This has baffled me for years, it just not common sense or logical to buy Real Estate overseas.
I have been trying to understand why crazy Americans and Europeans need to come to paradise and spoil it by making the truly idiot decision to buy a home. The list of reason it is why it is idiocy is below, or why this is incredibly dangerous, therefore foolish and not ready for prime time non-savvy person does it anyway.
Answer: Addicted to Buying took International
For 50-70 years a person in the USA has been buying anything and everything, he or she, the family is addicted, their who world revolves around buying. This is the type of person who goes on a buying tour to Chicago to visit the malls. An in may ways related to the people who go to Vegas to the gamble. Their vice is continuously purchasing, they never question their motive or thoughts, to buy is to exist.
And let me admit this, the general public, the rabble, the proletariat need to be induced to buy products to progress, not recess (recession) the USA economy. Governments have lotteries to induce good money to be used in foolish ways.
What percentage of MOVE Overseas to Live Abroad have this doom-to-failure mentality?
No way to know for sure, my estimate is 90 percent, 10 percent of the people do not buy Real Estate, however 9 percent are not financially, emotionally, or organized to get the job done, too busy drinking and smoking dope.
1 percent survey the risk and understand, the only way to buy is to way until some ridiculously cheap deal comes along, this takes about five years, and happens all the time. ( YOU ARE BUYING IN A CHEAP COUNTRY, THE DEAL ARE EVERYWHERE FROM THE LOCALS, BUT NOT THE FOREIGNERS.)
Me, I am now looking for highly over-developed land scam locations like in Ecuador, Panama, Costa Rica, Dominican Republic, Colombia, Thailand etc.
Where tons of foolish people went and built homes, because they hate the country and gave up and went home, the house is on th market for 3-10 years, slow markets.
They pay: 300,000 USD.
- One Percent Rule - The Mortgage would 3000 USD to retire debt service.
Rental Property: This property should NEEDS to rent for 3000 USD to be efficient use of cash.
I rent for 300 USD per month, it is the leverage of foolish purchases to the max, and fun. I can live like a king, and they allow this, why, because the paid cash and do not have a monthly payment, the do not have pressure and are bad a math.
Do the Math, look up Cap Rate, etc.
There are Three Types of Real Estate Buyers Abroad
1. Conspicuous Consumption
2. Too cheap to refuse, maybe under 5K.
3. Proof of wealth, the truly mega rich buying Real Estate, building with truly disposable money this is a good reason to buy or build a home overseas.
List of reason to not buy Real Estate Abroad:
1. No appraisals
2. Corrupt governments
3. Time on market to sell is 2-10 years
4. No title insurance, or abstractors
5. Attorney paperwork is bad.
6. The market was an trendy tourist market, they open a new one and your becomes stagnant.
7. Buying from people acting as agents with no knowledge or ability to sell.
8. You are not a citizen of the country, you bundle of right disallows you from being able to enforce laws.
9. The need to squat on the property to keep it, often when people return the property is stripped or in another persons name.
10. At the minimum, it is a 10 year commitment.
11. You are investing in the local currency.
12. Cash purchase
13. Family has trouble selling upon death.
14. The wife absconds with the property.
15. Need to put title in locals name, and they steal. 16. Have to get a residency visa.
Andy, for what I've seen, it seems like house prices are usually high relative to rental prices, which also argues for renting. Is the really true? A good aspect of owning your home free and clear is that you don't have to worry about making a rent/house payment. Now your monthly nut is much less. This benefit is negated if you have to worry about losing your home to legal chicanery, theft, war, etc.
If renting is cheaper than buying, why do locals buy? I wonder if part of it, is that if there is a period of high inflation, the rent will go up, but if you own your own home, you are automatically sheltered from that. In many areas of Latin America, people have probably experienced periods of high inflation as in the '70's in the US, or worse.
Most Americans can't accept that things might change for the worse at some point. In my experience, cowardice often manifests itself as denial.
Matt, you are 500 percent correct,
" it seems like house prices are usually high relative to rental prices, which also argues for renting. Is the really true?"
1000 percent correct.
Clap, clap, clap, applaud, applaud, standing ovation. Abroad, people move abroad, buy real estate at American prices, and cannot sell them, so they must rent them for 1/5th the cost of a mortgage payment. They hate the location, think that real estate always increases in value and then want to sucker punch the next buyer, normally another expat coming down.
