James and Nancy Wood know all about the economic pitfalls of recession and the dollar’s declining value overseas.
Still, the Carbondale couple made a choice some would say defies logic: They bought a condominium on the tiny Caribbean island of Bonaire earlier this year.
“We thought it would be a good investment because of what’s happening in the U.S., frankly,” James Wood said.
And they’re not alone. Americans own 500,000 to 600,000 foreign properties, according to a November report produced for the National Association of Realtors.
But are those investments safe?
Boulder real estate investor Jack Walker said the age-old mantra of “buyer beware” is particularly important when purchasing properties overseas.
“I would think 99 percent of transactions when you buy overseas are fine,” Walker said. “You just don’t want to be the person who is the 1 percent.”
The English expatriate has bought homes in Australia, England, Monaco, Scotland, Singapore and the United States — and he has some horror stories of purchases gone wrong.
To avoid joining the ranks of the unhappy 1 percent, Walker said, serious land-shoppers should begin their buying excursions with a trip to a lawyer’s office.
“This is an important legal transaction, and it can have all kinds of ramifications,” Walker said. “Whereas in the United States you go to a Realtor, and the Realtor takes you through the transaction and you’ve got someone to sue if something goes wrong, that isn’t the case in many other jurisdictions in the world.
“A lot of people don’t want to go to a lawyer (because) it’s expensive, but believe me, the investment in the legal fees is absolutely going to be the best investment that they make,” Walker said. “You’re a child in an adult world when you’re buying a home in a foreign country. It’s so easy to be taken for a ride.”
Understanding the difference between land-lease agreements and outright land sales and being clear on lingering U.S. tax responsibilities are two other areas Walker recommends reading up on.
“It’s very difficult to get out of the American system, which taxes you on your worldwide income,” he said. “So if you’re thinking, ‘I’m just going to leave the United States and live in Costa Rica,’ you need to consult a tax attorney. You don’t want to be flying home to visit friends and relatives and be arrested because of failure to file tax returns or tax avoidance. It’s not a fun thing to do.”
Matt Dierksheide and his partner, Eric Schwarz, are no strangers to international travel. They’ve been to Africa, Asia, South America and Europe.
And they’re not wed to oversized American homes: They downsized from an 8,800-square-foot home in Castle Pines North to an 1,800-square-foot townhouse in Lone Tree before setting off to Europe with plans to buy a reasonably sized home there.
They planned to buy property in Paris because it offered both the opportunity to learn another language and good prospects for Schwarz’s software consulting work, but a quick scan of listings posted in real estate agency windows raised red flags.
“We weren’t even in the Cherry Creek of Paris. We were just in a basic neighborhood, and we were like, ‘Oh my God!’ The prices are just really bad,” Dierksheide said.
Thanks to the sinking value of U.S. currency — a dollar is worth about 0.65 euro — an 800- to 1,000-square-foot apartment there would cost more than $1 million. Dierksheide and Schwarz opted to shift focus to Plan B and continue to rent.
Sticker shock in Europe, parts of Asia and South Africa can quell some plans to buy a home abroad, but Larry Oberly, vice president of international development for real estate brokerage Re/Max, said that for many would-be buyers, the delay is temporary.
“I don’t think interest has waned,” Oberly said. “Possibly the credit availability and the ability to pull equity out of their existing homes has changed, (but) I think the desire is just as strong as ever.”
