12 Reasons Investing in Real Estate Abroad Could Be a Nightmare

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It is a dream to buy property overseas, a quaint villa in Tuscany or a beach front bungalow in Bali. It means drinking morning coffee on foreign soil for some, or having a financial cushion in a global market for others. However, this dream can sometimes become a full blown headache if you don’t know what you’re doing when buying property abroad.

Investing in real estate in another country is a whole new world. While they have the allure of adventure and potential profit, they also have pitfalls that can drain your wallet and patience. Here are reasons this dream is not as sweet as it looks.

Misunderstanding Because of Language Barriers

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When it comes to negotiating contracts, taxes, or permits in a language you don’t speak fluently, it’s like playing charades with life or death stakes. You’d be surprised how many times things are misinterpreted and cause very costly mistakes, especially on critical details. You don’t always know what you’re signing even when you hire translators, and you can very quickly feel blindsided if you don’t know what’s going on.

Fluctuations in Currency Can Really Hurt

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The value of foreign currencies can change like weather. Sometimes, you stretch your money farther than you imagined, other times you’re burning cash. If you need to convert funds frequently or you are dealing with an international mortgage with this instability, budgeting can become a gamble.

Local Scams Are a Real Risk

Not all are playing fair in the international real estate world. There are scams galore, from sellers inflating prices for foreign buyers, to fraudulent agents who don’t even own the properties that they’ll sell you. In buying a home here, it is easy to make a financial misstep and the price you pay can be much more than money, leaving you feeling foolish and defeated.

Not All Property Management Is Reliable

Even if you hire someone to do it, trusting someone to handle your property is a different story. Sadly, you hear it all too often, stories of managers stashing rent, not maintaining the property, or simply not communicating. If you don’t have oversight on a consistent basis, you’re looking at steep losses.

Selling Might Take Forever

If you have to sell, you won’t sell it fast. Foreign properties are a niche market, which makes it that much harder to get rid of your investment. You’ll be stuck there, waiting for someone to buy a home as you are riddled by poor market conditions and watching the home’s value fall.

It Is Hard to Do Maintenance From Miles Away

Burst pipe or roof leak – it’s no fun attending to these problems with a thousand miles between you and your house. Without trustworthy local contacts, repairs could end up costing you an arm and a leg—or worse, you might have to suffer through poor workmanship because you can’t supervise the repairs yourself.

Taxes and Fees Add Up

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You may plan for purchase price, but the hidden costs can catch you off guard. Transfer fees, foreign taxes, import duties, and annual levies vary wildly between countries, and they can eat away at your bottom line far quicker than you might realize. A report by the OECD says some nations’ tax regimes add up to 30% more costs to foreign buyers.

Tension Can Be Created From Differences in Cultures

In some countries, business norms and property dealings are very much a part of culture. Perhaps you will be frustrated by a slower pace of negotiation or confused by unwritten rules. For example, what you consider haggling, could be considered rude in another country. This cultural mismatch can breed misunderstanding and an opportunity missed.

Economical Instability Can Throw Off Plans

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Economic instability can make the glittering promise of a booming market fade fast. Property values and rental income can be dramatically affected by recessions, changes in government policy, or even social unrest. According to ResearchGate, real estate prices often fall dramatically as a result of political instability.

Rental Returns Aren’t a Sure Thing

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If you hope to generate rental income from your property, think again. Tourist seasons come and go and demand for rentals can drop in a hurry. The problem here is you still have to cover home expenses ahead of time with no rental income to help you out, even with a stunning property.

Insurance Can Be a Headache

Finding adequate property insurance abroad can be as difficult as looking for a needle in a haystack. What you think is covered, may not be and some insurers are reluctant to insure properties owned by foreigners. Throw in natural disasters like earthquakes or floods which occur in some parts of the world and the problems increase.

Legal Barriers Are a Maze

Each country has its own rules about foreign ownership—rules that can be as fiddly as assembling flat-pack furniture without instructions. In some places, foreigners can’t even own land outright, they have to lease it. Some need a long list of documents, or partnering with local residents. Miss a step and you could end up caught in legal red tape or worse yet, losing your deposit.

Disclaimer: This list is solely the author’s opinion based on research and publicly available information.