A Home Far Away From Home

How to avoid unpleasant surprises when you buy overseas real estate.

No matter whether you dream about a condo on a Costa Rican beach or a pied à terre in Paris, few fantasies are as intriguing as owning a home in a foreign country. But if you think buying real estate in the U.S. is complicated, you haven't seen anything yet. When "thinking about investing [in property] outside the U.S.," assume that "the rules you're accustomed to don't apply," says Kathleen Peddicord, editor of International Living, a company in Ireland that promotes overseas real estate through publications, conferences, and tours.

In searching for a house outside the U.S., you'll face several challenges: finding a good agent, locating the right property, getting financing, and sealing the deal. In many countries, multiple listing services don't exist, depriving you of centralized information on what properties are for sale, as well as price comparisons. Home inspection, if it is available at all, may be unreliable, as Peddicord found out when she and her husband bought a 200-year-old house in Ireland. The inspector suggested they put more attractive wallpaper in the dining room, but he didn't mention the dry and wet rot that later cost $50,000 to fix.

To complete your deal, you'll have to comply with unfamiliar local laws and customs, such as "gazumping," a legal process in Ireland allowing the seller to nullify a contract if a better offer comes along. Another big issue is getting a clean title to the property, with no liens or prospects that a third cousin of the owner will show up to claim it. Rafael Sayaguez, a tax partner at Ernst & Young, says that in many Latin American countries, the vetting process can be especially difficult, because of the lack of modern technology for title searches and the unavailability of title insurance.

So how should you approach buying a home in a foreign country? Start by listing your criteria, such as climate, cost of living, and cultural activities. If you're doing research on the Internet, the U.S. State Dept.'s "Country Background Notes" and "Consular Information Sheets" at state.gov/travel provide information on everything from political and economic systems to crime rates. Embassies may also be helpful.

Angela Eliopoulos, a Washington (D.C.) realtor who works with clients seeking properties abroad, suggests that once you've identified a location, search at realtor.org/international to find an agent who has passed international property courses and agreed to abide by the U.S. National Association of Realtors ethics code. She says before hiring anyone, you should conduct phone or e-mail interviews with several candidates, check their Web sites to see the types of properties they list, and meet face-to-face to get a feeling for their experience and capabilities.

Carole and William Keene of Lanham, Md., took a three-day tour with an agent in Panama whose Internet presentation impressed them as informative and straightforward. The Keenes -- she, 61, a retired management consultant, and he, 59, a former Howard University administrator -- had decided to seek a retirement home in Panama because it afforded them a relatively high living standard on a limited income. It also met their other criteria, including proximity to family in the U.S., reliable phone and Internet service, good roads, dependable power and water, and currency pegged to the U.S. dollar. On their first trip, in 2003, they made an offer for the house they purchased -- 1 1/2 hours from Panama City, with mountain and Pacific Ocean views. The agent navigated them through what they say was a glitch-free process.

The Keenes made a fast decision, based on considerable research and a clear definition of their requirements. However, Eliopoulos and others say it's better to spend several months renting in your chosen location to sample the lifestyle and make sure it's really where you want to live and invest.

Manuel Otero, a real estate agent in Mendoza, Argentina, says foreigners must be careful that the property is in a neighborhood with appreciation potential. For this you'll have to trust your agent's knowledge. You can also do your own price comparison by visiting nearby properties advertised in local papers.

Once you've found a house, a key issue will be financing. In some countries, especially in Asia, local banks may not be willing to lend to foreigners. Your best bet may be applying for a mortgage at an overseas branch of a U.S. bank. Uncle Sam can also help out. Bernie Kent, a tax partner at PricewaterhouseCoopers in Detroit, suggests securing a home-equity loan of up to $100,000 on your U.S. residence, putting the money toward the overseas purchase, and deducting the interest. If you get a loan for the foreign property, you can deduct up to $1 million a year in mortgage interest for your primary and secondary homes. Check with the Internal Revenue Service and the foreign government if you plan to rent out the place, because the tax rules are complicated.

Before signing on the dotted line, get a list of all fees and commissions you have to pay. John Glabb, who owns a real estate settlement company in La Paz, Mexico, calculates that total closing costs, including a $5,000 "acquisition tax," could run to more than $12,000 for a $250,000 purchase in Mexico. That's on top of a commission that could reach 10% in a hot market such as Los Cabos. In Mendoza, Otero says, the usual commission is 6%, divided between the buyer's and seller's agents, and closing costs are 3.5% to 4.5%.

Clearly, the answer to making a successful overseas purchase is to get help from experts who know the rules. Play the game right, and you may end up like the Keenes in Panama, with a house they have named "Sunset Dreams."

By Ellen Hoffman

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