Can I finance a new home abroad (Carribean)???

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ElmoHongZito
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Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Tue Jul 03, 2018 8:50 pm

I am hoping I can get some direction on this subject. I am really interested in owning a home in the Dominican Republic which can one day be my retirement home or perhaps a home I can go back and forth to during retirement.

That being said I would really like to know if there are any options for me to acquire a US backed loan with reasonable fixed rates. Local mortgage rates in the Dominican Republic are very high (between 18% and 26%) and are typically not fixed.

If I have assets, great credit and a good income in the US, is there anyway you can recommend I pursue an investment like this?

If its not a good idea please share with me your thoughts on that as well.

livesoft
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Re: Can I finance a new home abroad (Carribean)???

Post by livesoft » Tue Jul 03, 2018 8:51 pm

Why not just pay cash? Why finance at all?
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whodidntante
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Re: Can I finance a new home abroad (Carribean)???

Post by whodidntante » Tue Jul 03, 2018 8:54 pm

You can borrow Yen or Euros for 1.5% at IB last I checked, and they convert really easily.

JBTX
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Re: Can I finance a new home abroad (Carribean)???

Post by JBTX » Tue Jul 03, 2018 8:57 pm

Assuming you have a home in the US, why not do a cash out finance on it and use the proceeds for your Dominican home.

Is it possible to insure a home there? What happens if it gets wiped out by a hurricane? I'm not sure I'd want to purchase anything there I couldn't afford a 100% loss on.

gwe67
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Re: Can I finance a new home abroad (Carribean)???

Post by gwe67 » Tue Jul 03, 2018 9:00 pm

In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
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Re: Can I finance a new home abroad (Carribean)???

Post by bloom2708 » Tue Jul 03, 2018 9:04 pm

This would be a "don't fast forward" moment.

Rent until "the time" when you can move there or spend more time there. Too many issues with it sitting empty much of the year.

I go over these scenarios (as they are fun), but they don't make sense when you can go there and rent when you have time to go.
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ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Tue Jul 03, 2018 9:20 pm

JBTX wrote:
Tue Jul 03, 2018 8:57 pm
Assuming you have a home in the US, why not do a cash out finance on it and use the proceeds for your Dominican home.

Is it possible to insure a home there? What happens if it gets wiped out by a hurricane? I'm not sure I'd want to purchase anything there I couldn't afford a 100% loss on.
By “cash out finance” do you mean a Home Equity Line of Credit? Arent these amortized over shorter periods with higher rates that are not fixed but instead to an index plus a margin?

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Tue Jul 03, 2018 9:24 pm

gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.

JBTX
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Re: Can I finance a new home abroad (Carribean)???

Post by JBTX » Tue Jul 03, 2018 9:26 pm

ElmoHongZito wrote:
Tue Jul 03, 2018 9:20 pm
JBTX wrote:
Tue Jul 03, 2018 8:57 pm
Assuming you have a home in the US, why not do a cash out finance on it and use the proceeds for your Dominican home.

Is it possible to insure a home there? What happens if it gets wiped out by a hurricane? I'm not sure I'd want to purchase anything there I couldn't afford a 100% loss on.
By “cash out finance” do you mean a Home Equity Line of Credit? Arent these amortized over shorter periods with higher rates that are not fixed but instead to an index plus a margin?
Not exactly. You are just refinancing but to a greater amount. If you have a remaining mortgage at 50% of your home value, and refinance to 80%, the additional 30% is "cash out".

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Re: Can I finance a new home abroad (Carribean)???

Post by JBTX » Tue Jul 03, 2018 9:28 pm

ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
You think you need $700,000 of liquid cash for 2 kids?

Lucky kids.

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Tue Jul 03, 2018 9:32 pm

bloom2708 wrote:
Tue Jul 03, 2018 9:04 pm
This would be a "don't fast forward" moment.

Rent until "the time" when you can move there or spend more time there. Too many issues with it sitting empty much of the year.

I go over these scenarios (as they are fun), but they don't make sense when you can go there and rent when you have time to go.
My idea would be to put a decent down payment, get a nice fixed rate on the balance, rent it out, and pretty much forget about it. Then in 20 to 30 years (I am 37 now) have the mortgage paid off and enjoy it whether that be full time or only 50% of the year.

