3 Ways Top Investors Finance Their Foreign Property Investments

20230526053026_647043f2c3dee.webp

What do you do when bank financing is not available in your destination country? This article explores other options to finance your foreign property investment.

You’re not getting the same mortgage deal you’re used to

Bank financing abroad will be different from what you’re used to at home. Here are some ways in which the terms will likely be different:

1. Loan-to value ratios will be around 50 to 75 percent of what you're used to.

2. Terms may be shorter. It's almost impossible to get a 30-year loan when buying abroad.

3. You will be offered adjustable interest rates, rather than fixed.

4. You might be required to get a life insurance to secure your loan for foreign property. This isn't good news if you're already around 60, as banks wouldn't borrow you loans of more than 15-year terms. The reason being that insurance companies, as a rule, wouldn't cover you when you're above 75 years old.

Hence, there is need to check out other financing sources.

Financing tips from experts

Generally, here are some financing tips from foreign property experts:

1. If possible when starting out; start small and pay in cash. If this isn't possible, you can use your current home as collateral, without having to rely on banks or regular mortgages. Depending on the amount of equity in your home, you might get lower rates.

2. Research bank financing terms, requirements and laws in your destination country to decide which financing option would work for you. 

3. Since most of what you know about real estate might be ineffective in your destination country, it would be wise to get a partner or local agent. You'll need someone who can offer useful advice regarding financing and home ownership laws in the country.

4. If you'll be transferring funds denominated in your domestic currency, either to make a down payment, full payment or mortgage payments, don't go through the local bank. Local banks, with their wide dealing spread and limited transaction sizes, offer poor Forex services. Foreign exchange services would offer a better deal. 

 

Options to finance foreign property without using the local bank

Here are three options for foreign property investors who don't want to go through the local bank:

1. Personal loans.

Potential buyers with excellent credit will often fund an overseas purchase with an unsecured personal loan for foreign property. Interest rates can be in the single digits for qualified buyers.

Financing with a personal loan avoids the risks that go with leveraging property with a HELOC or cash refinance. This type of financing is particularly attractive when you are investing in a developing country where mortgage rates are high, and the cost of property ownership is relatively cheap.

2. Seller financing.

Some private sellers might be willing to pay part of the price. The conditions will be whatever you and the owner decides, and an average term is up to five years. In most cases, the longer a bit of property has been on the market, the better conditions you can negotiate. Much like bank funding, don't expect the owner to provide the deed until you've finished paying the loan.

3. Home equity (HELOC).

When cash is not an option, tapping into your home equity is one of the easiest ways to finance a property abroad. If you are investing in a country without a developed banking industry, it can also be the cheapest. Getting a HELOC has the added benefit of making you a cash buyer, which provides leverage when negotiating price.

Previous Post

How to Spot Hot Real Estate Markets

Next Post

How Much Should I expect To Pay in Stamp Duty Fees When Buying Foreign Property?

Related Posts

20230526052010_6470418a1c423.webp

Avoid These 5 Easy Mistakes When Making International Property Investment

  • 10, August 2023

A combination of cheap mortgages and plunging prices have triggered and are still triggering investments in foreign property. 5.4 million Britons consider buying a property abroad. But buying foreign property is not easy. Many of the British folks who bought Spanish properties before the financial crisis now contend with legal battles, touting to pull their foreign property down and that dream of foreign property ownership with it. Many of those who rushed into foreign property investing have sad stories to tell. The most important advice when making an international property investment is still to take your time, do careful research and get legal advice.

Buying property abroad, where currency value favors you is a lucrative arrangement. Currently, the Pound leads the Euro by 10%, so British property buyers looking to buy in Italy, Spain, Portugal etc. would have to pay 10% less on comparable properties. It might not be worth it if you consider travel costs and other expenses. Hence, apart from knowing legal and property rules in your destination country, you should also consider how much you're going to spend and if the expenses would justify itself.

