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7 Tips for Financing Offshore Real Estate

7 Tips for Financing Offshore Real Estate

By Luigi Wewege, the Senior Vice President, and Head of Private Banking, Caye International Bank in Belize.

Your goal is to purchase real estate in another country. Perhaps it will serve as an investment property until you decide to make it your retirement home. It may be property that you plan to develop as a business site. 

Whatever the case, there’s the matter of determining how to pay for that offshore property. Here are seven tips that will help you come up with a strategy that works.

1. Learn About Applicable Property Laws

You learned a little about applicable property laws while looking for the best parcel of real estate. That’s great, but there’s likely that you need to know before making the actual purchase. Depending on which country is involved, the laws may include special provisions for internationals who want to purchase property within that nation.

For example, there may be restrictions on what parts of the country are open for offshore ownership. In other instances, there may be incentives or tax breaks that you can claim. In other cases, it may be necessary to have some temporary resident status even though you will only be in the country a few weeks out of the year.

Keep in mind that it’s necessary to secure the services of a financial agent in some nations. The agent acts on your behalf through the entire process, beginning with the property purchase. Agents often make the purchase easier because they understand the local real estate laws and how they apply to you as a non-citizen.

2. See If Your Domestic Bank Offers Loans for International Real Estate

Did you know that your domestic bank may offer loans that you can use to purchase offshore real estate? Some may be mortgages, or they may be in the form of general loans. It doesn’t hurt to ask about this option and find out what interest and repayment terms are involved.

Keep in mind that using the offshore property as security for the financing is not likely in this instance. You will need to pledge one or more of your domestic assets as part of the deal. This is because a domestic bank would have more difficulty repossessing an offshore property. 

If you have equity in your domestic residence, it may be possible to tap into it and secure a domestic mortgage to use for the offshore purchase.

3. Channel Loan Proceeds Through an Offshore Bank

Assuming you can get funding through a domestic bank, the loan proceeds may be routed through an offshore bank. For example, the proceeds might be deposited into an offshore checking account or even a special mortgage account. Upon receipt and confirmation that the transaction is completed, the offshore bank would allow you to use the funds to manage the property purchase.

This is where your knowledge of the applicable laws related to purchasing and owning offshore properties will come in handy. During that learning process, you’ll find out if it’s necessary to involve an offshore bank. If you already have checking and/or time deposit accounts with a bank in the country where you want to buy property, the transfer of funds will be simple.

4. Investigate Mortgage Options with an Offshore Bank

Many banks in offshore locations do have provisions for helping expats and other non-citizens to purchase real estate. Rather than securing financing from a domestic bank and then funneling the money through an offshore bank account, consider working with the offshore bank directly.

Why would you want to do this? The offshore bank likely has financing terms and conditions that rival anything you could secure from your bank at home. In some cases, the interest rate, how it’s applied, and even the miscellaneous fees related to the financing may be more competitive. If you already have at least one account with that offshore bank, the terms may be even more competitive.

5. Secure Financing from a Mortgage Company

Up to this point, you’ve focused on obtaining financing through a domestic or offshore bank. It may be time to widen the search and see what a mortgage company could do for you. As with banks, there are mortgage companies set up to offer financing for different types of properties, even ones located in other countries.

You can also investigate mortgage companies that operate in the country where your offshore property is located. Don’t hesitate to compare the terms offered by offshore and domestic mortgage lenders. You may find that the offshore lender provides more competitive interest rates and other terms.

6. Consider Developer Financing

Developer financing for international clients is sometimes available. Simply put, this financing allows you access to funds that can be used to purchase the offshore property and begin making improvements to it. If this type of financing is available, you will often learn about it by studying real estate laws in the country where the property is located. An agent with an offshore bank may also point this out as a financing option. 

The key is what you plan on doing with the property. It may be completely undeveloped, and you want to build a home there. A distressed residential property that you plan on renovating may also be eligible. If you are thinking of opening a small business on the first floor of an existing building and include living space on the second floor as part of the renovation, that may also apply.

Why developer financing? You may be able to secure grants, tax breaks, and other incentives in exchange for buying a property and making it into something more functional and valuable. Since this benefits the community and you personally, this could be the most practical method for making the purchase.

7. Purchase Property with Personal Financial Resources

Self-financing may be the best approach in your case. Using this idea, you would make use of domestic resources that are already on hand. It could be the funds housed in an interest-bearing account, a certificate of deposit that’s about to mature, or even a fund you set up to use for emergencies.

The point is that those funds are there for you to use as you see fit. There’s no need to qualify for financing through any lender. All you will have to do is transfer the funds to your offshore account, remit the payment to the seller, and make sure any applicable taxes and other fees are paid to the appropriate government agency. At that juncture, you have your offshore property without any financial encumbrance.

Determine Your Best Strategy to Finance Offshore Real Estate

There’s more than one way to finance the purchase of offshore real estate. Learn more about which approach works well in your case and be in full compliance with the laws that apply in the nation where the property is located. 

It won’t take long to determine which strategy will allow you to secure the property and begin making the most of your purchase.

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Luigi WewegeAuthor bio:
Luigi Wewege is the Senior Vice President and Head of Private Banking of Caye International Bank, headquartered in Belize, Central America. Outside of the bank, he serves as an Instructor at the FinTech School in California, which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of The Digital Banking Revolution, available in audio, Kindle, and paperback formats throughout all major international online bookstores – now in its third edition.

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