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Tue Jul 03, 2018 9:38 pm

JBTX wrote:
Tue Jul 03, 2018 9:28 pm
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
You think you need $700,000 of liquid cash for 2 kids?

Lucky kids.
No. But I don’t need 50% of that cash sitting in land and concrete in a 3rd world country when I don’t actually plan on living the home for another 20 to 30 years.

Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.

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Re: Can I finance a new home abroad (Carribean)???

Post by AlohaJoe » Tue Jul 03, 2018 9:46 pm

ElmoHongZito wrote:
Tue Jul 03, 2018 9:38 pm
No. But I don’t need 50% of that cash sitting in land and concrete in a 3rd world country when I don’t actually plan on living the home for another 20 to 30 years.

Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.
The bank feels the same way. No US bank is going give you a mortgage to buy a home outside of the US. How do they assess the value? How do they repackage the mortgage to manage risk? What the heck do they do with the home if you default and the assume ownership? What bank wants to own residential property in the Caribbean?

Elsewhere in this thread, the answer was already given to you: you go to your private banker and get an asset backed loan based on your taxable portfolio. If you don't have a private banker then get a margin loan from your broker, which is really the same thing in the end. If you broker doesn't offer good margin rates then change to a new broker. Note that this will be a floating rate loan, equivalent to an ARM. You will never get a fixed interest rate loan for this property.

drk
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Re: Can I finance a new home abroad (Carribean)???

Post by drk » Tue Jul 03, 2018 9:54 pm

ElmoHongZito wrote:
Tue Jul 03, 2018 9:38 pm
Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.
Do you have any experience as a landlord? If so, do you have any as a landlord in a different country?

runner540
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Re: Can I finance a new home abroad (Carribean)???

Post by runner540 » Tue Jul 03, 2018 10:16 pm

ElmoHongZito wrote:
Tue Jul 03, 2018 8:50 pm
That being said I would really like to know if there are any options for me to acquire a US backed loan with reasonable fixed rates. Local mortgage rates in the Dominican Republic are very high (between 18% and 26%) and are typically not fixed.
Here are just a couple reasons that this is an unreasonable expectation of financing:
1. The 30 year fixed rate mortgage doesn't, to my knowledge, exist anywhere else in the world. It's not a product of the free market; it's a product of heavy government/taxpayer backing (Fannie, Freddie) to promote home ownership. In the rest of the world, mortgages are shorter term, and variable rate. https://www.marketplace.org/2015/10/14/ ... ge-outlier
2. The bank is not going to lend on collateral (house in a foreign country) that it can't get to and liquidate. How is a US bank going to foreclose on you, sell the property, and repatriate the proceeds if you don't pay the mortgage?

edge
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Re: Can I finance a new home abroad (Carribean)???

Post by edge » Tue Jul 03, 2018 10:19 pm

While mostly true,very long term variable loans are becoming common in Asia.
runner540 wrote:
Tue Jul 03, 2018 10:16 pm
ElmoHongZito wrote:
Tue Jul 03, 2018 8:50 pm
That being said I would really like to know if there are any options for me to acquire a US backed loan with reasonable fixed rates. Local mortgage rates in the Dominican Republic are very high (between 18% and 26%) and are typically not fixed.
Here are just a couple reasons that this is an unreasonable expectation of financing:
1. The 30 year fixed rate mortgage doesn't, to my knowledge, exist anywhere else in the world. It's not a product of the free market; it's a product of heavy government/taxpayer backing (Fannie, Freddie) to promote home ownership. In the rest of the world, mortgages are shorter term, and variable rate. https://www.marketplace.org/2015/10/14/ ... ge-outlier
2. The bank is not going to lend on collateral (house in a foreign country) that it can't get to and liquidate. How is a US bank going to foreclose on you, sell the property, and repatriate the proceeds if you don't pay the mortgage?

random_walker_77
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Re: Can I finance a new home abroad (Carribean)???

Post by random_walker_77 » Tue Jul 03, 2018 10:48 pm

Do you have relatives in that country?
Do you have experience w/ being a landlord, and especially the risks associated with being a landlord? (damage to property, problem tenants, evictions)

To what extent are property values a function of land value vs value of the building? Keeping in mind that the building will depreciate, require maintenance, be at risk of damage from tenants, and is at risk of storm damage.

To what extent are you comfortable w/ political risks? If you have to evict a bad tenant, as a foreigner, will the rule of law enforce your property rights? How likely might that change 20-30 years down the road?

