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Before you decide to buy a vacation rental property abroad, make sure you know the country well. That includes not only the area surrounding your desired vacation rental location but also the country’s tax laws, vacation rental or short term rental regulations, high and low seasons, and many other factors.
It is important to follow a thorough due diligence process when searching for a vacation rental property, especially when purchasing abroad. With that, we’ve identified several important factors to consider prior to purchasing a vacation rental abroad. Let’s take a look.
Learn about your target vacation rental destination abroad
You may be dreaming about purchasing a vacation rental home in Belize. However, before you start evaluating specific vacation rental homes to purchase, get an understanding of the general characteristics of that country. You want to see if it fits your vacation rental investment needs.
Steps to buying the perfect vacation rental overseas
- Narrow your focus to a place that resonates with you and fits within your budget.
- Review the local tax laws and vacation rental or short term rental regulations to ensure vacation rentals are a) legal and b) in line with your tax and investment strategies.
- Research the local real estate laws and residency requirements for vacation property ownership.
- Understand your financing options.
- Identify a local real estate agency and real estate attorney who have worked with foreigners. Their input and guidance will prove invaluable.
Find a country that fits your budget and lifestyle
It goes without saying that you should focus your search on countries where you enjoy the culture, cuisine, people, etc. Ultimately, that’s the easiest part in your steps to buy a vacation rental home abroad!
Once you’ve identified a few places, take some time to evaluate the costs of living and cost of the local real estate. Your budget need to cover the initial vacation rental purchase. In addition, you’ll need to think about long term maintenance, upkeep and management costs.
Understanding the expenses associated with managing a vacation rental abroad will be key to your success. For example, research how much local labor will cost and how easily you’ll be able to find local help. As Maria, the owner of two vacation rentals in Cannes, France, explains, “it has been very hard to find qualified people to do repairs. By networking with Irish and American expats, we’ve been able to do more extensive renovation work to the property. But it would be nice to have resources to assist in finding skilled people more easily.”
Next, take some time to thoroughly understand the area’s accessibility and availability. Also, factor in access to quality medical care. A vacation rental property located in a remote, mountainous area may be your ideal destination. But, will it appeal to the larger demographic? In other words, if the vacation rental home is several hours away from a major airport or difficult to reach in certain seasons, it may affect your bottom line.
Understand country-specific real estate and tax laws
As mentioned above, a large part of your homework prior to looking for the perfect vacation property abroad is understanding the local tax and real estate laws. While you can do much research on your own, we strongly recommend that you work with a trusted tax attorney to guide you through the process.
1. What tax laws do I need to understand if I want to buy a vacation rental property abroad?
If you intend to buy a vacation rental abroad, having a thorough understanding of the tax laws is key to making your investment a success. We recommend working with a trusted tax attorney with expertise in the country of interest. In other words, a tax attorney will assist you in finding the best ways to structure your vacation rental purchase abroad. And, they will also be able to help you understand any tax implications that a vacation rental home purchase or residency change may trigger in your home country.
2. What are the residency or citizenship requirements for purchasing vacation homes abroad?
Imagine searching high and low for your dream vacation rental home abroad only to find out that you can’t legally own it? As you narrow down your country search, find out if there are any residency, citizenship or requirements in order to own property.
For example, Greece requires non-residents to obtain a tax registration number and access codes to the “TAXIS” system. While other top vacation rental destinations, like Bali, have very specific (and challenging) conditions that must be met for foreigners to own property. Therefore, carefully research your desired vacation rental country’s rules on owning property. It will save you a lot of headache!
Vacation rental regulations and taxes abroad
Short term rental and vacation rental properties are becoming increasingly more popular. Because of this, many cities and towns all over the world have begun imposing regulations and taxes. As a result, learn about the vacation rental or short term rental regulations and tax obligations in your desired country and city or town abroad.
For example, after years of increased pressure, vacation rental owners in Costa Rica must charge their guests a sales tax and pay income taxes. According to Costa Rica Property Management, the local government felt rental owners were not paying their fair share. They also thought rental owners had a competitive advantage over hotels. Now, all rentals must charge guests a 13% sales tax. Owners will also pay a 15% flat income tax.
