International Real Estate: More Affordable and Less Risky

Over the years as I’ve written about moving abroad and published the best-selling book on the subject, readers have often told me they worry about buying into global real estate markets. Some see international real estate as more risky than buying property where they live now.

There are some valid fears behind that, which I’ll go over in a minute, but if done right you have high upside and not much downside, mitigating your risk. This is a very different equation than in the USA or Canada, where you basically have to time things perfectly or hang on for 20 years to get the payout. In the USA right now, the median price of a home is above $400,000, while in much of California it’s twice that. 

To do it right though, you take your time, keep your eyes and ears open, and make sure you’re not investing all your life savings in one investment. At worst, you keep your expenses down and break even. On the upside, you make a nice profit.

It’s important to understand what is an investment and what is not, however. Sleazy salespeople who prey on tourists who have their guard down will try to sell you fractional ownership schemes, better known as timeshares. These smooth-talking salespeople like to represent those as something that will go up in value. Sorry to break it to you, but they never have gone up in value, never will.

So there’s a whole industry set up to advise you about how to cancel a Holiday Inn Club vacation timeshare, for instance. Or how to get out of contracts from Wyndham, Vidanta, or one of the many other players inviting you to come for a “free vacation” with them to check out the great opportunity. Next thing you know, there’s a down payment and you’ve got a fat annual fee to pay. 

The real in real estate is a different story though when you actually own the place that you’re buying.

My Experiences With Real Estate Ownership and Renting

I have strong opinions about domestic and global real estate that I’ve backed up with decades of my own actions. I bought my first house in the USA at age 25 and did it twice more as I got older. I bought and sold properties in Nashville twice and in Hoboken, New Jersey once, that one a condo that had a view of the Empire State Building. 

I was also a renter plenty of times as well, including in all the places my family lived in while in Tampa Bay. (In between I was a nomad with a backpack roaming the world.) So I have a clear-eyed view of the pros and cons of ownership. 

Since I sold my last U.S. property in 2010, I’ve felt it’s safer to own abroad than to buy real estate in the United States. I own a house in Guanajuato free and clear, which was especially handy during the virus-induced global recession when my travel publishing business took a nosedive for a while. My property taxes in Mexico are less than $200 per year and it’s generally a great value to get repairs or upgrades done.

When we get finished putting a roof terrace on next year, we still will have invested less than $150K in this house total including all repairs and renovations and it’s 3 bedrooms, 2 baths, an office, a big open living/dining area, and a huge sunroom. With a great city view that’s going to get even better when there’s a roof deck.

You can see more pics here.

I purposely own nothing in the country of my birth though except what’s in my retirement accounts. Retirement funds and bank accounts yes, but no real estate anymore. The whole market from coast to coast is just way too overpriced. I don’t see this ever changing now unless I win the lottery. I don’t play the lottery, so that’s not going to happen. 

We could no longer afford the house we last lived in when we were in Nashville or Hoboken. The places we rented in Tampa are now going for $500K or more. I’d rather go abroad and get much more for my money. Even desirable countries like Spain, Portugal, and Italy have real estate prices that are a fraction of the lofty U.S. and Canada ones now. 

The Importance of Timing in any Real Estate Market

Back in late 2005 I wrote a freelance article for a (now defunct) living abroad publication called “The Riskiest Real Estate Investment?” I pointed to all the canaries in the U.S. real estate coal mine and made the point that putting your money into global real estate—especially in Latin America or Eastern Europe—had far more upside potential that buying a vacation home in the U.S. I wasn’t sure when the U.S. real estate market would crash, but I knew it was looking more and more like a house of cards.

It didn’t take a crystal ball to see that, but it took a little while before everything played out as expected. (Watch the movie The Big Short for some of the reasons why.) Three years later, home foreclosures in the U.S. reached a record level. Surprise surprise, all those interest-only loans and teaser adjustable rate mortgages turned out to be big trouble when prices flatlined and investors couldn’t flip their new purchase to a greater fool.

