Thursday, December 09, 2021
Dear Your Overseas Dream Home Reader,
As I told you yesterday, as of the end of the day tomorrow Your Overseas Dream Home will be no more. I’m shutting it down the give more of my time to other projects.
One of those projects is the International Living Dream Home Letter. I’ve been contributing to International Living for a long time and so when, earlier this year, they asked me to create this overseas real estate-focused daily e-letter exclusively for subscribers of their monthly magazine, I jumped at the chance.
In it, you’ll find the most extensive, up-to-date and in-depth research on opportunities for finding your dream home overseas from me and my team. You’ll also get real-time updates from us when we hit the road and the chance to get in on real estate investment opportunities we uncover.
It’s an exciting time to be interested in overseas real estate…so if you’re serious about finding a dream home overseas, you’ll want to receive the Dream Home Letter. You’ll get it when you subscribe to International Living magazine…and this week, you can do that for just $17. All the details are here.
But for now, it’s still business as usual and today, I’m answering some of the popular readers questions that I get to my inbox.
Below you’ll find answers to questions about buying in Mexico, Italy’s cheap homes, and financing your home overseas.
So let’s get started…
Kari asks: Hi Ronan. I’m looking to make a move overseas in five to 10 years. I already have a mortgage, so financing is going to be a consideration if I choose to buy. Thinking about buying overseas is still a little scary.
So, knowing my financing options and how it all works would be really helpful. Will banks lend to a North American with a stable income?
Ronan says: Hi Kari. Your financing options will change depending on where you plan to buy. In Europe, you can generally get bank financing. As a foreigner, you’ll pay a slightly higher rate than an EU citizen. However, as it stands, rates are incredibly low. In Portugal, for instance, banks are lending to foreigners at incredibly low rates—as little as 1% to 1.5%—with sometimes as much as 80% loan to value.
When looking for financing in Latin America, it gets a little trickier. Walk into a bank in Mexico or Costa Rica, for example, and if you are very lucky, they might lend you 60% and charge you 12% for the privilege. That’s after they’re done weighing you down with excruciating bureaucratic requirements. Then, and only then, will they decide whether to let you borrow money—they might still refuse.
One workaround I use for members of my Real Estate Trend Alert group is to negotiate pre-approved developer financing with our deals. Developer financing is, as the name suggests, where a developer finances a piece of the real estate you buy from him—he’s the bank.
It’s most commonly offered for preconstruction properties and also in markets where bank financing is extremely difficult to get for foreign buyers and/or prohibitively expensive.
In some cases, you can also find seller financing. For instance, if a seller’s home is worth $200,000 you can offer $50,000 now and the balance over 10 years at 5%. Finally, you can finance a real estate investment with a self-directed IRA, so long as the custodian accepts real estate as an asset class, and specifically foreign real estate. However, the big issue here is that real estate held within an IRA must be entirely for investment purposes. Neither you nor any relatives can live in the house, nor run a business from the house. If you do, you will disqualify the IRA and potentially face penalties.
Jonathan asks: Hello Ronan, I have been reading with interest about small towns in Italy with sizable numbers of abandoned homes, some with furniture.
My questions are, why is this happening and where are the former inhabitants going? Also, who then has the authority to sell these properties?
Ronan says: Hi Jonathan. There are a variety of factors. For any given town the reasons might be demographic, economic, or structural. But the overwhelming factors are falling population and migration.
Italy’s population has been declining every year since the 2008 financial crisis.
And the country’s birth rate is now at the lowest since its unification in 1861. This decline is intimately tied to Italy’s long-lasting economic woes.
In short, Italy is in a terrible state. According to the government’s latest economic update, its debt will rise to the highest level in over a century this year, breaching the 159.5% record set in 1920.
The country has struggled since the financial crisis and it looks to be in a state of almost permanent political crisis. Foreign direct investment has tumbled. Throw in corruption, weak institutions, a brain drain, and a lack of confidence among Italians that anything will change.
Economic factors are driving the younger population away from small towns and villages in search of work in Italy’s cities or elsewhere in the E.U. Since 2006, 2.4 million Italians, many young and highly qualified, have emigrated, meaning that 9% of the Italian population now lives abroad.
With no young population to replenish small towns and villages, houses are being left empty, sold at a bargain by remaining relatives, or even abandoned.
You’ve probably heard of Italy’s €1 homes programs. Created by local municipalities, they’re an attempt to draw fresh blood to towns with dwindling populations. With these programs, authority to sell the homes for €1 has been granted by the owners to the municipality. As most of these homes are worth so little to begin with, most owners are happy to have them taken off their hands.
So, not every cheap home in Italy is an opportunity. Often, it’s worth paying a little more for a home that’s in a town with a thriving community and local economy. Outside of Italy’s blue-chip tourist cities, you’ll find bargains all over, in places where Italy’s famed way of life is still active, and where you can live well for remarkably little.
Maria asks: Are there any special considerations or rules for foreigners buying real estate in Mexico?
Ronan says: Hi Maria. The main restriction on foreigners is that you cannot hold property that lies within 50 kilometers (31 miles) of the high tide line, or within 100 kilometers (62 miles) of Mexico’s international borders, directly in your own name.
However, there are ways around this.
In 1973, the Mexican government established the “fideicomiso,” or bank trust, as a legal way for foreigners to acquire land for residential purposes in these zones.
The fideicomiso basically grants the title to a bank. You, as the buyer, can choose which bank you want to use from a list of banks approved by the Mexican government to act as trustees. Although the bank is the trustee of the property, it can only act on the instructions of the beneficiary of the fideicomiso. The beneficiary is the foreign owner. In this case, you.
As the beneficiary, you retain full control of the property. You can live in it, sell it, make improvements to it, mortgage it, pass it to your heirs, or rent it out. You can build on it if it’s a piece of land. You get to treat the property as if you owned it fee simple.
You can also name more than one beneficiary. A couple can therefore operate as co-owners. You can name an heir, too, so if anything happens to a beneficiary, the named heir takes over as a new beneficiary. That’s an added upside. It avoids the need for probate. It avoids the need to pay local inheritance taxes, too.
The bank cannot treat the trust-held property as an asset of the bank. And the beneficiary is responsible for paying property taxes and any costs incurred for maintenance, etc.
Fideicomisos normally run for 50 years. Then, once it runs out, you can renew it for an additional 50 years.
You are also restricted from owning ejido land. This is government land granted for use by members of local ejidals, something like Native American land in the U.S. and Canada. This land can be converted into private property, but the process is long and complicated and too much can go wrong. When doing your title research, I suggest you make sure the plot you’re interested in has never been ejidal land, or, if it was, that it was successfully privatized a long time ago and never challenged. You may be tempted by a low price or a promise that nothing will go wrong but ignore it—just don’t buy it.
Wishing you good real estate investing,
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Ronan McMahon, Real Estate Trend Alert
P.S. Don’t forget, you only have until midnight tomorrow to subscribe to International Living magazine for the special price for just $17…and be eligible to get the Dream Home Letter straight to your inbox every day. Details here.
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