Should expats buy properties abroad?
I have been living this so called ‘Expat Lifestyle’ for many years now and I still haven’t figured out what it is that makes otherwise normal, rational people insist on purchasing a property abroad when they would be much better off renting.
The advice my father gave me regarding home purchase involved:
a) Getting on the property ladder as early as you can.
b) Upsizing your property/mortgage when you’re in the financial situation to do so.
c) Starting a pension early.
d) Retiring, downsizing the property, securing some equity and using this equity, as well as pension payments, to enjoy a fruitful retirement.
This model has worked for years and will continue to work for years, so long as one crucial ingredient is adhered to: retaining the property you purchase for a significant period of time. Conventional wisdom has always been that if you hold on to a property for 25-30 years you can’t lose out as it will have survived the inevitable market peaks and troughs.
But this all goes out the window when people sell up in the UK and rush abroad to purchase a property.
Some even make this massive commitment despite never having lived abroad before.
While it’s important to remember that repeat holidays and extended visits are not the same as living day-in day-out in a foreign country the most important thing to note is that the majority of those selling up and starting afresh abroad will either return home or pass away before their property can navigate the unavoidable peaks and troughs of the market.
I have lost count of the number of expats here in Spain that claim to be trapped, unable to sell their property (or else unable to weather the financial loss selling their property would entail), with a variable exchange rate and fixed pensions leaving them with little money to enjoy their twilight years.
Of course a lot of the blame does lie with the ongoing financial crisis, but some of the responsibility lies with the individual. In thousands of cases the decision to buy a property instead of rent one made all the difference.
Individuals intending to move abroad should also develop a contingency plan to deal with a fluctuating exchange rate.
It seems clear to me that expats moving to Spain, particularly retirees, should rent rather than buy. This would allow them to keep their options open, allow them to have some cash available for enjoying life, and would protect them from the risks attached to having all their eggs in one basket.
I feel strongly that those living abroad because of a career move should also rent. They may be moved on to another country as their career progresses, or they may find the job doesn’t appeal to them, making renting the more sensible option. Young couples looking to establish a new business/family abroad should rent too, as it would give them the time to figure out which part of the country will be best for them, their children and their work.
So have I bought a property in Spain? Well…Yes. 12 years ago we purchased our property for use as a holiday home, one which we might use for extended visits and maybe even as part of our retirement plans. However, we were lucky and in a position where we were able to buy our second home in Spain without selling our property in the UK so we never exposed ourselves, and knew that we’d spend enough years owning the property to see it through the peaks and troughs.
If you’re torn between buying and renting a property in Spain, or somewhere else abroad, take the time to weigh up the pros and cons and really consider which move would be most financially rewarding for you in the long term.