Buying Real Estate Overseas for Your Retirement: Dream or Nightmare?
Home Sweet Home - Or is it?
There is a powerful love affair with the idea of retiring overseas and buying real estate. From Belize to Panama, Costa Rica to Nicaragua, from Lake Chapala and the other Gringo enclaves of Mexico, the touts are pushing this idea hard and to a willing audience. It’s buy, buy, buy. It’s your last chance, these homes are going fast, the prices will only go up, hurry, hurry, the time is now.
We say, take a breath. Have you thought this through?
There is a big difference between traveling to an exotic location with warm breezes, sunshine and beaches for a vacation, and actually living there permanently.
You have done your homework and read about all of the “opportunities” of retiring to some faraway place. Perfect weather, low cost of living, affordable healthcare, and great home prices – at least compared to where you are currently living. So in your excitement, you jump on the plane, fly down to Saint Somewhere and can’t believe what your money will purchase. You find the perfect place that just happened to go up on the market, so you contact a real-estate agent, and make an offer the same day. Wonder of wonders, it’s accepted and you now own your dream retirement home. This is it. You’re planning on living out the rest of your days right here in this tranquil, peaceful paradise.
Returning home, you sell your current house if you are lucky, and ship, fly, or drag everything you own down to your new digs. You’ve settled into the perfect life of a retiree in an exotic location.
Days turn into weeks and weeks turn into months as you are meeting other Expats, swapping tales from previous lives as well as current information. Family members and friends all come down to visit, clearly envious of your new lifestyle, and for a while your new hosting role is exciting. Could it get any better?
Then it happens.
Your friends do not make the trip down this year. Your kids are busier than ever with their own lives and families. Grandbabies are born and you’re beginning to feel like you are missing out on their lives. The bloom is coming off the rose.
Your next door neighbors initiate a business from their home creating havoc with parking, and a bar/restaurant opens a few doors down where the noise can be heard well into the night. Horror stories of friend’s homes and cars being broken into add up and intrude into the self-confidence you had about living overseas. You contemplate leaving “paradise”.
Eliminate the hassles and move into an association?
Even moving into a condo or home in a gated community with a home owners association can present unexpected problems. The place looks great as long as you and your neighbors pay their monthly maintenance fees. However it is not uncommon for locals of these nations, to keep to their custom of not paying those charges. Once that happens the repairs pile up and the development goes downhill fast along with your property values. Before long there are huge legal fights costing big bucks to those who pay their fees, creating a wedge between their neighbors.
It’s an ugly situation and one we have witnessed. Let’s take a look at each part of this housing disaster waiting to happen.
No Standardized Code of Ethics for Realtors
Don’t be fooled.
Even if you see real estate companies with American franchises, a brochure looking like a Multiple Listing Service or if the realtors say they are members of the National Association of Realtors in the US, there is no regulatory governing body that supervises realtors and their actions in most of these tropical Edens. Anyone can be a real estate broker and Billy has been approached on a couple of occasions to join them. No license is needed, no schooling, or bonding, and no continuing education. All you need is enough money to print some business cards, and, voila! You’re a broker. Selling real estate is a popular first job for Expats and we know of many.
The appearance of membership in an association or a well-known real estate company is meaningless if there are no due diligence or full disclosure laws, home inspections or other requirements that these agents have to abide by. The beachfront lot that looks perfect during the dry season may be heavily flooded and a breeding ground for mosquitoes when the rains come. The intriguing water marks on the floor of that beautiful home might not have come from a spilled drink. Most likely the cause was a leaky roof.
It’s 100% buyer beware, and you buy what you see. Not what is in the glossy brochures of what is promised to be built. There are no real estate laws to protect you, the consumer, and you must go in with your eyes open.
The Value of Renting over Purchasing
Our advice has always been to rent first.
There is no rush here. The home that “just went on the market” most likely has been on and off the listing many times. Remember, these homes are priced well out of the range of most locals so when the time comes for you to sell you’ll have to find another retirement dreamer coming to your location in search of their own paradise. And there are no shortages of places for sale.
I recently went to an open house down the street from where we live in Mexico. The agent was trying to sell me on how quiet this area is with limited street noise. Knowing he was busted when I asked if he’s ever been there on a weekend when the partiers come into town from Guadalajara, he smiled and said to me ‘You must live around here.’
Sometimes it takes months for a neighborhood to reveal its true character. What seems like a quaint difference in culture could become a sore point later on down the line. You might learn that a particular area is not right for you and a place a few miles away is more preferable.
Go ahead and rent a place. Get to know and live alongside the local culture. Travel around the area and learn the ins and outs of a city or town. Do not get caught up in the sales hype encouraging you to buy now.
Those who might be critical of renting point to real estate as being an asset as opposed to throwing money away by paying rent. What is forgotten is the massive amounts of money that it takes to get into home ownership and the corresponding lack of liquidity.
Let’s say that you’ve found your perfect spot and it’s selling at a bargain price of $200,000 USD. Of course that’s before you buy furniture and decorations to make it yours. You could bank or invest that same $200K and rent instead. A thousand dollars a month would get you an estate in most developing countries with a pool, gardener and maid’s quarters, and you could live in that delicious furnished rental for over 16 years before going through your cash. Sixteen years of living without the hassles of home ownership like repairs and maintenance.
