Financing the Property of your Dreams

Chances are, growing up you never heard your parents or grandparents talk about investing internationally…and if they did, congratulations. You’re in the minority.  Growing up I heard all about stocks, bonds, the money market, and my grandfather’s (nightmare) apartment buildings in upstate New York and Queens.  When I mentioned to my family and friends that I was moving to Nicaragua right out of college, they pleaded for me to reconsider.  After realizing it was not going to happen, they began to support my wishes but still didn’t understand why on earth people would go to Nicaragua, since it was still “drug-ridden and dangerous.”  The reason I’m telling you this is because people’s perceptions tend to cloud the reality.  What was actually happening in Nicaragua was an increase in tourism, new foreign investment thanks to Law 306, and growth in the real estate sector.  By exploring new opportunities and thinking across the border, your world expands exponentially.

I often chat with people in my age range about what their investment portfolio looks like, and many are telling me they are still trying to save for the down payment on a home.  When you’re not making 6-figures and still paying off student loans, it’s easy to think in the short-term. Thinking 20, 30, 40 years down the line just seems soooo far away.  We hear the importance of contributing to an IRA, but the reality is many of us young people are impatient, and thinking for the long-term is a challenge – especially when there are bills to pay today.  But, by cutting back on a few drinks at the bar on Friday night, or not buying that brand new trendy purse, and putting that money towards an investment fund, you’re setting yourself and your family up for a tremendous future.  Add on the international component, even if you’re just getting started in “adulthood,” and you’ll thank yourself later.  Imagine a hardwood investment that reaches harvest just in time to pay your kid’s college tuition payment.  Or a Caribbean beach condo when you need a getaway.  By thinking and acting international now, you’ll be well-rewarded.

One question I am commonly asked, by anyone from Gen X-ers to baby boomers, is about financing options offshore. Let’s say you identify the property of your dreams, only to find out the developer doesn’t offer any financing and you don’t qualify for a loan from your hometown bank.  That would be a bummer, wouldn’t it?  You can avoid that frustration now by understanding how international financing options work.

Let’s look at an example.  You’re down in Belize looking at wintertime retreats and you identify a beautiful beach condo.  You look at the price tag ($300,000 USD for a 2BR), do some calculations, and are excited because you can afford to put 20% down.

Although the developer doesn’t offer financing and has no relationships with international banks, you plan to finance the rest with your hometown bank…only to go home and have your banker laugh, “Oh no no, we cannot finance on property we are not familiar with, especially not in another country.”  This is a very typical scenario.  Domestic banks will not finance on international property because they have no leverage outside of their jurisdiction.  So this leaves you scrambling, not sure if you can make the numbers work.  Now what?

If you don’t have enough liquid cash to put 100% down on a piece of international real estate, there are some options for you.  Let’s take a look:

1)    Typically, domestic banks in the country you are looking to own in won’t finance to you if you are not a resident or citizen of the country.   Identify an international bank that will loan to foreigners.  Do note that interest rates tend to be higher than in Canada or the U.S.  It is not uncommon to see 10-13% interest.  My suggestion would be to put down as much as you can, finance the remaining (typically up to 50% loan-to-value, NOT 20% down), and pay down the interest as your real estate earns $$.  If you’re looking at Latin America to own real estate, Caye Bank on Ambergris Caye in Belize is a great option to secure a loan.

2)    Do you have property in your home country that you can take a mortgage or second mortgage against? If the answer is yes, consider doing that and put that money towards your real estate.  Chances are the interest in the States or Canada will be less than the international banking option.

3)    Get a line of credit from your bank or a private financing group.

4)    Look for developer financing.  If you’re doing this, make sure you do your due diligence on the company to make sure they are stable enough to offer financing.  I have seen many developments go under, even after a great amount of sales, because their 0% down, 0% interest, 0% everything backfires and they don’t have enough to sustain their development.

When you understand and acknowledge that there are options for you, it makes your dream to own international real estate, whether for cash-flow or lifestyle, a lot more attainable.

Today, owning beachfront real estate is not just for the top 1%.  And having an international bank account doesn’t mean you’re trying to evade taxes.  Being international means having opportunities at your fingertips, no matter where in the world you end up. Plus, wouldn’t it be fun to invite your hometown friends to your out-of-country pied-à-terre?

Any questions pop into mind? Feel free to reach out.  I’d love to hear what you’re up to.

And if there are any international real estate financing tips you’d like to share for new international property owners, send your suggestions over and we’ll post them next week!