Naturally, the places where prices appreciated the fastest saw the most trouble. The foreclosure rates were the highest the in Mortgage Bankers Association’s history and the spike “was much steeper in California, Florida, Arizona, and Nevada.”

The fallout from the financial crisis was swift and brutal. In some markets, real estate values tumbled by half. Whole chains of banks and mortgage companies went under. The stock market crashed. Many homeowners either walked away or were forced from their homes. Imagine how you would feel if you spent a fortune on a California home in 2006. You were then underwater for a good decade: if you had sold at any point in that decade, you would have lost a significant sum.

If you bought a condo in the New York City area in the early ’90s and sold it in 2003, as I did, you looked pretty darn smart. If you had to sell a house in Nashville in 2010 though, as I also did, you did not look very smart at all. Same investor, different timing. 

People forget how important good (or lucky) timing can be when you hear stories about people making a big profit on their home sales. More often, they would have been better off renting and putting the difference between that and the true cost of owning a home into bond funds or a business. “Buy low, sell high” is dead easy to remember, but not so easy to implement when the market forces are beyond your control. The higher the prices, the higher the stakes.

Coming out of the pandemic, U.S. and Canadian property prices were going up faster than Bitcoin and anyone who bought at the right time looked like a genius. There were bidding wars, prices selling for more than the asking price, and “take it or leave it” deals on places that couldn’t pass inspection. That never lasts though, so here we are, another boom and bust cycle upon us. People are clutching their pearls and gasping because, “What, the value is going down?” 

International Real Estate is Safer Because the Markets Are Less Dependent on Debt

The reason the U.S. and Canadian housing markets bounce up and down like a kid at a trampoline gym is because the entire housing market is dependent on debt. Since houses are so incredibly expensive, the only way anyone can buy them is by signing away their life for the next 30 years, sometimes more. 

That system may seem normal to us, but it’s completely unknown to buyers in most developing markets. In other countries, if you don’t have enough money, you don’t buy a house. So there’s no much shuffling around, not much of a speculative flipping mindset. 

If you buy a house or condo in a developing country, from Argentina to Panama to Bulgaria to Thailand, you will probably need to wire the whole sale amount plus closing costs to some kind of attorney before you get the keys. No 30-year mortgage, no variable rate + balloon payment, probably no seller financing either. If there is any kind of financing option, the terms will usually be onerous, with double or triple the interest rate you would pay where you live now and then the rest coming due in 5 or 7 years.

So when you buy real estate, you walk away from the closing owning 100% because you have to pay 100%.

As a result, when’s the last time you heard anything about a housing bubble in Mexico, Romania, or Cambodia? Seriously, have you ever? I’ve heard about bubbles in China, maybe a few in beach resort areas in Europe, but never in a country where much of the population is not rich and there aren’t banks willing to loan out 90% of the home’s value. 

Prices may be high on the Pacific Coast of Mexico and Costa Rica because so many foreigners live there, but the only reason prices took a temporary dip during the worldwide financial crisis was because foreign demand waned when the U.S. market tanked. It only took a few years for values to recover, even in expat enclaves such as San Miguel de Allende, Boquete, and Roatan.

Home prices barely budged in Antigua, Guatemala because locals took up the slack. Global real estate markets that serve more Europeans and Asians saw an even shorter recovery time. 

Meanwhile, it would be quite difficult to double or triple your money in a decade on a real estate investment in the USA now if you bought today. The prices don’t even look sustainable enough to hold where they are. (See the chart from the Fed above and they’re already dropping.) If you have to finance it and pay more interest than principle, it’s even tougher. You’d have to time it perfectly and buy at the coming bottom, sell at the eventual high. 

In some foreign markets though, that’s an easier scenario to picture. I’ve personally seen it happen over and over in Mexico and I’ve interviewed people who have seen it happen in other markets outside the U.S., in countries on the rise economically. There’s a high chance of upside, but a more sane upside because it’s not based on some esoteric financing vehicles like credit default swaps or mortgage-backed derivatives. 