A lot can change over 30 years. Personally, I'd be worried about being an absentee foreign owner, and the risk of damage to my property from tenants and/or hurricanes over that timespan.

Skimming a random source, this popped out at me: "and the highest possibility in the world of death from handguns" and "The rights of tenants on the property are strongly protected under Dominican law, and evicting someone who is unwilling to leave can be a time-consuming and expensive process. "
https://www.globalpropertyguide.com/Car ... ce-History

Make sure you know what you'd be getting yourself into...

random_walker_77
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Re: Can I finance a new home abroad (Carribean)???

Post by random_walker_77 » Tue Jul 03, 2018 10:54 pm

whoops, the 2nd quote was from: http://dominicanrepublicvacationhomes.com/faqs.html

The 1st link also has this page talking about universal rent control and these choice excerpts:
https://www.globalpropertyguide.com/Car ... and-Tenant

"It is very difficult to evict tenants as they have the right to stay as long as they pay rent. It is advisable to rent to foreigners to minimize this problem."

"How effective is the Dominican legal system?
The laws are useless. Landlords can use force, coercion, intimidation and any other method to evict tenants as long as the tenant is not physically harmed. "

Take that with a big grain of salt...

traveler901
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Re: Can I finance a new home abroad (Carribean)???

Post by traveler901 » Tue Jul 03, 2018 11:34 pm

If you want nothing to do with the house yet, then why not just wait 20-30 years to buy one? I'm not really following. By the time you retire you will probably change your mind on a retirement location.

Nate79
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Re: Can I finance a new home abroad (Carribean)???

Post by Nate79 » Wed Jul 04, 2018 12:07 am

This doesn't make sense at all. You don't want to tie up cash in a house in another country yet want to take out a personal loan and take that money and buy a house in another country? If something goes wrong with the house you still are personally responsible with your assets to pay back the loan on your balance sheet. You are just shuffling money around from one pocket to another and going to pay interest, probably more than you are earning.

SQRT
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Re: Can I finance a new home abroad (Carribean)???

Post by SQRT » Wed Jul 04, 2018 12:07 am

Dominican Republic? Not needed for 20-30 years? Rented out? Sounds like a really bad idea to me unless you have family there? And even then?

anonyvestor
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Re: Can I finance a new home abroad (Carribean)???

Post by anonyvestor » Wed Jul 04, 2018 12:40 am

While I understand the dream, I think you already know this is a bad idea. This is why you hesitate. Hopefully you will recognize that the idea you would protect yourself by purchasing the home with a loan is merely an illusion.

jminv
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Re: Can I finance a new home abroad (Carribean)???

Post by jminv » Wed Jul 04, 2018 2:31 am

How far away are you from retiring? I see that you have ‘2 little kids’. If you’re not close to retirement and don’t plan on living in DR full time (I see you aren’t decided about full time versus part time) then you shouldn’t buy the house. When you want to visit, rent.

Edit: I see 20-30 years now. Buying makes no sense. You won’t be there so renting is very unlikely to cover your costs. Keep saving and when you retire you can buy a dream home wherever. Who knows what Dominican Republic will be like by then and how your preferences will have changed. These sort of houses can be hard to sell too l.

If you were a ultra high net worth individual, your bank would be able to arrange a mortgage. You could still do some form of pledged asset loan but if your total net worth is 700k? (Or is it more?) then you should be very careful about loan value versus portfolio value. It’s not often a good idea to take out a pal. There’s also foreign currency risk if you take out a loan in dollars to buy a house in pesos even though the trend has been a depreciating peso. I saw somewhere in this thread that you had 700k in cash? If that’s so you should do something with it, bond fund at least.

CurlyDave
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Re: Can I finance a new home abroad (Carribean)???

Post by CurlyDave » Wed Jul 04, 2018 3:00 am

ElmoHongZito wrote:
Tue Jul 03, 2018 8:50 pm

... Local mortgage rates in the Dominican Republic are very high (between 18% and 26%) and are typically not fixed...
There is a reason for this. And it is not because the world hates the people of the Dominican Republic. It is because there are enormous risks associated with an illiquid investment physically rooted in a politically unstable country.

These reasons are exactly the same one that tell me it is not a good investment.

The only reason I can even imagine to "invest" in a house in this locality would be if it were very inexpensive. If I could come up with the purchase price from petty cash, I might consider, for a moment, doing something like this, but would still probably get cold feet before I had pulled out the checkbook.