Moreover, there could be scrupulous characters you have to deal with. In property buying, you have to let your head make the decisions. More so, when buying abroad. Let's explore the five common mistakes international property investors make and how they can be avoided.

 

MISTAKES INVESTORS MAKE WHEN MAKING INTERNATIONAL PROPERTY INVESTMENT

1.      Lack of information.

You can easily get burned when you are not aware of the nuances and trends of your chosen real estate market. It's not just enough to research and find out the particulars of making an investment in a specific country, be aware of the mistakes specific to foreign property investors in that country. If the eager Brits of the pre-recession had been well-informed, they wouldn't have fallen into legal traps.

 

2.      Planning on the move.

Don't buy a house, then put together a plan later. Have a plan before you buy. This is all the more important for investors. It is the most common mistake made by newbie investors. You might spot a good deal and be prompted to make an offer quick. Don't. Make sure you form a plan beforehand and get a property that fits your investment strategy. This will keep you focused.

3.      Trying to make money quickly. Real estate, unlike stocks, is usually a long term investment. If you think you'll make a load of profit on your property within a short time, you might be setting yourself up to be disappointed.

 

4.      Flying solo. Professional investors always have a team. The team usually comprises of real estate agent, an appraiser, an attorney and a lender. If you want to achieve success in overseas real estate investing, don't fly solo.

 

5.      Paying too much. Flying solo and inadequate research most times will lead to paying too much on a property. New investors abroad usually goof up by paying too much on the properties they buy. Making this mistake will leave you working with less if you plan on buying for investment.

As much as it is lucrative, buying a home abroad is risk bound. It is always important to exercise caution when making an overseas investment deal and learn the fundamentals.

By Bebuzee Admin Read More
20230526051024_64703f403c618.webp

How to fund global real estate investing via equity funds

  • 23, September 2023

This article offers practical steps on funding a foreign real estate purchase with equity funds.

 

Foreign real estate presents mouthwatering deals for investors with steep currency differences, especially in today's unstable financial markets; meaning you could have the upper negotiating edge in a neighboring country. The perk in currency strength is however not compensated for by the financial and legal aspects of sourcing funds for foreign real estate investing.

 

One financing approach which is gradually gaining traction is the use of equity funds. In this case, deploying liquidity of stocks and securities in foreign real estate capital.

 

There are four approaches you can take when planning to go this route:

 

1. Employ Equity REITs: Odds are you've heard about REITs and the huge tax rates at the individual investor level. A REIT is generally a stock that invests in real estate or real estate related securities, like mortgages. A mortgage REIT primarily lends cash to real estate buyers or acquires their existing mortgages. An equity REIT acquires, manages, builds, renovates and sells real estate, mostly commercial real estate.

 

If you don't want to be in the front line and would prefer to play it safe, REITs present a great way to achieve diversification via liquid investment in real estate. Many international REITs have sprung up over the years. So, investing in foreign real estate should be as simple as locating a good REIT that invests in your country of choice or simply using REIT ETFs. However, don't ignore the fact that REITs come with tax liabilities that can range from 15% to 35% of profit. This is compensated for in a way by tax exemption at the corporate level, as long as 90% of income is distributed to unitholders.

 

2. Self-directed IRA or Offshore IRA: As much as we wish to help you with country-specific information, you should know that real estate laws aren't invariably the same in any two countries. Hence the importance of having a local mortgage expert or real estate agent (read how to find the right local real estate agent) who can help you with local professional information.

 

For US residents, using funds from your retirement account or 401k is a great way to employ equity funds for foreign investing. The IRS doesn't restrict holding real estate with your IRA. However, according to an article on Supermoney.com, (https://www.supermoney.com/2017/04/finance-overseas-property/), you won't be able to live in the property until you reach retirement age. In any case, you will need to either set up a self-directed IRA, which allows you to invest in overseas real estate via a third party or broker. Alternatively, you can set up an offshore IRA as a way to gain more control, by taking your self-directed IRA offshore. In this case, you move your self-directed IRA into an offshore Limited Liability company. Setting up an offshore IRA can, however, be costly.

