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Buying International Property: How To Finance Foreign Real Estate Investment

December 04, 2023 8-minute read

Author: Ashley Kilroy

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Most people dream of taking vacations abroad, whether it’s soaking up the sun or wandering along historical streets. But foreign countries are worth more than a brief visit – they also offer valuable investment opportunities for U.S. residents.

Investors interested in real estate may want to consider markets outside their own borders. From potential returns to portfolio diversification, purchasing international property comes with its perks. But it’s also a complex process. Here’s what you need to know before buying a house in a different country.

Why Buy Property Overseas? Top 3 Reasons

The most common reason cited for investors to choose real estate investments is that it can help diversify an investment portfolio. Purchasing overseas properties is no exception. In addition to expanding your real estate portfolio, there are other reasons to buy a rental property or vacation home overseas.

Here are three reasons you might find foreign real estate a valuable purchase:

1. Make Higher Returns On International Real Estate Investments

Along with portfolio diversification, one of the biggest draws to foreign investments is the potential for higher returns. In particular, emerging markets allow investors to benefit from higher yields from rental income. And if your home country’s market is currently stagnant or unstable, you can still participate in an economy experiencing growth.

However, like any investment, it also comes with some inherent risks. Financing options for overseas investment properties can be difficult to find. Economic vulnerabilities, along with foreign laws, can also reduce the safety of your real estate investment.

2. Benefit From A Lower Cost Of Living

According to Numbeo, the world’s biggest cost of living database, the average single person in the U.S. pays around $1,174 per month without rent as of November 2023. A family of four faces estimated monthly costs of $4,169 without considering rent payments. The U.S. also ranks within the top 30 for highest cost of living index in the world.

Buying property and moving to another country with a relatively low cost of living can help stretch your U.S. dollars. The costs that come with buying a house, like a down payment and closing costs, may also be more affordable in another country.   

3. Enjoy Expat Adventures

Who doesn’t think about a life of adventure every now and again? Buying foreign property can open up doors to a wide range of knowledge and excitements you wouldn’t otherwise know.

You might also have a fascination with a certain country. By owning property there and exploring, you can expand your cultural understanding. From holiday festivals to quiet, everyday life, you’ll have access to the local experience by living abroad.

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What Do I Need To Be Aware Of Before Buying Property Abroad?

Investing in a foreign country’s real estate can open up a number of opportunities. But there are certain hurdles that make it more difficult than other types of real estate investments. Here are some potential obstacles to keep in mind if you’re looking to buy property abroad:

Laws Of The Country

Every country has a unique set of laws. If you want to own property abroad, then you will have to learn which rules will impact your ownership. The laws in the country or municipality can affect not only your purchasing process but can lead to future disputes over property rights. Understanding the laws specific to the location of your property can help avoid or mitigate these conflicts.

Eligibility

Sometimes the purchasing process involves more than red tape. Certain countries may explicitly forbid or severely restrict the buying of property by foreign nationals. For example, foreigners cannot own land in Thailand. The only way to do so requires you to create a corporation that is majority-owned by Thai nationals.

You’ll also find it difficult to purchase property in countries like Greece or Mexico. While it can be easier to buy property in one area over the other, both countries have a complex set of rules for buying real estate as a foreigner. For instance, foreigners need a bank trust, called a “Fideicomiso,” to buy property in Mexico, and a legal agent to buy in Greece.

Ownership Rights

The U.S. follows English common law, so it recognizes the concept of title and the bundle of rights this confers. But many countries adhere to entirely different laws. So, it’s vital that investors know what rights property owners earn in the country they’re considering.

Language Barriers

One of the most common issues in buying property abroad is the language barrier. Buyers who aren’t fluent in a certain language may have a difficult time signing contracts or independently working through legal documents.

Some countries, such as Mexico, have a large population that speaks English. In that case, it’s possible to find a subsidiary of an American lender who will offer a loan to non-Mexican citizens.

No matter what international country you’re looking to buy property in, it’s important to study the language and potentially work with a translator to ensure everyone is on the same page throughout the home buying process.

Currency

Any investor who dabbles in forex, or foreign currency, knows the particular risks that come with it. Buying abroad means you’ll have to take on those risks. Namely, you’ll have to deal with the currency fluctuations across two economies. Keep in mind that you may face significant losses (or gains) with each real estate transaction abroad.

You’ll also want to know what the exchange rate is from U.S. dollars to the local currency. If you’re thinking about buying a property in Europe, for example, the current exchange rate is about $1.10 for €1 Euro. So, if a house costs around €150,000, it’s equivalent to $164,878 U.S. dollars. Opening an international bank account can be useful when dealing with foreign currency.

