A home away from home; Americans finding it easier to buy in some foreign countries

by Pamela Dittmer McKuen

05/07/06

American retirees and vacationers have long staked out second homes in the sunny climates of Arizona and Florida. Today, however, many are traversing beyond the borders to buy property in other countries.

"We have seen substantial increases in investment purchases and residential development in foreign jurisdictions over the past five years," said Mitch Creekmore, senior vice president of Houston-based Stewart International, which guarantees title in 35 countries.

Many countries have become increasingly welcoming of American investments and have streamlined the processes, he said.

Among the hot spots: Mexico, because it's nearby, and Panama, which has a dollar-based economy. Europe is popular but pricey, he said.

An early pioneer was author Frances Mayes, who restored an Italian villa 15 years ago and chronicled the joys and frustrations of doing so in her best-selling book and a movie, "Under the Tuscan Sun."

"When I bought my house, I didn't know anyone who had done anything that crazy," she said. "Now lots of people do."

Some countries are attractive because dollars go further, said Jeff Hornberger, international market development manager for the National Association of Realtors in Chicago.

"Someone who wants a second home can go to Sarasota or Tampa and get something on the beach for $400,000 or $500,000," he said. "If you spend two more hours on the plane, you can get something nice in Panama for $200,000."

But caveats abound. Buyers have lost their homes when ownership wasn't cleared or building permits were improperly granted. Financing is rare and public services may be erratic. Just getting to some of these places takes a day of travel.

"These are different countries," said Hornberger. "They speak different languages and have different ways of getting things done. They're not on American time."

In Mexico, for example, beaches, the Baja Peninsula and other desirable areas are considered restricted zones. Non-Mexican nationals can buy, but the property must be held in a Mexican bank trust called a fideicomiso. It's similar to an estate trust in the U.S.

Chicago real estate broker Sean Conlon of Sussex & Reilly Century 21 bought a flat in London and a country home near Wexford, Ireland. In London, he also had to buy a lease, which was negotiated separately. In Ireland, he learned that his driveway crossed part of a neighbor's land, so he bought that too.

Standards of luxury are different, Mayes said.

"Sometimes people get into old houses in the country and freak out because bees are coming in the windows," she said.

The reliability of utilities depends on the area, said Denver-based developer John Fair of Fair Enterprises, which is building a 1,700-acre community, Paraiso del Mar, in La Paz, Mexico.

"In hurricane areas, people know to have back-up generators," he said. "In Mexico, it depends on where you are. The power is more consistent in La Paz by far than in Turks & Caicos" in the Caribbean.

As for financing, cash is king. A handful of American and European lenders make loans in select locales, especially Mexico, but might not accept the property you're buying as collateral.

You'll bypass some of the challenges by buying into planned communities from reputable developers who have worked through the nuances of ownership, understand American expectations and may offer financing.

Another advantage: Your home is serviced through the likes of a homeowners association while you're away, said developer David Burden, chief executive of Timbers Co. in Carbondale, Colo.

"You can be private but you're not alone," he said.

Timbers is developing Castello di Casole, a project that includes transforming a centuries-old castle into a hotel and restoring 35 villas surrounded by vineyards and olive groves in Tuscany. Fractional and whole ownership starts at $600,000.

Paraiso del Mar, on the eastern side of the Baja Peninsula, will have condominiums, single-family homes, a hotel and golf course as well as a power plant. Prices range from the high $100,000s to $600,000.

Chicagoan Bruce Turner, whose Paraiso del Mar home will be delivered in about two years, said that planned communities offer greater security.

"If the boat goes down, I'm not going to be the only one going down," he said.

To buy an existing home, you'll find plenty of real estate brokers, but their service varies. Multiple listing services, comparable sales figures and disclosure laws are rare.

When Mayes bought, her broker's sole contribution was introducing her to the owner of the property.

"There was only one real estate agent" in the village, she said. "Now there must be 20. They are more helpful, but there are no inspections or declarations as to what is wrong. You can ask the agent to help you get somebody to look it over, but it is `as is.' The owner is not going to be fixing the leak in the fountain."

Because few American brokers escort buyers abroad to shop and negotiate transactions, your best bet is a referral to a broker in your chosen country, said Hornberger.

The National Association of Realtors has a directory of 1,500 brokers worldwide who have received its designation, Certified International Property Specialist, on its Web site, realtor.org/international.

Global realty specialists also are listed on the Web sites of the International Real Estate Federation in Paris, fiabci.com, and the International Consortium of Real Estate Associations in Chicago, worldproperties.com.

Rodney Dillard, president of Illustrated Properties International in Palm Beach, Fla., specializes in private islands in the Bahamas and Caribbean. Business has surged as Florida has undergone massive development, he said.

"Ideally, you'd like to have a private island not too far from a major airport and not too far from the place where you would take a boat to go shopping and equip the island," he said. "The more remote and more difficult to get to, the price is generally lower."

Prices also tend to be lower in the Bahamas, where islands are more plentiful than in the Caribbean, he said.

February's inventory was about two dozen islands. The least expensive was a three-acre island with home and dock near Curacao for just under $2 million. The most expensive was a vacant 700-acre island in the Bahamas for $23 million.

If you plan to build, be sure that the local government allows it and keep in mind that construction costs run two to three times higher than on the mainland, he said.

In fact, building or remodeling anywhere is tricky.

"A hundred different things could jump up, from bad title to bad contractors stealing your money or not getting proper permits," said Fair.

"Some people buy sites that are ruined and the contractor says they can be rebuilt and then they find out water and sewer services aren't coming for several years," said Burden.

Before buying outside the country, investigate thoroughly. Visit the places you're interested in and talk to Americans who have bought or built there. Internet forums such as those on internationalliving.com help forge connections.

"At the end of the day, who is the one who has to ask the questions and perform due diligence? The buyer," said Creekmore, co-author of the book "Cashing in on a Second Home in Mexico" (Crabman Publishing, 2005).

Turner's travels helped shape his decision. To him, the Los Cabos area seems too touristy, and he prefers the quieter gulf side of the peninsula to the exposed ocean side.

Rent before you buy, said Mayes, who'd been to Italy numerous times before zeroing in on her purchase.

"It's a different kind of experience," she said. "I'm not saying give up hotels, but your whole relation to the culture changes when you rent a house. When you have a kitchen and buy a local cookbook and meet your neighbors and they invite you over for a drink, things begin to happen that don't happen when you stay in a hotel."

Mayes' latest book, "A Year in the World," (Broadway Books, 2006) was released in March.

"The worst thing you can do is buy on the Internet," said Conlon. Photographs "may not show you the garbage dump that lies behind your property."

But that's what Greg Pitts and Betsy Donnelly of Kansas City, Kan., did. Pitts was flipping through eBay auctions four years ago when he spotted a five-bedroom oceanfront home with guesthouse in Rio de Janeiro. He fell in love with the photos and put in the winning bid of $80,000.

"It was the craziest, most spontaneous thing we've ever done," said Donnelly, his significant other. "We'd never even been to Brazil, but we couldn't have afforded anything like that in this country."

Since then the couple has visited several times. Pitts is learning to speak Portuguese, and Donnelly navigates the local terrain. Among their highlights: lounging on their patio and watching the frolicking whales.

Donnelly admits the methodology is daring.

"I think we were just lucky, and I would never recommend anyone doing what we did," she said. "Having said that, we've had a marvelous experience."

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