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Creating a Rent-Free Retirement Overseas

Kathleen Peddicord

When a retiree decides to take his retirement global, one of the first big questions he faces is: where? Not only will you need to choose the country that might be best for you, but also the type of housing you will reside in. You could choose a house, an apartment, or a gated community.

But your first question shouldn't be where to buy a retirement residence overseas. The initial question for a retirement buyer should be: Should you buy a retirement residence overseas at all?

If your overseas real estate agenda involves finding a place to live in retirement in a foreign country, maybe it's not a real estate purchase you want but a rental. There are many reasons to rent overseas. Perhaps most important, renting keeps you mobile and flexible.

Panama City is a good example, because, for such a small city, the diversity of lifestyle options is great, and neighborhoods just a mile or two away from each other make for dramatically different living experiences. Buying before giving yourself a chance to understand this can mean the difference between loving your new life overseas and regretting it.

In addition, depending on the country where you're retiring, the costs of buying and reselling property can be significant, meaning that buying in the wrong spot can be expensive. Plus, owning a home means carrying costs. There will be maintenance and repair expenses, plus homeowner's insurance, caretaking, and, in some places, property tax. Further, if you buy with financing, you'll also have to make, in much of the world, an investment in life insurance. Renting, you have none of these expenses. Only rent.

On the other hand, I can imagine circumstances when you might choose to ignore the "rent first" caveat and buy from the start of your retire overseas adventure. If you're retiring to a place where property values are appreciating, waiting a year before buying means you could be passing up healthy gains. Remember, the market dynamics that attracted you are attracting others, and early buyers enjoy the greatest rates of appreciation.

Buying real estate overseas is fundamentally about diversification. This is true whether you buy for investment or for retirement, and argues in favor of buying for retirement rather than renting. Buying a new retirement residence overseas means moving money out of the U.S. and putting it into another market and, potentially, another currency. Moving all your money out of the U.S. and into a new retirement residence overseas doesn't provide you the diversification you should be seeking right now. However, using some of your capital to purchase a retirement residence in the place where you want to live and putting other capital to work in another market (that perhaps uses a different currency) gets you not only diversification, but also what amounts to a rent-free retirement.

Another advantage of buying your retirement residence overseas rather than renting it is that it helps you to "take the plunge." It allows you to move your life forward, unequivocally, and embrace the new adventure. Many people who rent before they buy do so to be able to maintain a property back home, "just in case." While this can be sensible, it's also an anchor, a drag. It can divide your attention and keep you looking backward instead of ahead to your new life. Keeping one foot on the pier and the other on the departing boat can land you in the drink. You may remain only partially committed, which will be a handicap.

The bottom line for the retiree-buyer is to follow your instincts, not only with regards to what to buy overseas, but also when answering the question, should you buy at all? You know your motivations and preferences, and how well you've researched your chosen destination. You know your level of commitment, your level of readiness, and your tolerance for risk.

If you're buying real estate for personal use in retirement, you want to think about things like:

--How much space will you need? Do you want an apartment or a house? One bedroom or two? (You probably won't need more than two.) Two levels or only one? A guest room or even a guest house? Will you have guests often, for example? Will you want them to be able to stay with you, or would you prefer if they came and went from a hotel nearby?

--Do you want a front yard, a back garden, or a swimming pool? All of these things require care and maintenance.

--Do you want to be in the heart of downtown or out in the country?

--Do you want a turn-key, a renovation project, or something in-between?

--Do you like the idea of living in a gated community, or would you prefer a more integrated setting, such as a neighborhood where you could become part of the local community? This is a key consideration. Going local means you have to learn the local language (if you don't speak it already). Or perhaps you'd prefer to be off on your own with undeveloped acres between you and your nearest neighbor. In this type of rural setting you will need to build your own in-case-of-emergency infrastructure.

--Consider traffic patterns and transportation. Where you base yourself determines whether you'll need to invest in a car, which is an important budget consideration.

--Consider the convenience factor. How far is it to shopping, restaurants, nightlife, parking, and the nearest medical facility?

--Do you want a furnished home? You may have no choice but to buy unfurnished (unless you buy, say, from another expat who's interested in selling his place including all contents). Buying unfurnished means you'll need to purchase furniture locally or ship your household goods from home.

--What's your budget? This is the most practical guideline of all, of course. Be clear on your finances before you start shopping, and, if your budget is strict, don't be tempted to consider properties outside your price point. You'll only be disappointing yourself unnecessarily.

--Finally, ask yourself what kind of view you'd like from your bedroom window each morning. This can be an effective way to focus on something important that might otherwise be overlooked until it's too late.

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her book, How To Retire Overseas--Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.

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