Reading some of the other comments, I don't even think visiting the DR is a good idea.

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corn18
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Re: Can I finance a new home abroad (Carribean)???

Post by corn18 » Wed Jul 04, 2018 6:20 am

Maybe you can borrow from the two overfunded IUL's you bought in March.

Miakis
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Re: Can I finance a new home abroad (Carribean)???

Post by Miakis » Wed Jul 04, 2018 7:59 am

The plan makes almost no sense.

1) The answer to your question is no - there's no mortgage lender that will give you a US based mortgage for a Dominican home. You can cash-out refinance (put a new mortgage on your current home and use the equity to buy the foreign home) or get an asset-backed loan, collateralized with your securities (but you can expect a variable rate).

2) Your needs for a home are going to change between now and retirement. There will be changes in mobility, family size, financial security. The house you pick now is not necessarily the house you'll pick 30 years from now. Plus, if you buy it now, it will be 30 years older and in need of 30 years more maintenance. Furthermore, you have no way to predict the political changes that may occur in the Dominican Republic over three decades.

3) Landlording the home from abroad is clearly not a great idea. Others have outlined why.

If you really want to add real estate and rentals to your portfolio mix, buy a local rental property. Then, in 30 years, when it's paid off, sell it and use the proceeds to buy your retirement home.

livesoft
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Re: Can I finance a new home abroad (Carribean)???

Post by livesoft » Wed Jul 04, 2018 8:10 am

Miakis wrote:
Wed Jul 04, 2018 7:59 am
The plan makes almost no sense.
Nate79 wrote:
Wed Jul 04, 2018 12:07 am
This doesn't make sense at all.
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
I am not comfortable purchasing a home cash and much less in another country.
... I don’t think is a smart decision.
Well, at least everyone agrees with each other. Might as well close this thread.
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ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Wed Jul 04, 2018 8:45 am

Thank you for all the feedback so far. I am reading through it and looks like not one person is supportive of the idea lol :P

Just to add some light, I DO have family in the DR. My wife was born and raised there and I lived there as a teenager which is when we met. We go back at least once per year and feel safe there because we know our way around and have all of her family there as well as half of mine.

The area I would want to own a retirement property is in Punta Cana. It is far from the capital, on the east ocean side of the island and is booming due to tourism and new construction catered to people like myself that are chosing to retire there.

As far as being a landlord, labor in the DR is very affordable and I would probably pay a property management company to do all that. My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.

If I were to move forward with something, it appears from the responses so far that a couple of my options would be to refinance my current home and use the cash to purchase the property in the DR or look into getting an asset backed loan that will have a variable rate. Sounds like the first option would be a better idea unless someone can explain otherwise.

I have roughly 150k left on my mortgage and recently I was considering paying it off as was suggested to me in another thread. Zillow says my home is probably worth about 320k to 335k right now.

Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.

usnaron
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Re: Can I finance a new home abroad (Carribean)???

Post by usnaron » Wed Jul 04, 2018 9:57 am

ElmoHongZito wrote:
Tue Jul 03, 2018 9:38 pm
JBTX wrote:
Tue Jul 03, 2018 9:28 pm
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
You think you need $700,000 of liquid cash for 2 kids?

Lucky kids.
No. But I don’t need 50% of that cash sitting in land and concrete in a 3rd world country when I don’t actually plan on living the home for another 20 to 30 years.

Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.
After accounting for all the expenses associated with taxes, opportunity costs, property management, upgrades and repairs...”having someone else pay for your retirement home” is not the free lunch that people love to talk about.

livesoft
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Re: Can I finance a new home abroad (Carribean)???

Post by livesoft » Wed Jul 04, 2018 10:01 am

ElmoHongZito wrote:
Wed Jul 04, 2018 8:45 am
My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.
[...]
Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.
Ask your brother-in-law and sister to lend you the money then. I'm serious.
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ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Wed Jul 04, 2018 10:15 am

livesoft wrote:
Wed Jul 04, 2018 10:01 am
ElmoHongZito wrote:
Wed Jul 04, 2018 8:45 am
My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.
[...]
Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.
Ask your brother-in-law and sister to lend you the money then. I'm serious.
@livesoft
Do you have anything productive to add to this thread?