Neighborhoods can change in unpredictable ways.
Living in a foreign country isn’t like living back home. The same sorts of logical city planning won’t be found in many countries. If you sink a large portion of your wealth into a house and your surroundings become sketchy, with perhaps an influx of thieves or maybe even the stress of overdevelopment, you will find yourself financially bound to a place that no longer serves you. Your ‘undiscovered’ tranquil beach town may have plans for an international airport to be built and before long the serenity could be invaded by a swarm of holiday makers. A dream home can turn into a nightmare if the house begins to eat into your savings or ties you to a location where you would rather not be.
One couple we know purchased a run-down lake front home. Putting in hours of sweat equity and a good deal of cash they made the place into a beautiful show house. Then a high density housing development was built near them stressing the utilities and bringing thousands of characters with it. They sold out and moved back to the States.
Immigration and tax laws can change
Nations around the globe are all being affected by the current dour financial markets. Home owners reflecting a big chunk of their wealth can become prime targets if governments are pressured to find more income through tax law changes.
Immigration requirements can be altered if the current administrations of these countries see fit to modify them. Expats can be seen as beneficial to a nation’s fiscal health or they can appear to be fair game to tap into financially.
It’s more than just buying a home – Can you adjust to the new lifestyle abroad?
Through our years of living abroad we have seen couples sell everything and move to their ‘forever’ retirement villa. It’s not uncommon for one or the other to start getting homesick, missing the grandkids or taking ill and then pressing the other to return up north.
Moving to a foreign country has its own set of stresses, not least of which is building a new life for yourselves. It might entail learning a new language, establishing new friendships, getting used to the unfamiliar. You might find that you and your spouse begin to live separate lives and if you don’t have a support network in place like friends or family it can add to the loneliness.
If you have all your money invested into your home, and the housing market goes south, as it has in many places around the globe, you may find that the list of your options to return north of the border has withered. A new life abroad is a bit like a fantasy, and fantasies can go sour. Sometimes people take this leap of moving abroad only to find that the promise is often greater than the fulfillment. It is up to each of you to make a new lifestyle work, and both dreams and marriages can collapse under the pressure of a move overseas.
Remember, it is a lot easier to buy a home than to sell, and for every buyer, there is a seller that wants out. A pertinent question to ask yourself and neighbors is ‘why are they selling?’ You might learn something useful, and save yourselves a boatload of money.
About the authors: Billy and Akaisha Kaderli left their fast-track lives at the age of 38 and started traveling the world. They wrote the popular book, The Adventurer’s Guide to Early Retirement, and the Guide to Chapala Living. After almost two decades of on-the-road-experience, they share their perspective on purchasing real estate overseas. To learn more about world travel and how to become financially independent, visit their website, RetireEarlyLifestyle.com
Very well written and informative article. I agree with everything that was written as I experienced all of these issues when we moved to the island of Malta for a year in 2007. (Malta: Fantasy Island or Insantiy Island,
EFAM 2008) What I would like to know from other Expats that retire in foreign countries is what happens when the game is up and you have to retire from your carefree retirement? What happens when you have aged to a point were you can no longer live the carefree retirement life. You are living in a far off exotic location, your spouse has suddenly passed away, you can no longer take care of yourself and your family can’t help as they are in the US or Canada. Can you see yourself living in a retirement home on your own in your far off retirement haven? Are these homes quality places? What happens if you have been a world traveler with no home base to return to? Can you return to your home country? Trust me, once you commit to moving to a foreign country it is very difficult and expensive to return to your old lifestyle.
This scenario is what concerns me the most about returning to Malta to retire. We spent a year there, we are dual citizens as my wife is Maltese and we can accept living in a different culture.We have done the shakedown cruise so to speak but in retiring there we are effectively removing ourselves from our relatives and two sons. Both sons have been to Malta, the younger one staying the year with us, but both have no interest in living there.
This issue has been brought to my attention recently as our parents (all in their 80′s) have had to enter assisted living retirement homes here in Canada. These homes are close to some of their children who help them out and visit them often. This help will not be available to you if you are in a foreign country. I don’t know about you but I can’t see myself sitting in a seniors home in a foreign country, not knowing anyone and left alone.
Many articles have been written about retiring to the easy life in foreign countries. It seems like a whole industry has sprung up to assist people escape from America but what happens when the waltz down the yellow brick road comes to an end? Surely there are Expats out there that have experiences in these matters and can answer the question of what happens when you have to retire from your carefree retirement.
Jim Ryan, Vancouver, B.C., Canada
Jim,
I’m thinking of retiring to Italy in 2 years and have the same questions you have? Please keep me in the loop if you find out anything. Thanks Dixie
I had to write since the first poster has my name in reverse. I have lived in Hungary since 2001. The medical care questions are continually on my mind, but being childless with one parent gone and the other in a nursing home, even if I went back to the States, it would not be much more in the support area. I just don’t know, but I am not ready to return.