To that end, consult with a local real estate agency or attorney with experience in short term rentals. They will provide valuable guidance during your due diligence phase. In addition, the expat community may also be able to contribute helpful feedback.
Tax laws and regulations can change at any time. Keep an eye on local news, set up targeted google alerts, and build a strong connection with the expat community. That way, you’ll have a better idea of when changes are on the horizon.
Build a Relationship With the Expat Community
Reach out to other vacation home owners and expats: join Facebook groups, subscribe to email newsletters, and follow message boards. This way, you can build a good support system and stay up to date on current events.
For example, because of a welcoming retirement program for foreigners, Belize has an impressive expat community. Other countries are also very attractive to foreign buyers of vacation rental property. So, tapping into this community’s collective knowledge will help guide your search.
It’s also a good idea to plan another visit or two to the country where you’d like to buy your vacation rental overseas. That way, you can see any potential properties and meet with local property managers in person. Leveraging your connections in the expat community will give you a leg up in understanding the market.
Other things to consider when buying vacation property abroad
Financing Options for Overseas Real Estate
We’ll be exploring more financing options to buy a vacation rental property abroad over the next few weeks. It may seem straightforward however, there are several things to keep in mind:
- It is customary in some foreign countries to pay cash for real estate purchases, including vacation homes. Agustin Piedra from Explore El Castillo Real Estate in Costa Rica notes, “if you are not a resident, getting financing from local banks is virtually impossible. Some property owners offer owner financing but most real estate sales for foreigners in Costa Rica are cash.”
- Alternatively, banks in your desired foreign country may lend to foreigners without citizenship or residency. However, they will typically require a lower loan to value (LTV). A&B Law Firm of Florence, Italy explains “banks usually grant no more than 60/70% of the purchase price”.
- Finally, consider the currency exchange if you will be purchasing a vacation rental in the local currency. Mark Ridley from GreenShoots FX explains, “paying the vendor in their currency can often help you significantly reduce the purchase price even more so if you use a dedicated FX company instead of your bank”.
Evaluating Seasonality: the Highs and Lows
An important consideration when evaluating whether a foreign country will be appropriate for your vacation rental investments goals is seasonality. For instance, if you intend to use this vacation rental property abroad primarily as a second home, high and low seasons won’t mean as much. But, if you intend to make this overseas vacation rental property an investment you will need to get familiar with the high and low seasons.
For example, most tourist destinations have high and low seasons. Travelers flock to Costa Rica during the dry season, December through April. The rainy or “green” season from May through most of November is not well-loved by the casual tourist. Vacation rental owners should expect low occupancy rates during these months. Major cities, like Paris and Rome, however, are less subject to seasonality.
On the other hand, veteran tourists may be less deterred by the “off” season. They often enjoy taking in the sights and enjoying tourist destinations without the crowds. Plus, they know they can often plan around the weather to maximize their stay. Try targeting veteran travelers in your vacation rental marketing using your property’s location or amenities. That way, you can fare better during the low season.
Find A Vacation Rental Property Near Multiple Attractions
So, you’ve determined that a certain foreign country is right for you. Now it’s time to move on to the specifics of finding and purchasing that vacation rental property. One thing to consider is how close a vacation home is to tourist attractions and activities. For instance, you may love a particular vacation home in a remote area but will your guests be able to travel to it easily? As a vacation rental owner, your job is to convince guests that your property is the perfect home base for this full itinerary.
As you narrow down your search for properties, pay close attention to areas with easy access to a wide range of attractions. For example, speak with the locals to understand activities that your guests may enjoy. Google maps can also be helpful in researching the proximity and ease of access if you haven’t visited the tourist destination yourself.
When you are ready to take the leap to buy a vacation rental property abroad, jhead over to our vacation rental properties for sale abroad to get an idea for what is available. Contact us here to discuss your needs and see how we can help you with your search.