By Kelly Cutchin
Buying a retirement home abroad may seem like a dream for those considering a life abroad. But preparing for retirement comes with many challenges, and the addition of international aspects makes it even more difficult.
With so much to consider, it’s easy to get lost in the shuffle. Whether you’re investing in overseas property for extra income when you retire or buying your new home full-time, it’s essential that you understand how you can save the most money on your foreign exchange. currencies before moving your hard-earned money overseas.
Should you use your bank?
Before committing, research all the options available when it comes to transferring large sums of money internationally. While you can transfer funds abroad with your bank, this is often the most expensive option due to low exchange rates and hidden fees.
An alternative to the traditional banking route would be to use an international currency and payments provider. Unlike banks, these providers often have little to no fees and offer exceptionally better exchange rates.
If you decide to work with an international payment provider, select the one with the best exchange rate and the one that offers flexibility with your payments is often the way to go. At first glance, slight differences in exchange rate offers might not seem like a big deal, but when you’re transferring funds over $100,000, even slight variations can have a huge impact on the price you pay. at the end of the day.
Quick tips for buying property abroad
Now that you have done your due diligence researching the different ways to effectively fund your offshore retirement purchase, you should take the time to understand the regulations, practices, and implications of making this investment.
- Understanding local real estate
When buying a property overseas, many people fail to take into account the diversity of real estate practices from country to country. While buyers can certainly search for properties online in other countries, the information available is significantly less than what a buyer can find in the United States. If you’re used to browsing sites like Zillow or Trulia, be aware that it may take a bit more effort to find comparable information overseas.
- Check residency requirements
While many countries use the purchase of real estate as a way to establish residency, not everyone wants expats to own their primary piece of real estate. For international buyers looking to settle in Mexico, for example, properties within 50km of the coast must be purchased through a trust with a Mexican bank.
- Research the tax implications
Make sure you fully understand the tax implications of buying property overseas. In many countries, it is common to pay some type of transfer tax when property changes hands, which could significantly increase the overall cost of your purchase. If you are looking to rent out your property at any time, you will likely have to pay taxes on that income as well.
Understand the foreign exchange market
While it’s common knowledge to be prepared for competition from some buyers when buying property overseas, few take into consideration the additional challenges you may face with the currency market.
The foreign exchange (FX) market constantly fluctuates with demand driven by varying levels of tourism, trade and inflation. With all these factors influencing the demand for currencies on a daily basis, it can be quite difficult to keep up to date with the latest movements and current events, especially if this is your first time interacting with the forex market in this capacity.
Without in-depth knowledge of the foreign exchange market, it’s easy to get locked into a bad transfer, leading to major financial frustrations with your retirement purchase.
Consider hedging strategies
Whether you’re looking to set up recurring transfers for your overseas mortgage payment or just want to make a large payment, working with an international payments provider who can help you weigh your payment options against budget, timing and place of purchase can help. save the most money on your investment.
Lock an exchange rate
While many people can set up recurring payments for their overseas properties, not everyone takes into account how quickly exchange rates can make or break these transactions. Without some type of hedging strategy in place, you could find yourself paying vastly different amounts for your mortgage from month to month due to subtle changes in the market.
That’s why it’s important to work with an international payments provider or currency specialist, who can help you set up a risk management strategy, especially if you want to maintain a certain budget.
In many cases, a forward contract may be the suggested hedging tool for you, as it can help reduce the possibility of adverse fluctuations in exchange rate volatility by locking in a prevailing exchange rate for up to two years.
Target an exchange rate
If you’re looking to make just one big payment for your retirement home, targeting your desired exchange rate with rate alerts may be another option, as you can take advantage of any market rally without having to constantly watch. market movements.
Although the requirements for setting up rate alerts may vary by provider, they generally require you to set up an alert for the desired exchange rate through your specific provider account. From there, you just wait for the notification that the rate has been reached.
You can also set up a market order which allows you to use this target exchange rate to initiate an automated trade once it is reached. With this type of hedging tool, you can take advantage of positive market movements, even if it happens overnight.
While many people associate retirement with relaxation, few consider the time, research and dedication required to prepare and invest in your new home, especially if the property is located overseas. Before transferring your money internationally, be sure to research the current market and the different money transfer options available to you. Take the time to understand how you can pay for your new home abroad will help you get the best value and ultimately a better return on the next chapter of your life.
About the Author: Kelly Cutchin
In 2006 Kelly joined the Moneycorp team based at its Orlando Florida office and has since held various positions within the Moneycorp group. In December 2012, she assumed the role of Country Manager for Moneycorp’s US operations where she leads a team of foreign exchange experts who work closely with their global offices. Educating professionals on the importance of understanding the forex market and helping real estate agents promote their businesses internationally are some of Kelly’s initiatives and passions. Learn more about Kelly and her team by visiting Moneycorp Americas here.