any resources that you can recommend for people who are attempting to get their arms around making smart decisions on this front?

Glink: I would read books by the people or go to their websites, the people who have actually written about a lot their moves to Latin America …

Benz: Or wherever.

Glink: Or wherever they have moved. They talk about how great and easy it is to move to Guatemala. But you know what, a couple of years ago I was in Guatemala, and just recently the volcano that I was 50 miles from exploded all over the place. You want to be very careful and cautious.

The first thing I would say is, read about those areas. Go visit those areas? It's one thing to say I'm going to retire in Panama and then you get there, and you realize that for whatever reason the healthcare system won't work for you. If you are going to spend more than six months a year, you really want to understand it.

There's a couple from Chicago, she used to be one of the chief librarians at the Newberry Library and he was a professor, and they moved to Oaxaca, Mexico. They spoke fluent Spanish. They had spent years of their life going there and being a part of it. They had friends in the area. They knew what the healthcare was going to be. They had a way to ease in. They were still doing some work locally before they finally retired there; they are in their 80s now. We visited them a couple of years ago, they have had a very successful transition.

Benz: They were ideal candidates for this in really every way?

Glink: Ideal candidates and it worked well for them. Then when one of them got sick, they had a backup and the resources, knew where they needed to go, spoke the language, had the insurance, were able to get the treatment they needed and so, it's worked out really well for them. I think that that's a great example of just an easy way in. The idea that you are going to buy a chateau in Provence, you know, sounds like a dream and then you have to make all of those pieces work.

Benz: Ilyce, great to get your insights. This is such an interesting topic. Thank you so much for being here.

Glink: Sure.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.