Considering Buying a Home Overseas? Five Reasons Why Renting May Be a Better Option for Expats
By Chad Creveling, CFA, and Peggy Creveling, CFA
When you’re living overseas, you may at some point consider the question “Should I buy or should I rent?” If you consult with local real estate agents, property developers, or mortgage brokers, you may hear advice similar to the following that appeared in the property section of an expat-oriented newspaper: “Owning your home has great objective and subjective merits. Savvy investors take full advantage of the tremendous investment upside over time.” Later comes the sales pitch: “Many advisory firms have specialist property arms … which can assist you with the acquisition and ongoing management of your property.” Contact details to such a firm are conveniently provided.
In the eyes of expat salesmen, it’s always a good time for you to buy a home—for them. But what makes sense for you? The buying versus renting decision is an important one. While conventional thinking still leans in favor of buying, in reality there are many reasons—financial and otherwise—that renting may make more sense for most expatriates. To help you with this decision we’ve put together a few things to consider:
- You’ll only be there a couple years. One major reason for expats to rent is that their time in country is relatively short, with many planning to move elsewhere in just a few years. But property cycles tend to be long―perhaps seven years or more from peak to peak. Property can be an illiquid and difficult-to-sell asset; it might take more than a year to complete a sale. Transaction costs in both purchasing and selling property can be high (perhaps 5% including brokerage and legal fees on either end). So if you’ll be in a location for only a couple of years, renting may make more sense than buying. You don’t want to get stuck with a home you can’t sell when you leave, and turning it into a rental rarely makes financial sense for you as the owner (although it probably makes sense for whomever you pay to manage the property in your absence).
- You want flexibility. When you rent, you have the ability to easily pick up and move in a relatively short period of time. This can come in handy in many ways, such as if you want to try living in different parts of a foreign city, if your commute to work has become congested, if a new construction site has just begun next door, or if changes in your circumstances mean that you’d like to expand (or downsize) your living quarters. When the environment you live in is rapidly changing, renting a home provides you with a greater ability to easily deal with the changes than does buying.
- Homeowner rights may not be protected. The laws protecting homeowners in your country of residence may be significantly different than those in your home country, or they simply may not be enforced. Condo owners may find they have little recourse if construction is shoddy, building common areas are not being maintained, or if management fees are secretly mishandled or embezzled. Likewise, if your new neighbor starts collecting garbage in the front yard or has dangerous dogs in the back, there may be little you can do as a foreigner to change the situation. As an expat renter, you can get your landlord to act on your behalf, or if needed, you can easily move to a better location.
- You don’t want the hassles. You’re living as an expat to enjoy a foreign culture and lifestyle. But with homeownership comes a number of burdens, including ongoing upkeep, dealing with owners’ associations, and undertaking maintenance projects. These activities are never stress-free, but they become more difficult when you’re in unfamiliar surroundings or don’t speak the language. Instead of spending your free time fixing leaky faucets or arguing with contractors, as a renter you can let your landlord take care of these details, thus giving you more time to enjoy the benefits of living in another country.
- You’ve done the numbers, and it’s cheaper to rent. Property brokers might want you to believe that buying a home is still a “can’t miss” investment. But as the recent Economist article “Bricks and Slaughter” points out, in many locations this is simply not the case. In general, most property markets are either in the middle of, or just coming off, a price bubble, and the correction in real terms may take many years to complete. In the meantime, borrowing rates are likely to rise, which is never a good thing for property prices. To figure out which option is better for you, do a financial analysis of buying a property versus renting a similar one over the time frame you intend to live in it. Include all the costs and benefits involved on both sides. Far from “throwing money away,” you may just work out that renting could be a better deal for you after all.
This article is a revised and updated version of one that had appeared previously on www.crevelingandcreveling.com.
7 Things to Consider Before Buying Overseas Property
Expat Case Study: Evaluating a Buy-to-Rent Condo Investment
WSJ Ask an Expert: Tips for Expats on Buying Real Estate in Singapore
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.
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