Survey questions: who here has a second home? Do you combine your use with renting it out / Airbnb-ing it when you're not using it? Anyone have a second (or third - or seventh - don't want to exclude the Romney wannabe's here!) that's in a foreign country? If so are there any wrinkles to owning a foreign property that you've run into that might not be obvious to me?
I've just returned from a month in Cape Town and am lusting after the gorgeous properties available there for 1/3 to 1/10th of the prices of the US equivalents. I know it would simplify and probably save $$$ to just rent when I visit but...
Thanks in advance for all your thoughts!
For context, I work internationally for a US company that employs Americans, Canadians, S. Africans, Australians, New Zealanders, Filipinos, Koreans, etc., and I know a lot of people in my role. I also participate in an expat FIRE club.
The S. Africans that I know are hesitant to buy property in Cape Town. They're all trying to figure out ways to invest in more stable markets. One of my S. African colleagues owns property in S. Africa, but she was gifted the land by her parents, who live in S. Africa and she pays a property manager to manage it for her. She says it's a very risky venture, and the land value does not appreciate. Because the government and banking systems are unstable, you could lose everything in the blink of an eye.
My family has owned multiple properties over the years, some of them in foreign countries, and one of them in a developing country. It's very risky.
We currently do not rent out our second home/cottage. We tried it one year through a property management company and did not have a good experience. We do let friends use it and charge a very reduced rate that only covers basic operating expenses.
We just purchased a property in a developing country, for 1/5 of what a similar property would cost in Canada. Yeah, with that one, we're prepared for it not to go up in value (terrible investment), to be difficult to rent (sister is going to live in it herself), for the quality of construction (both materials and labor) to be low, and for us to lose the investment at any time if there's a coup or war or something. The only reason we bought is because my sister will be living there for most of the year. There's a reason the property is so cheap by international standards. I suspect Cape Town maybe similar. Do your due diligence and make sure you have a deep understanding of why the property in Africa is so cheap.
We also did not rent out our investment property in China when we owned it (it's sold now), because you have to understand the renter mentality in the country in which you own the property. In the US/Canada, renters tend to consider a rental apartment as their home, so they keep it nice. In China, renters consider a rental apartment as someone else's house, so they don't feel the need to keep it nice, because they're paying rent to the landlord, and the point of rent is so the landlord has money to fix or replace stuff. It's just a different mentality. So we just kept it empty and then sold it. BTW, getting your money out of certain countries is also extremely difficult.
Certain countries also have rules about foreigners owning property. Make sure you understand those rules. E.g., in Cambodia and certain other countries, foreigners cannot own land, which means they cannot own any units that are on the ground level.
And make sure you work with someone you trust in the country who understands the system. For example, our recent purchase in Cambodia, the property developer asked us to transfer the down payment directly to their personal bank account. That's not how things are done in Canada, but we have friends who have lived in Cambodia for decades and who have purchased property from that developer before, and they said that's how things are done, so that's what we did. There may also be different procedures regarding titling, and some people will see foreigners as patsies who are easy to take advantage of because you don't know how things are typically done. Another reason why you must work with someone in the country whom you know and trust (like a long-time personal family friend who has demonstrated business acumen over the decades and who is successfully established in that country) to help you navigate the process.
Oh, and don't even consider getting a mortgage. I would never say it's impossible, but it's extremely difficult. Your home country's bank doesn't want to lend money for a property that they have no control over and can't take in the event of default. The foreign country's bank doesn't want to lend to foreigners with no credit history or employment history in their country. Your property is high risk to your home country's bank, and you are high risk to the foreign bank. So, we've basically paid cash for any international properties we have owned.
That being said, I do have an American colleague who bought a condo in Thailand and rents it out. He earns enough to live off the rental income. Of course, he is also currently working in China, and living expenses are very very very low.