Political Stability

Any time you invest in a physical asset outside of your home country, there’s a chance you’ll face a political risk. Alternatively known as geopolitical risk, it’s essentially the potential loss of property, income or assets as a result of changes within a country. So, if your property is located in a country with an unstable economy, you risk the possibility of damages or loss.

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How Can I Finance My Foreign Property Purchase?

U.S. lenders – including Rocket Mortgage® – do not finance foreign property purchases. Foreign lenders also use different rules for evaluating noncitizen mortgage applications. Noncitizens looking to buy U.S. property face the same challenges when they go to U.S. lenders.

Your options will depend on the purpose of your real estate purchase. The most common reasons to buy homes internationally include for residential or recreational purposes, and as investment opportunities. Below, we walk through the best methods for buying property abroad based on how you plan to use the home.

Residential Or Recreational Properties

Not everyone has a financial goal when they purchase abroad. Some home buyers just want a vacation home or second home to enjoy outside the country. Here are a few recommendations for buying these types of real estate overseas:

Cash

Cash really is king in some situations. By paying cash, you can close on the home purchase quicker and possibly lower the overall costs of buying a house. Occasionally, buying a house with cash can help the home buyer earn discounts, upgrades and more.

While paying for a house with cash can expedite the home buying process, cash is likely best for properties that are already built. Paying upfront for an incomplete or in-progress structure can hurt you in the long run. The developer may face delays, bankruptcy and more, making it hard to receive a refund on the home purchase.

Keep in mind that, when dealing with cash, you’ll want to understand the exchange rate in a given country. The exchange rate will affect a variety of costs involved in the real estate transaction, including the home’s sale price.

International Mortgage Lenders

There are some benefits to working with a foreign mortgage lender. They have greater knowledge of the country’s mortgage market and local laws about home buying. Plus, international lenders may provide you with access to more favorable deals and lower interest rates. However, it can be risky for a nonresident to take out a mortgage through a foreign lender. Your mortgage rates may be much higher than what locals qualify for, or you may be the victim of fraud.

It’s also commonplace for foreign lenders to implement certain rules on noncitizen home buyers. For example, they may require you to have a minimum income, rights to reside in the country or proof of sponsorship.

Developer Loans

You may be more interested in a property before construction takes place. In that case, you may want to consider a developer loan. These loans help you finance the purchase of a home site, lot or preconstruction property still in development.

The benefit of developer loans is that they typically require little paperwork. There are also no life insurance requirements or age restrictions to take out this type of loan. The financing may even come interest-free.

Real Estate Investments

You may have your eyes set on a property in the hopes of building an income or diversifying your investment portfolio. Let’s walk through some of your options for buying an investment property abroad.

Self-Directed IRA

A self-directed IRA (SDIRA) works much like a standard IRA account, but you’re in control. You choose whether to open it as a traditional IRA or a Roth IRA, and it follows the same conventions. This works well for overseas properties since the IRA doesn’t specify the types of investments allowed through an SDIRA.

However, there are some risks with using an SDIRA to buy an investment property abroad. While it can help you buy international real estate, it’s not a loophole you can use to live on the property while still calling it an investment. The IRS specifically looks for transactions like that, and they will notice. You may want to review the Approved Nonbank Trustees and Custodians list maintained by the IRS for future reference.

Country-Sponsored Programs

Some countries have Golden Visa programs. These are specifically designed to encourage foreign nationals to buy property within a specific country’s borders. These types of programs often offer benefits, such as automatic citizenship, to sweeten the deal for potential buyers and U.S. citizens. One country that has a Golden Visa program is Spain, which launched the program in 2013. The Spain Golden Visa Program only requires a €500,000 Euro investment.

Be Aware Of Potential Scams And Overpricing

Any potential investor interested in foreign property should act cautiously. Otherwise, they may find themselves at the other end of a scam. Even dishonest foreign brokerages have targeted expats, where they misrepresent the property itself. Or, they might inflate the expected return on the investment.

If you’re thinking about buying property abroad, it’s important to work with a reputable real estate agent. They can help you navigate the home buying landscape and handle property negotiations so you get the best deal possible. Search for agents tied to official real estate networks (such as the Council for Estate Agencies in Singapore), ask for references, reverse image search listings and verify the identity of anyone you speak with to ensure you’re protected.

The Bottom Line: There Are Ways To Make Your International Property Dream Come True

Buying property overseas comes with a range of potential risks and rewards. Your experience may vary based on several factors, including the country you’re interested in, the purpose for the home purchase and your plan for financing the property. Some situations may be easier to navigate than others.

Does the prospect of international property investment feel a bit daunting? Learn about the best places to invest in real estate within the U.S. 

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Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.