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Wed Jul 04, 2018 10:25 am

usnaron wrote:
Wed Jul 04, 2018 9:57 am
ElmoHongZito wrote:
Tue Jul 03, 2018 9:38 pm
JBTX wrote:
Tue Jul 03, 2018 9:28 pm
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
You think you need $700,000 of liquid cash for 2 kids?

Lucky kids.
No. But I don’t need 50% of that cash sitting in land and concrete in a 3rd world country when I don’t actually plan on living the home for another 20 to 30 years.

Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.
After accounting for all the expenses associated with taxes, opportunity costs, property management, upgrades and repairs...”having someone else pay for your retirement home” is not the free lunch that people love to talk about.
As far as taxes there appears to be some tax advantages for foreign investors in the DR. See below from link posted in this thread...

Foreign property investment is also encouraged by incentives, which according to the country’s tourism office, include:

Tax-free receipt of pension income from foreign sources, including moving belongings to the country, is guaranteed (Law 171-07 on Special Incentives for Pensioners and Persons of Independent Means).

Foreign buyers receive a 50% exemption from property tax

Exemption from taxes on dividends and interest income, generated within the country or overseas

Foreign buyers receive a 50% exemption from taxes on mortgages, when the creditors are financial institutions regulated by Dominican financial monetary law

Exemption from payment of taxes for household and personal items

Exemption from taxes on property transfers

Partial exemption on vehicle taxes

Developers are relieved of all national and municipal taxes for ten years, including the tax on the transfer of ownership to the first purchaser of a property, by Law 158-01 on Tourism Incentive.

longleaf
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Re: Can I finance a new home abroad (Carribean)???

Post by longleaf » Wed Jul 04, 2018 11:00 am

ElmoHongZito wrote:
Wed Jul 04, 2018 10:15 am
livesoft wrote:
Wed Jul 04, 2018 10:01 am
ElmoHongZito wrote:
Wed Jul 04, 2018 8:45 am
My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.
[...]
Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.
Ask your brother-in-law and sister to lend you the money then. I'm serious.
@livesoft
Do you have anything productive to add to this thread?
They would have an interest in the property, enabling you to have someone in your best interest who will "look out" over the property while you are away for thirty years.

Have you forgotten about general maintenance on a home? Yard, stuff breaks, hurricanes happen, etc.

I wouldn't expect a significant return on a property like this, especially as you will have a separate entity managing the place and you will end up with expenses you aren't accounting for. I find it very unlikely that the owner of real estate will be successful while not being present for thirty years.

If I was in the same position, I'd dump the money into VTSAX and then in thirty years buy several retirement houses. Then with all of the money I'd saved by not paying the management entity and interest on the loan, I'd pay for flights to each of them on an annual basis.

Sorry to shoot down your idea, but you're looking for return in the wrong places.
Frugality, indexing, time.

smitcat
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Re: Can I finance a new home abroad (Carribean)???

Post by smitcat » Wed Jul 04, 2018 11:06 am

ElmoHongZito wrote:
Wed Jul 04, 2018 8:45 am
Thank you for all the feedback so far. I am reading through it and looks like not one person is supportive of the idea lol :P

Just to add some light, I DO have family in the DR. My wife was born and raised there and I lived there as a teenager which is when we met. We go back at least once per year and feel safe there because we know our way around and have all of her family there as well as half of mine.

The area I would want to own a retirement property is in Punta Cana. It is far from the capital, on the east ocean side of the island and is booming due to tourism and new construction catered to people like myself that are chosing to retire there.

As far as being a landlord, labor in the DR is very affordable and I would probably pay a property management company to do all that. My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.

If I were to move forward with something, it appears from the responses so far that a couple of my options would be to refinance my current home and use the cash to purchase the property in the DR or look into getting an asset backed loan that will have a variable rate. Sounds like the first option would be a better idea unless someone can explain otherwise.

I have roughly 150k left on my mortgage and recently I was considering paying it off as was suggested to me in another thread. Zillow says my home is probably worth about 320k to 335k right now.

Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.
You appear to have experts on site regarding property , history, development, real estate broker and labor for the rentals /management and cleaning.
If I were you I would ask them and not this board who have no direct experience with this. Certainly they have run across these issues and many others in their daily work.

livesoft
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Re: Can I finance a new home abroad (Carribean)???

