I’m not a real estate professional, so the good news is that I’m not going to try and sell you a home. Predictably though, I’ve made plenty of mistakes when it comes to navigating the international property market and buying a home abroad. So here, following on from the Golden Rules of Renting, are the international relocation rules for investing in property as an expat.
Review your international assignment contract.
Many assignment contracts include a buy out clause to facilitate a quicker move for the new expat family (or one transferring to local payroll), but don’t assume that you will automatically qualify. There are often limitations on the type of property that are included, such as homes that are atypical for the local area, ones that have planning or permit issues, any covenants or contractual limitations to the property or ones that you bought without conforming to company assignment policy.
In addition, buyout clauses tend to offer a ‘competitive market value’ for your home, which in plain terms means a price at which the property will sell within three months. For expats whose home location has a slower housing market, this can mean a substantial reduction in home value.
Understand your expat finances.
After the 2008 financial meltdown, rules and restrictions governing mortgage eligibility tightened significantly. They are now easing off, but as an expat, you may have still have difficulty proving income, qualifying for a home loan or that your limited local credit score only qualifies for the higher interest rates.
No matter where in the world you live, if you’re going to apply for financing, you’re going to need a credit history and credit score. While some lenders will allow your international credit history to be taken into account, many won’t – or will make you pay extra to get it included. Establishing and building a good local credit score means taking out some form of credit agreement as soon as you arrive (the length of credit history is one of the crucial factors in your score), and then managing it carefully, especially in the year preceding any mortgage application. For more information on credit history, scores and how they are calculated, check out the links at the bottom of the page.
When you are deciding what you can afford, it’s not just about the mortgage payment – there may also be fees, charges and taxes that may not be standard in your home location. Most fees and taxes are calculated according to home value, and where international assignments are concerned, there will be wide variation in housing values. It’s one of those things that’s easy to forget when you’re negotiating your assignment contract and planning your relocation budget – it looked great on paper, but once you factor in the non-negotiable (and often, non-tax deductible) extras, you’ve doubled your mortgage payment.
Ones to look out for include:
- Property Tax (especially in the US, where property tax can upwards of 1% of property value)
- Earthquake /Flood /Natural disaster insurance (especially where there is a history of former incidents and coverage is not included through your regular home insurance
- Home Owner Association (HOA) fees
- Home insurance
- Property Maintenance fees (typically on properties with shared space or amenities)
There are also huge variations globally in terms of real estate agent fees and as an expat, you are likely to incur these more frequently than a permanently local employee, so include them in your financial calculations from the outset.
Be realistic about your international assignment timeframe.
When you take on a long term assignment or switch to a local payroll, it’s tempting to believe that you will live in your new home for the long term. However, unless you are emigrating or retiring, you are far more likely to be in your new home for between 3 and 5 years – currently considered a ‘long term assignment ‘s international relocation terms. Your company may well help you with the moving costs, but I can guarantee you will have invested plenty of your own money in furnishings, maintenance, remodeling, landscaping and services. For assignments of under 5 years, renting will almost certainly be cheaper, so consider your motivation for buying very, very carefully, and be honest about the real costs over your assignment duration.
You also need to be clear about currency and property value fluctuations – the shorter the timeframe, the higher the risk of exposure. Sure, you may get lucky and make a bundle, but are you protected if your property value plummets?
Understand the work involved in buying and selling property overseas.
A home is the largest single purchase you are ever likely to make, and involves a great deal of money, complex legal requirements and a team of people. If you haven’t already bought or sold a home, be prepared to expend a considerable amount of time, effort and emotional energy. If you are selling a home it’s even worse; open houses, viewings, contract negotiations and surveys are all demanding your attention just at the point you need to concentrate on planning your own relocation. There are ways you can minimize the effort involved (see list of tips, below) but still, know that if your relocation involves a property sale, you are less mobile, less focused and at the mercy of the buyers market..
Still want to buy a home?
