Hello! We are Cross Border Wealth Advisors and are determined to help people simplify their financial lives when retiring abroad by offering financial solutions for wealth and portfolio management and tax preparation. I’m Victor Gersten, and I’m an expat myself. I’m a Certified Financial Planner and an Enrolled Agent with 14 years of experience in the financial services industry in San Diego, Ca. Furthermore, as an expat living in Spain, I have helped many expats to retire financially by sorting out the complicated legal, tax or investment questions that most expats have.
Are you dreaming of traveling to far-off lands and enjoying retirement without having to worry about finances? With a bit of planning, retirement abroad can become a reality!
A significant decision people need to make before moving abroad is whether to purchase a property or rent.
Before you decide which option is best, there are a few questions you should answer.
Lifestyle questions: For how long are you planning on staying abroad? Why are you moving? Are you planning to move with a budget? How many members of your family would be moving with you? What kind of property would you like to live in?
Financial questions: Are you or your spouse citizens or residents of the new host country? When you pass away, how easy will it be to transfer the property as you wished? Does the country that you are moving to follow common or civil law? Is financing available? Are the property taxes and interest deductible in the U.S.? Is home insurance required? what does it cover, and how does it work?
It’s okay to rent temporarily if you want to try a new location or if you plan on frequently moving in retirement. I recommend renting for at least six months when you move abroad to try different neighborhoods within the city of the new host country.
Some clients in the past have moved to one city just to find out that it was a great vacation destination, but not the place where they wanted to call home for their retirement. However, renting longer in retirement may make it riskier if the price of real estate goes up. Buying a home makes more sense if you plan to live in it for at least three years, long enough to recover the costs of purchasing and selling the property.
If you have bought a home in the U.S., the process is relatively straightforward. Each party has a real estate agent. The buyer and seller sign a contract, an escrow account is open (in some states), and some stipulations in the contract may specify the need for inspections. Also, a lender is involved in the process if the house is being financed. However, the following are things that we have found to be different when buying a home abroad:
Financing: It is nearly impossible to find financing as a foreigner. If you do, the max financing is usually fifty percent of the value of the property. Also, most mortgages abroad are not 30-year fixed mortgages, so do your homework.
Real Estate Agents: Do not assume real estate agents are working in your best interest. In the U.S., there are laws and regulations that real estate professionals have to abide by. This is true for many industries abroad that are not as regulated as they are back in the U.S. A client of mine who bought a property before working with me said, “When I bought a property in Mexico from a Canadian real estate agent, I thought he was working in my best interest. I later found out he was a property manager, not a real estate agent. He represented the seller and buyer” Clearly, the situation of this client is that there were conflicts of interests and even possible negligence in lack of competency.
Currency exchange: Imagine that you buy a property in Italy for the equivalent of USD 200,000 or 170,000 Euros in 2018. In 2021 you sell the house for 180,000 Euros which is equivalent to $200,000 because Euro depreciated. When you bought the house, you also paid taxes for $10,000 and repairs for $5,000. Thus, you spent $215,000 on the house and got $200,000 from the sale. Unfortunately, although you lost money in this transaction, you would still need to pay capital gains taxes in Italy because the value went up in Italy by 10,000 Euros. This cannot be written off as a loss since it was a personal-use property, yet you lost money and had to pay taxes in Italy.
Will the property be transferred to my heirs easily: When you pass away in a foreign country, the laws that govern the disposition of your estate are ruled by that country. Even when you have a will or trust back in the U.S, in fact, that can complicate things for your heirs. Keep in mind that some countries are governed by common law (most countries that were part of Britain), civil law (most counties derived from Spain or Roman Empire), Sharia law (many Muslim countries), and many countries have mixed law system such as India. Thus, understanding the impact on how your host country will determine your final estate and if they will tax it is critical as part of your financial plan.
It can be stressful to move abroad, especially if you have to worry about buying property overseas and paying U.S. expat taxes. There are many issues surrounding foreign property ownership, including market conditions, foreign mortgages, exchange rates, new cultures, and even differences in legal structures. U.S. Foreign property owners must report their worldwide transactions to the U.S. government on their U.S. expat taxes. The list must include transactions associated with their foreign property ownership in some cases. In the U.S., tax laws are pretty complicated, and if you don’t manage them properly, you could find yourself paying taxes in two countries.
If you are moving abroad, you need to understand your financial situation once you settle there. A cross-border financial planner helps people balance their budgets and prepare for retirement and purchase homes and help them make educated decisions about much more. A house is frequently the most significant financial investment you will ever make, so you can understand why we, as experts, would suggest how you should proceed.
Moving abroad comes with a lot of financial implications. Tax laws and regulations change often. If you have specific questions, learn more about our process.
Ready to get your financial journey started?
Book a free consultation today and see for yourself how Gersten Financial Planning can help you.
