Priced Out? Why Some First-Time Buyers Are Buying Abroad
For generations, the typical path to homeownership was fairly straightforward: Save for a down payment, buy a starter home close to where you work and gradually build equity before moving up to something bigger. For some younger buyers, that sequence is changing.
As home prices and borrowing costs make purchasing in many U.S. markets difficult, some would-be homeowners are looking thousands of miles away for their first property. Instead of waiting until they can afford a $400,000 or $500,000 home domestically, they might continue renting in the U.S. while purchasing a smaller property overseas.
Reuters recently highlighted this growing interest in international real estate among younger buyers priced out of their local markets. The idea isn’t entirely new. Americans have long purchased vacation homes and retirement properties abroad.
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What’s changing is when some buyers are doing it. International ownership does introduce factors like currency, tax, financing and legal considerations that can quickly complicate an otherwise attractive purchase.
For buyers considering this unconventional path to homeownership, the potential savings can be compelling, but there’s a lot to weigh before purchasing property in another country.
Why an overseas home can make financial sense
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The biggest attraction is relatively simple. Your money may buy considerably more in certain overseas markets.
A buyer struggling to accumulate a down payment for a home in an expensive U.S. city could potentially find an apartment or small house elsewhere for a fraction of the price. That can make buying in cash or making a substantial down payment more realistic.
There can be other financial advantages, depending on the country and property as well. Property taxes and ongoing ownership costs may be lower than those in some parts of the United States. An international property can also add geographic diversification to a buyer’s assets rather than concentrating all of their wealth in one local housing market.
Then there’s the property’s potential future use. Someone who already knows they would like to retire abroad could purchase a home years or even decades before retirement. In the meantime, it might serve as a vacation property or generate rental income where local regulations permit it.
That last point deserves careful planning. Americans generally remain subject to U.S. tax rules on their worldwide income, meaning rental income earned from a foreign property may have U.S. tax implications even if the money remains overseas.
The new starter home isn’t always where you live
Traditionally, first-time buyers purchased their primary residence. But high-cost housing markets and increasingly flexible work arrangements can make other strategies possible.
Someone might rent an apartment in New York or Chicago because that’s where their career and social life are based while owning a smaller property in Portugal. Another buyer might purchase a vacation property before ever owning a primary residence.
Future retirees could buy the home they eventually hope to live in while they’re still working in the United States. Others might simply see an affordable international property as a place to begin building equity while postponing a much more expensive U.S. home purchase.
This approach won’t eliminate housing costs back home. If you’re renting in the U.S. while owning abroad, you’re still responsible for rent in addition to taxes, insurance, maintenance and other expenses associated with the property you own.
Where buyers are looking for property abroad
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Affordability varies considerably from one country, and even one city, to another. Buyers looking overseas should focus on more than a low listing price, considering factors such as accessibility from the U.S., rental potential, ownership rules and whether the location fits their long-term plans.
Here are a few countries where buyers are looking for property abroad and why.
Italy
Italy has drawn attention for inexpensive properties in smaller towns and southern regions, where prices can be considerably lower than in major U.S. cities or popular Italian destinations.
Reuters recently profiled a buyer who purchased a studio apartment in Tropea, a seaside town in southern Italy, for €38,000. She later began renting the property during the tourist season, giving her an opportunity to generate income from the home when she wasn’t using it herself.
Portugal
Portugal has become a popular destination for international buyers, including remote workers and Americans considering retiring in Europe. While prices have risen in sought-after areas, buyers willing to look beyond hotspots such as Lisbon and parts of the Algarve may find more options.
However, don’t assume buying a home automatically gives you the right to live in Portugal. The country eliminated real estate purchases as a qualifying investment for new Golden Visa applications in 2023, so prospective buyers need to consider property ownership and residency as two separate issues.
Mexico
For U.S. buyers, one of Mexico’s biggest advantages is proximity. Shorter and often less expensive flights can make it easier to visit a property regularly, which may be especially attractive if you’re buying a vacation home or rental.
Foreign ownership rules can be more complicated near coastlines and international borders though so keep this in mind.
Panama
Panama has long attracted foreign buyers interested in retirement, rental properties and eventually relocating abroad. Foreigners can generally purchase titled property, although restrictions apply in certain areas, including near international borders.
For someone thinking decades ahead to retirement, purchasing earlier could provide a place to visit now and potentially live in later. Buyers interested in generating income in the meantime should research local rental regulations and demand before purchasing.
What buyers need to understand before purchasing abroad
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A $75,000 overseas apartment isn’t necessarily comparable to buying a $75,000 property in the United States.
Every country has its own rules governing foreign ownership, property registration, inheritance, taxes and transactions. In some countries, foreigners can purchase property relatively freely. Others impose restrictions based on location, property type or the buyer’s residency status.
Here are some other important factors to consider.
- Financing: Buyers accustomed to putting 3% or 5% down on a first U.S. home shouldn’t assume they’ll find comparable financing overseas. Local lenders may impose larger down payments or stricter requirements on nonresidents, while U.S. mortgage lenders generally aren’t going to finance a property located in another country.
- Cashflow: Putting a large portion of your savings into a foreign property could leave you short of cash for emergencies or other financial goals.
- Expenses beyond the sale price: Legal fees, taxes, property registration, insurance, maintenance, travel and currency conversion costs can all affect your return. If you’re renting the property, you’ll also need to investigate local short-term rental laws and possibly pay a property manager when you aren’t there.
- Currency risk: If you’re earning dollars but paying property expenses in euros, pesos or another currency, changes in exchange rates can raise or lower your effective ownership costs.
- Taxes (in both countries): U.S. citizens and resident aliens are generally subject to U.S. tax rules on worldwide income, making professional tax guidance particularly valuable for someone earning rental income or eventually selling a foreign property.
Finally, don’t confuse property ownership with immigration status. Owning a home may help with certain residency applications in some countries, but buying property does not universally provide a visa, residency rights or citizenship.
Who this strategy is actually best suited for
Buying overseas isn’t a shortcut everyone priced out of the U.S. housing market should take.
It can make more sense for fully remote workers who have flexibility over where they spend their time, frequent international travelers who already know a particular region well or future retirees who have a clear idea of where they eventually want to live.
It’s also potentially better suited to buyers with enough cash to avoid unfavorable international financing while still maintaining adequate emergency savings and funding other financial priorities.
Most importantly, buyers need to be willing to learn an entirely different real estate system. Reuters notes that financial experts recommend caution and, in some cases, renting in an area first before committing to a purchase.
For the right buyer, however, the definition of a starter home may be expanding. Your first property doesn’t necessarily need to be a two-bedroom house 20 minutes from your office. It could be a small apartment across the Atlantic or a vacation property you’ll eventually retire to.
If owning a home abroad is part of your long-term retirement vision, planning for it now can help turn that idea into a realistic financial goal. Prepare now for the retirement you want.
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