Post by livesoft » Wed Jul 04, 2018 11:07 am

ElmoHongZito wrote:
Wed Jul 04, 2018 10:15 am
@livesoft
Do you have anything productive to add to this thread?
The closest experts to this situation are your sister and brother-in-law. They should be able to tell you:
a. How many foreign residents bought property where you want to buy property?

b. How many of them have loans, what kind of loans, and who the lenders are?

It is just amazing to me that you have access to expertise and somehow we have to learn the hard way that you have this access. Or maybe they have no expertise, but you can find that out, too.
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Lynette
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Re: Can I finance a new home abroad (Carribean)???

Post by Lynette » Wed Jul 04, 2018 11:27 am

I assume you are an US citizen. Do you have any experience with filling out tax returns for two different countries with different tax laws? I assume that you would also have to fill out tax returns for the DR. As an US citizen, you taxed on your worldwide income.

Many years ago I bought some apartments overseas. I sold them in the end as I had to hire an accountant to navigate the complexities of different tax laws. I had to fill in tax returns for both countries each year. It may not be buy and forget but fill in paperwork endlessly. I get discouraged whenever I think of paperwork I have to till in even today as I still have some financial dealings overseas.
Last edited by Lynette on Thu Jul 05, 2018 6:16 am, edited 2 times in total.

aristotelian
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Re: Can I finance a new home abroad (Carribean)???

Post by aristotelian » Wed Jul 04, 2018 11:39 am

ElmoHongZito wrote:
Tue Jul 03, 2018 9:38 pm
JBTX wrote:
Tue Jul 03, 2018 9:28 pm
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
You think you need $700,000 of liquid cash for 2 kids?

Lucky kids.
No. But I don’t need 50% of that cash sitting in land and concrete in a 3rd world country when I don’t actually plan on living the home for another 20 to 30 years.

Would much prefer to use the banks money and rent the home over those 20 to 30 years so someone else is paying for my retirement home.
Rent the home out on AirBNB. Then you will generate income with the $300k.

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Wed Jul 04, 2018 1:35 pm

smitcat wrote:
Wed Jul 04, 2018 11:06 am
ElmoHongZito wrote:
Wed Jul 04, 2018 8:45 am
Thank you for all the feedback so far. I am reading through it and looks like not one person is supportive of the idea lol :P

Just to add some light, I DO have family in the DR. My wife was born and raised there and I lived there as a teenager which is when we met. We go back at least once per year and feel safe there because we know our way around and have all of her family there as well as half of mine.

The area I would want to own a retirement property is in Punta Cana. It is far from the capital, on the east ocean side of the island and is booming due to tourism and new construction catered to people like myself that are chosing to retire there.

As far as being a landlord, labor in the DR is very affordable and I would probably pay a property management company to do all that. My sister and brother in law live and work in the neighborhood I would purchase. In fact my brother in law sells real estate there and works directly for the family that owns most of the land and developments.

If I were to move forward with something, it appears from the responses so far that a couple of my options would be to refinance my current home and use the cash to purchase the property in the DR or look into getting an asset backed loan that will have a variable rate. Sounds like the first option would be a better idea unless someone can explain otherwise.

I have roughly 150k left on my mortgage and recently I was considering paying it off as was suggested to me in another thread. Zillow says my home is probably worth about 320k to 335k right now.

Any new feedback or guidance now that you have more background? I really value all the feedback on here so please don’t hold back.
You appear to have experts on site regarding property , history, development, real estate broker and labor for the rentals /management and cleaning.
If I were you I would ask them and not this board who have no direct experience with this. Certainly they have run across these issues and many others in their daily work.
Don’t assume that my in-law is an expert by any means. I said he sells real estate but I don’t think he has had allot of success or is someone with the knowledge to guide me in the right direction. I did ask him once and he told me that he has heard of foreigners taking a second mortgage out on their home in the US in order to buy a place in the DR in cash. At the time I did not have much equity in my home so it was not something I even considered for that very reason.

I remember a while back a financial advisor friend of mine telling me that there are international banks that have a presence in the US where I can perhaps be able to get a loan backed by my investment portfolio.

By posting on this thread I always look to get additional ideas and guidance so I can do further research. I like posting on here because I can learn from people with much more experience and financial wisdom than myself.

I appreciate those that have responded and opened my mind to how I should analyze this decision as well as strategies I can consider to finance this decision if I chose to.