Then when you look to the downside, the chance of losing half your investment is close to nil. It would take a natural disaster or a political upheaval to destroy a market the way the financial crisis in the late ’00s did in the USA.

The latter can happen of course—look at Venezuela and now Nicaragua following in the footsteps—but usually the warning signs come years before the actual meltdown. The smart money hedged the bet and now walks away.

As a broker I interviewed who handles properties in Medellin said, “We tell our foreign buyers that this is not a risk-free investment. There’s a tiny chance Colombia could turn into another Venezuela or there could be some other kind of political upheaval. But it’s a small chance and probably less risky than what happens to the USA if the felon Trump gets back into the White House and can do whatever he wants.”

How to Protect Your Downside With Global Real Estate

Almost no real estate investment is a sure thing if it’s a legal and transparent one free of corruption. This is true in any country. Unless you have insider knowledge, you are subject to the whims of the market.

Speaking as a person who has bought and sold a Mexican beach house and now lives in another I bought and own in the central highlands, here’s my advice on protecting your downside and making sure you invest well in international real estate.

Don’t Put All Your Chips Down

Investing your whole life savings into one single vehicle is always a terrible idea. If you put all your available money into a house, that may seem sensible because you can live in it, but you need diversification to protect your downside. What if you had done that in Venezuela 20 years ago, Nicaragua 10 years ago, or a property on the side of a volcano in Guatemala a year before it erupted?

Real estate should only be one part of your portfolio. If it would take everything you have to buy a place, you’re definitely better off renting. That makes you more mobile if something goes wrong and you’ve still got the rest of your investments or savings.

It’s also important to look at why you want to own a piece of property and if there’s an emotional reason that is overriding your clarity of thinking. Will your kids really want to use it after you die? Can you really navigate three floors of stairs 20 years from now? Is buying a place really going to save you money and is that the best use of your available capital?

Run the numbers like an accountant would before making a big decision that’s going to tie up a big proportion of your wealth. 

Don’t Buy at the Top of the Market

This is good advice anywhere, but is especially true in developing markets where you don’t have Zillow, MLS systems, and public records of sale prices. If a pitch from a local agent is something like, “This market is on fire right now!” then you probably want to run from that fire, not jump into it.

If you buy international real estate in a bargain place where prices are still low, such as Bulgaria or Albania for instance, it’s hard to go wrong. If you lost your entire investment in this market, you would be out less than what most UK workers earn in a year. Would buying this house below really have any impact at all on your net worth? It’s €8,500!

Look at Where Most of the Real Sales Prices Are

In most real estate markets anywhere, there’s a sweet spot range of sale prices where most of the action is. Generally that’s a percentage deviation up and down from the median sales price. If you get too far beyond that, you might have a tough time finding a buyer when you need one—and it may be harder to rent out.

So if most of the houses are selling in the range of $125K to $200K, you don’t want to buy a house that’s $2 million unless you’re going to leave it to your children. Or you don’t mind leaving it on the market for three years when you have to sell it.

This will vary greatly by market of course. A million-dollar house in Cuenca, Ecuador would be an opulent mansion with six or eight bedrooms. A million-dollar budget in Los Cabos might get you a condo with a water view (if you find a great deal).

In Medellin, Colombia, most condos with a view in the top neighborhood are going for between $180,000 and $400,000. That’s the sweet spot range there. Get into other parts of the city and the range will be lower. Meanwhile though, you could buy this 8-bedroom house in Colombia right now for the list price of $495,000. How does that compare to where you live?

Take Your Time Buying International Real Estate

If you’ve ever watched House Hunters International, you may get the impression that it’s perfectly normal to swoop into a place you’ve never visited, go look at a three houses, and buy one. But you do know that show is completely fake, right? The prices are accurate, but everything else is a fictional TV story.

The people have already rented or bought something before the camera crew arrives, 100% of the time, so it’s all an acting job. The big dramatic decision was made months ago. One episode’s star couple had looked at 42 condos over the course of 6 months before they picked the one (of a supposed 3) they ended up agreeing on in the show.