Real Estate math is not for everyone to grasp, owing a house free and clear in less than say 10 years is maybe good inside the USA, it is safe way to live, owning a house, but there is a devil in the borrowing of money, that tempts people to buy the social status they cannot afford.
Denial is to protect themselves as their desire for high social status writes checks that one day can come due. I know many people cop an attitude at the bible, but Christ throwing the month lenders out was brilliant.
I try to explain the math, that renting removes all the risk, and you can get a house of 5-10 times the value for less than a purchase, but there is some evil goblin on the minds of people that must own. It is like a marriage, some people must marry to feel they own the other person, taking hostages, as if somehow that protects them from reality, love can leave, and money can end, no job is guaranteed. The only true protection is a large cash flow, or big savings, and no debt, but people believe the money lenders more than math, logic, and common sense. I try to stay out of it, when someone wants to buy, even in the USA, they just will not listen, they buy as much as they can get financed for, and if the banks sell the toxic loans onward, the banks think they are clever. It is not clever to take advantage of someone who cannot understand the math of life.
While your talking about the bible you might mention the verse that says the borrower is the slave to the lender. Not really religious anymore my self but their is a lot of cultural wisdom in that book. And my old favorite "Its better to live in the corner of an attic than with a contemptuous woman."
My parents generation touted buying houses at the ultimate goal. I listened to them. I regret that many times. I am okay at math but the money lenders are VERY skilled at manipulating numbers and making the simple math very complex so that even I am confused. This is where they take advantage of you. First time home buyers in 2001 and we payed $125k for a house built in 1958. By the end of our 30 year mortgage we will have paid $300K. The house will be 73 years old. No way will it be worth $300k that we paid over the years of the mortgage. But everyone says: "Hey, you only paid $125k and you can sell it for $200k!! You made $75k for living somewhere that you would have had to pay for to live anyway!!!!". But, as Andy said, we didn't understand the "math of life" at the time.
Andy I am glad I found you and listened for years. After traveling around Latin America for years I understand what you mean about not buying . I am going to be renting a nice apt in Pana for 6 months for $275 a month, while houses there go for $100, plus? Ironically I am able to retire at 62 because of real estate I bought in California. 20 years ago I bought an old broken down house in the Napa Valley for $128 000. I eventually made the house into 3 1bdrm apts and the rents are so much money now it makes sense for me to live somewhere else cheaper. Also while it is still a beautiful place, it has been taken over by greedy rich people and corporations, and is unpleasant for me. So while you are 100percent correct, some parts of the world buying real estate can work out in the long run if your lucky. I get a kick out of watching "House Hunters International" and watching Canadians go down to the Carribean to find thier "dream home " and change their life and the only thing they're concerned about is if it has granite counter tops and ocean view! lol I guess they dont stop and think that they're moving to a different planet!
My house in Nevada, USA has been on the market since June and this week the first people came to look at it. I tried to find a rental in 2010 before we purchased but none were available where we wanted the kids to go to school. Before we moved into town we drove the kids 8 miles each way to the school bus stop then they sat on the bus for the 60+ mile ride to school. So in 2010 we purchased a 3 year old home and hoped we would break even, Did not work currently the house is listed $50k under what we paid for it and only one couple has looked at it. If I buy a house again it will need to cost less than my current truck did. My wife and I had a discussion about selling our house and agreed we look for a rental if we decided to settle in one place again. I have been in five Real Estate deals so far the best I have ever done was break even. I wont be offering Real Estate advice. I do find the original question/observation interesting.
We had a real estate mess about 10 years ago and it changed our minds about our investing in it. We buy where we want to live, a place where we don't need a car (big savings if other things go wrong). We like multifamily so we have rental income to offset some of the expense. If we live in it we self-manage. Most importantly, we keep a reserve and only have one mortgage at a time. After we buy we aggressively pay off before moving onto another one. It isn't foolproof, but it is far safer. Most people overleverage to get the right neighborhood (schools or status) or a garage or a big yard. A family of four can live in a 3 bedroom apartment, period. Simplicity is the key. Often investors overleverage to put as little money down as possible. This works until something goes wrong.