 

3. Stock Market Liquidity: You can employ liquidity on your stock market investment or securities, subject to tax, by selling your holdings. This presents you with cash to invest directly in foreign real estate.

 

4. HELOC (Home Equity Line of Credit): For home buyers in countries like the USA and Australia, a HELOC allows you to take a loan on an existing home by cashing on real estate equity.

 

Buying real estate with equity funds is completely legal and carries no extra charges or taxes. However, ensure you report financial proceedings to necessary financial authorities in your home country.

 

Also, if you're either buying overseas real estate for investment or personal use, reach out to a local real estate agent that can offer market-specific information about taxes for your destination country.

By Bebuzee Admin Read More
20230526052356_6470426c09f6f.webp

5 Additional Costs to Budget For When Buying Property Overseas

  • 08, July 2023

Knowing the extra costs and preparing ahead will help reduce the stress of overseas property investing. Much of this boils down to targeted research. However, here is a brief overview of the extra costs you have to face.

Buying property overseas is both an exciting and a frightening prospect. The most frightening aspect is the cost. Most buyers are delving into relatively uncharted lands personally and knowledge-wise, hence they don't really have a 100% certainty about price. There are extra costs lurking here and there and the chief is foreign taxes. Foreign taxes represent the largest share of extra cost for foreign property buyers. It is important to get the advice of a property specialist on property taxes in your destination country. The key to successfully investing in foreign housing is knowing how to budget for extra costs. Putting money down for these extra costs will put you at ease and the remaining specs will come together smoothly.

Additional Costs To Budget For When Buying property overseas

Extra costs can be overwhelming and have the capacity to snuff the life out of your foreign property venture. Preparing ahead is your best bet. You will need to budget for the cost of travelling back and forth, annual carrying costs and in some cases, stamp duty when the property is eventually sold. And combining these costs can add up to 15% of the home's market value. In many cases, additional costs on foreign property investing will fall into these categories:

1. Mortgage Arrangement fees.

Your bank or private lender will charge a fee for arranging funds for your mortgage. These fees will vary according to your mortgage. In some cases, they will be added to your mortgage. You don't want this (so ask upfront). In which case, you will have to pay interest on that amount.

2. Property Purchase Taxes.

·         VAT (Value Added Tax): Property owners fail to take this into account. But it is mandatory in many countries. The VAT is similar to a sales tax for property owners in the United States or the goods and services tax that Canadian property owners have to pay.

·         Stamp Duty fee (on new properties in some countries) fluctuates relying upon the locale the property is in. It is calculated as the percentage of the price tag which varies but is normally in the range of 0.5% and 1.5% of the price.

·         Miscellaneous: In Spain, for instance, when purchasing a property from a private owner, Transfer Tax (ITP, Impuesto sobre Transmisiones Patrimoniales) is paid rather than VAT. The ITP rate differs from place to place, but is in the range of 6% and 10% of the purchase price. In Quebec, there is something called a welcome tax, It usually costs about 1 to 1.5% of the underlying price tag, although the cost generally depends upon the value of the property.

3. Legal fees.

Legal fees also vary from country to country. It is common for Spanish lawyers to calculate their commission for the purchase of a property based on a percentage of the purchase price of the property (generally this is 1%, subject to a minimum fee of around € 1000).

4. Notary fees and Land Registry.

These rates will also depend on the purchase price and the complexity of legal documentation. You can expect to pay around € 750 for land registration fees and € 1,000 for notary expenses.

5. Maintenance.

Beyond the issue of foreign taxes, homeowners should also plan the cost of hiring a property manager to oversee the maintenance problems and concerns of renters, especially if they plan to rent the property year-round.

By investigating all the costs associated with foreign owned property, potential buyers can focus on enjoying their home abroad without having an unexpected blow to their pockets. If a buyer does their research and saves upfront, they can eliminate stress and prevent extra costs from adding up.

 

By Bebuzee Admin Read More