The ideal way to buy foreign real estate is to back up a year or more before you even start that process and rent. It’s routine practice in developing countries to wildly inflate a listing price hoping some dumb sucker will pay it. You’ll see a lot of listings like that if you look online and in English.

Sometimes the seller tells the agent, “I need to walk away with $100,000. You can keep what you get beyond that.” So the agent lists it at $175,000 and hopes for dumb luck when the seller would have sold it directly to you for $105,000. If you take your time, look around, and talk to people without being in a hurry, you’re much more likely to get the real price instead of the gringo/farang price.

If you take your time when looking at foreign real estate, you’ll also have a better sense of neighborhoods, of how the sun hits, of what locals say about the neighbors. If you buy near where you’re already renting, you know it even better. Plus you’ll have a better idea of what local costs are like if you need to add a room, renovate the kitchen, or upgrade appliances.

Gaze into the Future

There’s a business exercise called a SWOT Analysis that looks at strengths, weaknesses, opportunities, and threats. It’s important to use some form of analysis like this for international real estate too, especially if you’re about to plunk down a sizable percentage of your net worth there.

Strengths and weaknesses are pretty easy, but gazing into the future can give you a good sense of what can go wrong and what can improve the situation enough to make property values rise.

Is a certain neighborhood getting more gentrified each year? Are more people with money moving in? Is a new highway/light rail/park coming that will make the city or neighborhood more attractive? Are more tourists coming  who are renting houses and apartments? Is this place in a location that has been popular for centuries and will continue to be?

People who travel a lot, especially digital nomads, are in a great position to see what’s coming. It wasn’t hard to see that Lisbon was going to become a hotspot after Portugal emerged from its financial crisis. Mexico City was just waiting for an onslaught since it was a food and cultural hub just a few hours from the USA. Now that people are far more mobile in their jobs, why is anyone surprised that it’s more expensive to buy a home in Barcelona or Bangkok or Buenos Aires than it was in 2018?

On the weaknesses side, is there potential for increasing crime or corruption? Is the country’s political system shaky or is a dictator turning the country into a one-party system? (A real issue in Budapest, Krakow, or Istanbul.)

Are property rights on shaky ground? Is the tax burden getting too onerous for the population to bear? Can a loud bar or auto body shop open up right next to you, bringing the value of your home down?

Some of these issues are probably threats where you live now too, but they’re “the devil you know” instead of the one you don’t, which can create a problem of feeling blindsided if you don’t know all the possible threats. Those onerous zoning regulations that can sometimes get in the way of progress can also protect homeowners from nasty surprises. 

If I had to bet money right now, I would feel confident investing about almost anywhere in Europe except Hungary, Poland, Turkey, and the UK. (Right-wing governments with no regard for human rights and a free press on the first three, Brexit’s aftermath on the third.) Ireland, Scandinavian countries, and Switzerland are a rich person’s game though and France’s taxes deserve a close look if you are rich. 

Southeast Asia has been a real pain in the rear for as long as I can remember, but the current rule changes in Thailand are looking promising.

I’d feel especially confident in Uruguay, Ecuador, Colombia, or Panama in Latin America. On the other hand, I would only rent if heading to Honduras, Nicaragua, or anywhere outside of Antigua in Guatemala.   

I live in Mexico, so I’m clearly confident about that country, but I think some markets are way overpriced. Look at Huatulco, not Playa del Carmen or Cabo, look at one of the many beautiful UNESCO World Heritage cities that are not San Miguel de Allende. 

Overall, everyone has a different tolerance for risk, but recognize when you are amplifying that fear just because a market is foreign and you don’t know it as well as the one you’re in now. As I’ve seen several times in my life now, real estate values don’t automatically go up forever and sometimes they need a correction. Buy international real estate in a smart way though and you can minimize the risks.

Want to learn more or even chat with me regularly about living in another country? See the living abroad packages here or hit the paperback or audiobook tabs at that site to pick up A Better Life for Half the Price.