If all of our advice hasn’t made you run screaming for the hills, you must be serious about your plans to buy a house. From experience, the rules for buying a house as an expat are a little different, and for many of us, we have learned them the hard way. Luckily for you, we here to let you into the expat expert top 10 secrets for making your life in global transition a whole lot easier…
1. Get a good real estate agent with a proven track record in the local area and who you trust to work in your best interests.
Be clear about how they are earning their commission, and whether they receive any ‘kickbacks’ from your international relocation services / destination services provider. Remember that you typically have no obligation to use the one the company offers – unless their is a specific assignment benefit attached. If in doubt, ask your HR provider if there are any penalties for not using them.
2. Listen to your real estate agent. Even if you don’t like what they are saying.
You don’t have to agree with everything they tell you, but you do need to consider their advice.
3. Buy small.
I love cathedral ceilings and huge family rooms, but experience has taught me that furnishing, heating, decorating and lighting them is more expensive than it seems. And nothing will fit in the next house – I guarantee it. A small home means that you have less debt, lower ongoing expenses and your house is far more rentable should you need to move. Oh, and it’s cheaper to heat, light and decorate..
4. Buy popular.
Spend time watching the local real estate market nd understand what sells quickly, because if you get the offer of a lifetime on the other side of the globe, you are going to need to sell your house as fast as possible. Add in that most relocations have a very short turnaround time, it avoids the unpleasant situation of the working partner being transferred while the rest of the family wait behind for the home to sell.
5. Avoid quirky.
By quirky, I mean anything that may raise red flags on inspections, or reduce your pool of potential buyers. You may love the murals in the front entrance, the 1920′s themed bar area or the garden gnome habitat, but everyone else is just adding up the cost and effort of removal.
6. Avoid fixer-uppers.
Oh, I know, you love a project – but try to limit yourself to work that can be done in under six months and on a moderate budget. You are in the unenviable position of not knowing anyone well enough to call in favors, you don’t have a list of tried and trusted tradespeople, and no matter what the company says about your assignment being 3-5 years, if it ends early, you are stuck with a half-finished property..
7. Limit your spending.
I have lost count of the property listings that I have seen which detail the huge amount of money spent on granite countertops and maple cabinetry. Neither of which I would want in a kitchen – give me white cabinets and butchers block every time. If something is very important to you, by all means go for it, but don’t for a minute assume that you will get your money back when you sell. Keep your spending proportional to the value of the home and the budget of the local buyers, and if in doubt, get a real estate agent to give you advice, rather than the contractor who would be doing the work. Realtors get very, very tired of sellers who are unrealistic about the true market value of their marble whirlpool spa.
8. Get permits.
Make sure that any work you do is fully documented and inspected if necessary, and use licensed contractors. It’s not just about safety and quality, it’s also about having all the necessary paperwork when it comes to selling. The collapse of the financial markets has meant that lenders are being far more cautious about the properties that they lend money on, and any irregularities that the survey turns up may void the sale. In addition, it may invalidate any buyout clauses in your relocation assignment contract. You have been warned.
9. Ask your real estate agents for recommendations for tradespeople.
They usually have a fantastic contact book of people who do work well, quickly and inexpensively, and most importantly, don’t leave a job unfinished.
10. View your home as a consumable, not an asset.
In financial terms, expecting to make money on a property in the short term is highly risky, especially when it is your family home that you are speculating on. Even experienced property owners have been burned in by the recent fluctuations in the housing market, and they have the advantage of catering solely to the market, rather than having to make compromises to meet your individual family needs. Consider any spending in the same way as rental payments, and you shouldn’t go too far wrong.
Now it’s your turn. There’s an unlimited comments section stretching out below, just waiting to hear about your triumphs and disasters – I’ve got a great Dulux Paintmate story to trade….
Online Resources & Further Reading
- How to International Credit Scores Work?
- MyFico Credit Basics (US)
- US Federal Trade Commission Access to Free Credit Report information (US)
- Credit Karma (US) Website providing ongoing free credit score & management information
- Money at HowStuffWorks.com’s overview of the credit system.
- Money Saving Expert – Consumer Guide to How Credit Rating Works