Are you considering buying a vacation home overseas? If so, you might be wondering how to finance it, since traditional loans might not be an option. For many families or couples buying vacation homes abroad, paying in cash might be the most viable option, since overseas interest rates can be astronomical. It all depends on what you can afford and what the local loan choices are, since many United States based banks won’t lend outside of the country and many nations do not have mortgage lenders. According to The Wall Street Journal, foreign banks that lend to United States citizens often ask those borrowing money to make at least a 20 percent down payment on the vacation home and sometimes as much as 30 percent or even more. These borrowers also tend to pay much higher interest rates abroad than they would in the United States. The standard mortgage tends to be 20 or 25 years abroad rather than 30 years like in the United States. If you are thinking about purchasing a vacation homein another country, it might make sense to research your financing options. Read this simple guide to finding and purchasing your overseas residence.
Use a Self-Directed IRA
A self-directed IRA custodian, like an equity trust allows real estate, notes, private placements and tax lien certificates in addition to the regularly approved stocks, bonds, mutual funds and CDs. As a homebuyer, you might be able to use a self-directed IRA or other retirement account for the purposes of funding your purchases, especially if the property is for rental or investment purposes. If you are looking to buy and rent your new overseas vacation homeout to bring in additional cash flow and help fund your retirement, it might make sense to allocate some of your current retirement funds towards the down payment, since the home will help bring in extra money in the long run. If you do set up a self-directed IRA, the IRA will pay for all expenses related to maintaining your new vacation home abroad. One caveat is that you, as the account holder and homebuyer, will not be allowed to use the home for personal purposes at all until after you retire.
Check Local Laws
Some countries might have certain eligibility laws. Many nations do not allow non-citizens or non-residents to purchase real estate. Other countries only allow non-citizens or non-residents to use a certain number of permits per year. For example, to purchase a publicly owned home in Singapore, one of the buyers must be a Singapore citizen. If you are looking into buying HDB flats, check out a property listings site like PropertyGuru Singapore.
Have an Exit Strategy
It is important to have a viable exit strategy, since homes that you purchase abroad could end up taking several years to sell once you decide to move on. Depending on the local market conditions, selling your property when it is time could be difficult. Many homeowners choose to list their vacation home for sale at a high price as a precaution, since depending on the market, these rental properties could take years to sell.
What Are The Benefits of Owning Property Abroad?
So why own a vacation home overseas if it is such a hassle to finance? According to U.S. News, there are many benefits to owning a property overseas. Consider the following pros to buying your vacation home abroad:
- You can own a second residence: One major benefit of owning overseas is that you can spend much less money abroad than you would in the United States. That way, you truly are able to afford a second home.
- You can retire abroad: While self-directed IRAs require you to wait until you retire to reap the personal benefits of owning overseas, once you do retire, you can really take advantage of a low cost of living.
- You will enjoy a cultural experience: Once you retire and move overseas, you will be able to live in your tropical oasis as a local and take in the rich culture around you.
- You will achieve diversity in your investments: If you move some of your money into foreign investments, you will achieve a truly diverse portfolio.
- You can earn an income abroad from your own country:If you are renting out your vacation home, then you are earning an additional income stream in another country and currency that is completely independent of the United States economy.
- You can deduct travel costs from your taxes:When you do take trips to go manage your vacation home in person, you can deduct those travel costs from your taxes. You are essentially taking government funded travel, so keep that in mind when determining your refund status.
With the above information in tow, you should be on your way to financing your new vacation home abroad.