by Carolina Buia | Condé Nast Traveler
While hiring your own real estate agent may be a good idea, getting a lawyer is a necessity. Ask your agent or a fellow expat to recommend an attorney. The local American consulate and most major law firms in the States can also provide referrals. If you’re in a country where English is not the official language, you will want a bilingual lawyer to translate all your documents. Depending on the country and the complexity of your purchase, legal fees should range from one to five percent of the sale price.
But this is no time to skimp—something Alfonso and Mercy Cordero learned the hard way. Five years ago, the Stateline, Nevada, couple were looking to build a winter retreat. Serendipitously, they received a brochure in the mail promoting cliffside estates in Careyes, Mexico. “The photos looked so beautiful that we flew down to Careyes,” says Alfonso Cordero, a recently retired entrepreneur. It was exactly what he wanted: a quiet town of about 3,000 inhabitants, an azure sea, and a nostalgic return to the country he had left as a child. A real estate agent helped him purchase restricted oceanfront land by establishing a 50-year trust in the name of a Mexican bank, with the Corderos as the beneficiaries.
Ready to build his 22,000-square-foot, 9-bedroom stucco mansion overlooking the Pacific, Cordero hired a contractor and an architect—but didn’t consult with an attorney. “It was a nightmare,” he says. “The contractor took me for a ride. We’d agree to certain deadlines and prices, and then I’d return to Mexico to find that all the agreements had been broken. In hindsight, I wish I’d hired a lawyer.”
While every city—and every home purchase—is unique, there is a basic blueprint to buying abroad. The first step is for the buyer and the seller to agree on a price (at which point a security deposit of, say, ten percent may be required to take the house off the market). Your attorney should then receive a copy of the property title from the seller and verify that the property is free from any liens or encumbrances. He or she should also advise you of any strange historical covenants, like those in England and France that permit sheep to traverse your backyard, or construction bans that prevent you from bulldozing an ugly landmark to put in a pool.
“If you are buying anything that’s more than a hundred years old, pay for a structural survey,” warns Paul Tayler, director of Sotheby’s in London. “You want to make sure that the roof is not going to cave in and that the pipes and drains are in good condition.” The cost is usually an incidental half-percent of the purchase price.
Once the deal is sealed, the search for financing begins. Don’t rely on your bank back home to lend you the money for a chateau in Brittany—unless you’re willing to borrow against another asset, like a certificate of deposit or a brokerage account. If you’re skittish about doing that, many banks abroad will extend a mortgage once you’ve opened an account. Then again, don’t be surprised if you can’t secure a mortgage for the same long term as in the States (a 30-year mortgage is often unheard-of elsewhere) or if a foreign bank adds a premium to the interest rate it charges locals.
You might tell yourself that you’ll pay off the mortgage by renting out your new home. But while the steady stream of income is nice, countries such as France and Mexico have set up tough eviction laws to protect tenants. “I’ve seen many Americans rent out their property in France only to have their tenants decide to stay without paying,” says Jack Anderson, a tax attorney for Ernst & Young in Paris. “It can take up to three years to evict tenants, unless you’re able to prove to the courts that you’ve found them a similar apartment to move into.”
If you do decide to take on renters, you must report the income on your U.S. tax return, in addition to filing with your host country. Don’t worry about double-taxation, though: The United States has reciprocal tax treaties with 61 nations, so any amount paid abroad will be credited against your U.S. taxes. You may even be able to dodge Uncle Sam altogether by writing off the maintenance expense. You should also draft a local will if you want the property to pass to your heirs. If you decide to sell it, be aware that capital gains taxes in some countries can reach as high as 40 percent, although your accountant or tax attorney may be able to ease the sting.
Legalese, strange covenants, and squatters may make that country house in Tuscany seem like more trouble than it’s worth. But hire the right people, keep a cool head—and read on for how to buy in nine to-die-for destinations—and your home abroad could be just a boarding pass away.
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