For those that are bothered by my posting all I can say is that there are many more postings on this forum that you can allocate your attention to if mine is not to your liking.

I look forward to more replies that can help me understand some reasonable strategies to one day own a retirement home in another country.

random_walker_77
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Re: Can I finance a new home abroad (Carribean)???

Post by random_walker_77 » Wed Jul 04, 2018 10:42 pm

ElmoHongZito wrote:
I remember a while back a financial advisor friend of mine telling me that there are international banks that have a presence in the US where I can perhaps be able to get a loan backed by my investment portfolio.
For something like this, look into the risk of some equivalent to a "margin call" -- if the loan is backed by your investments, if a stock market decline drops your investments by a large percentage (say 50%), would the bank threaten to sell off your investments (aka seize the collateral) if you don't inject cash on short notice? The last thing you want is to have your bank sell all your investments (aka "sell low") if you don't come up with $50,000 (to make up a number) within 48 hours.
ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
If I were to move forward with something, it appears from the responses so far that a couple of my options would be to refinance my current home and use the cash to purchase the property in the DR or look into getting an asset backed loan that will have a variable rate. Sounds like the first option would be a better idea unless someone can explain otherwise.
yes, by taking out a fresh 30 year mortgage on your current home to pull out equity, that'd give you a long term low rate fixed loan. But...
ElmoHongZito wrote:
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
Money is fungible, but collateral is not. If you take out a mortgage on your current home, you're basically borrowing money on your current home, to allow you to purchase a home for cash in another country. Putting your current house at risk. Your words suggest to me that you don't really want to do this, and you're not comfortable doing this. I wouldn't be comfortable doing it either.
ElmoHongZito wrote: As far as being a landlord, labor in the DR is very affordable and I would probably pay a property management company to do all that.
It's not about the property management co's fees. It's about the fact that if they screw up and select a bad tenant, they're out very little money, whereas you could easily incur $50K in property damage. Tenants can be very hard on a house. Bad tenants have been known to leave large holes in the wall (anger control issues). A simple water leak allowed to soak the floors/walls can result in extraordinary damages in days. Consider this: tenants going through a multi-month eviction process could take their anger and frustration out on you via your house, and that much time allows them to do a lot of damage.

I'd suggest reading this first post by denovo. Pay attention to points #4-6, 11, 14. Read more of the thread to get a sense of what's at risk when you rent out your property. And then consider that you'd be the ultimate remote landlord.
viewtopic.php?t=226980

And is this a brand new house you're buying? After 30 years of being rented out, you should plan on a complete interior remodel before moving in, figuring that everything will be heavily worn or destroyed. If you're lucky, it won't be that bad, but for planning purposes, assume that renters are hard on a house.

I might've missed it, but how much do you think you'd need to borrow anyways?

traveler901
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Re: Can I finance a new home abroad (Carribean)???

Post by traveler901 » Thu Jul 05, 2018 12:07 am

ElmoHongZito wrote:
Wed Jul 04, 2018 1:35 pm

I look forward to more replies that can help me understand some reasonable strategies to one day own a retirement home in another country.
You have not explained why you want one NOW.

Why not invest your money and buy something you like when you're actually going to retire? You'll certainly be able to buy something nicer. You have no idea which area of the island you are going to want to live in 30 years.

longleaf
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Re: Can I finance a new home abroad (Carribean)???

Post by longleaf » Thu Jul 05, 2018 12:43 am

traveler901 wrote:
Thu Jul 05, 2018 12:07 am
ElmoHongZito wrote:
Wed Jul 04, 2018 1:35 pm

I look forward to more replies that can help me understand some reasonable strategies to one day own a retirement home in another country.
You have not explained why you want one NOW.

Why not invest your money and buy something you like when you're actually going to retire? You'll certainly be able to buy something nicer. You have no idea which area of the island you are going to want to live in 30 years.
This.
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msk
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Re: Can I finance a new home abroad (Carribean)???

Post by msk » Thu Jul 05, 2018 4:11 am

I have dabbled in RE in various countries, and also in stocks and index funds. For somebody under 40 I'd say go for it but do be careful! What I learnt over the past 40 years of owning multiple homes and rental units:

Take NO loans except in the country where the property is located, secured against the property itself. Let us say you take your loan in USD, secured against your brokerage account. Then the house gets wiped out and somehow insurance pays out only 70%, for whatever reason, or the local economy is moribund and the currency drops 40% (this happens quite often!). That automaticlly wipes out xx% of your brokerage account.

