An increasing number of American vacation homeowners and retirees are going outside the country to “get away from it all.”
There’s nothing wrong with purchasing property in a foreign land. In fact, it can be a downright rewarding experience, both fiscally and mentally. But buying a house or lot in another country is usually not as simple as it is in the States, so extra precautions are necessary.
Some steps are merely common sense. For example, you should get to know the destination and be certain it’s what you want. Moving back from anywhere is difficult if you make a mistake, but it’s much harder returning from the Bahamas than it is from the Poconos or the Jersey shore.
“It sounds obvious, but it is an extremely important consideration many people overlook,” warns Michael Sneyd of Four Seasons Resort Estates on Nevis, a 36-square-mile island in the British West Indies. “What may appeal to someone else may not be a good fit for you.”
Sneyd suggests visiting a location several times in different seasons to be certain it offers what you are looking for. If you want a sleepy, undiscovered hideaway, you don’t want to end up in a lively, jet-set resort.
You also should be certain that the location’s infrastructure can support your lifestyle. Are such essentials as fresh food, water, dependable plumbing and electric power always available?
The tantalizing fruits and meats you enjoy at the local hotel may not be so easy to find off-property. They were, here in Costa Rica–and at remarkably affordable prices–when I attended an international mortgage conference earlier this month.
But the road to Quepos on the Pacific Ocean was more pothole than pavement, and our hotel lost power several times. Once was all it took to blow out my laptop.
It’s also wise to look into the political and economic stability of the location you are considering. Tahiti is known for its peaceful, friendly environment; Haiti is not.
Which is why Harvey Weiner, a Washington, D.C., attorney with several clients in Mexico, advises buyers to “be sure tomorrow’s laws don’t evaporate today’s rights.”
Once you decide where you want to buy, you should look into laws regarding foreign ownership.
According to Stefan Swanepoel of ERA Real Estate, which operates in 14 nations besides the United States, most countries prohibit or restrict ownership in one form or another.
In some places, you can’t own until you become a permanent resident or a citizen. In others, you must have a partner of local standing, and sometimes that partner must be the majority owner.
There are other laws to consider as well. For example, here in Costa Rica, which bills itself as the “Ecological Country,” the government sometimes expropriates land for its national parks without paying a fair price for it. But an even greater hazard to foreign owners here is the fact that squatters can gain legal rights to properties that are left unoccupied or unimproved for long periods of time.
Check out the country’s tax situation, too. In Nevis, the sister island to St. Kitts, foreign owners can be exempt from the island’s income, social security, capital gains, withholding, death, estate and succession taxes. But Argentina levies a whopping 30 percent capital-gains tax on foreigners who sell and leave the country.
Some countries restrict where you can own. For example, the Mexican constitution prohibits direct foreign ownership within “forbidden” zones located within 60 miles of a border or 30 miles of a coastline, which includes the entire Baja peninsula.
To get around that ban, the law has been modified to allow foreigners to acquire property in prohibited zones through a 50-year Mexican bank trust naming the buyer as the beneficiary of the trust.
That’s an added cost you may not incur elsewhere, and it can be an expensive one. It costs about $1,000 to establish a trust, and about 0.5 percent of the property’s appraised value annually to administer it.
It also means your name won’t be on the title, but that’s more a psychological problem than a real one, says Weiner, the Washington attorney.
“You’ll have full ownership rights. You can build on the property, tear down existing structures, modify them, rent, lease or sell. And you can renew the trusts forever, so you and your family can control a property for generations.”
Another difficulty you’re likely to encounter as a foreigner, at least in Latin America, is the inability to obtain financing. Simply put, the mortgage market is not nearly as extensive in many other countries as it is in the States.
For example, loans to buy existing homes in Cabo San Lucas, the popular resort at the southernmost tip of Baja California, are virtually nonexistent, so owners have to finance their own deals if they want to sell.
Developers of new properties offer financing, but it’s expensive, says Kevin Garcia of International Mortgage Resources Corp., which plans to begin making mortgages by the end of the year in Cabo to U.S. and Canadian citizens with verifiable dollar-based incomes.
How expensive? Typically, buyers must come up with 30 to 50 percent down and pay off the balance within 5 to 10 years at prime plus points, says Garcia. When you figure in the lost 10 to 20 percent discount often offered to cash buyers, the effective rate tops out at about 18 percent.
Finally, beware of crooks, con artists and other nefarious characters, Americans and otherwise, who are only too happy to exploit unknowing, unquestioning, unseasoned buyers.
Every issue I’ve seen of “The Tico Times,” Costa Rica’s English-language newspaper, had at least one story about buyers being ripped off.
In one story, for example, 10 Americans who bought property along the central Pacific coast nearly a decade ago appear to have been duped by a man who wasn’t the sole owner. In another, the local government was accused by foreigners of illegally suspending building permits and property transfers.