Pay cash for the (toy?) homes except if it makes sense tax-wise to carry a loan, and then the loan should not be in excess of what is required to balance out your tax liability. You need to study the tax laws...

Tenants a thousand miles away can be a major headache, but you are young enough to bear the consequences :annoyed

It's difficult enough to forecast what will happen in your own local economy, but it's much more difficult to forecast what will happen in a foreign country. I made a great amount of :moneybag in one location (commuter belt of London, U.K.) but barely kept up with inflation in another location (Montreal, Canada) after 10+ years of owning and renting out.

Whatever you do, do NOT expose yourself to major losses by being overly clever with financial engineering. There is a good reason why you have been quoted loans at 15+% but you are not going to lend out your $700k cash out on those terms. Are you? If not, then ask yourself why not.

PS edit: it is extremely unlikely that you will wish to retire in a home that you bought 30 years back, dated decor, and after being damaged by 30 years of tenants. If you buy, do so as a fun experiment, in a country that you have reason to visit regularly (e.g. relatives living there).

jminv
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Re: Can I finance a new home abroad (Carribean)???

Post by jminv » Thu Jul 05, 2018 6:15 am

If you want to get into rentals, why not buy a place next to you in the USA which you can easily secure conventional financing, avoid exchange rate risk, perhaps not have to pay a property management company, be in a more stable location, and generally oversee it easily. Then, if you hold it to retirement you can sell it and use the money to buy a place in DR. You'd also probably end up with more money and a quicker return in the us vs the absentee DR idea. This would make the most sense from a risk persepctive of what you state above where you want a bank to provide the funds and a renter to pay the mortgage.

Or you could take the money, put it into the market, forget about it, and in the end you'd probably have more than enough to buy a fantastic retirement dream house wherever you wanted.

After having seen your replies and additional information provided, I would say you should treat this as 'should I invest in rental property in the Dominican Republic'. Retiring to that property should have nothing to do with it. It's far off, who knows what DR will be like by then and where you will actually want to retire, the house will be dated, etc etc.

If the primary market is vacation rental property, I would say it's almost certainly a bad idea. Absentee landlords don't normally do well with vacation rentals in general and you say you don't want to rely on your family who are there to run it for you. You're likely not to cover your costs or achieve a return that you could have achieved in the market. It's also a very concentrated risk. Y Over a period of 20-30 years the effect of rentals not covering costs compounds since you could have invested your money elsewhere and will leave you with less in retirement. This is why people are saying invest in the market and buy a dream house when you retire. The case for a regular rental in DR wouldn't be much better.

ElmoHongZito
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Re: Can I finance a new home abroad (Carribean)???

Post by ElmoHongZito » Thu Jul 05, 2018 9:16 am

Thank you everyone for helping me put this into perspective.

I expect the prices in the area I am interested today to continue to exponentially rise as they continue to dump billions more into the development. A square meter of land where I am interested was $25 back in 2000-2002 and that same square meter has sold for as much as $200 today.

It was the idea of getting a property in the DR at today’s prices and having the rental income allow me to maintain it until I am ready to use it for myself that got me to post this thread.

However after reading through all of your responses it looks like there are other less risky and less stressful ways for me to invest that same money today and purchase our dream retirement home at the time of retirement.

I might have considered purchasing something locally and renting it out for the next 30 years, only to sell and use the proceeds to purchase our retirement home, however after reading through that post from @denovo that was suggested above, I do not think I am ready for that or will ever be unless I quit my day job and gain the construction knowledge that he has.

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Re: Can I finance a new home abroad (Carribean)???

Post by Valuethinker » Thu Jul 05, 2018 9:50 am

whodidntante wrote:
Tue Jul 03, 2018 8:54 pm
You can borrow Yen or Euros for 1.5% at IB last I checked, and they convert really easily.
You are being sarcastic?

Foreign currency mortgages are one of the best ways to wipe oneself out financially.

Hungarians did so before the financial crisis. So did Icelanders. Borrow in Euros at 5 per cent not home currency at 15.

Then, the currencies collapsed. Double monthly payments and loan principal. I saw the same thing in the early 90s in the UK w Swiss franc mortgages. The pound dropped 20 per cent in *one* day.

If you don't have a salary in a currency or at least a rental income, do not borrow in it.

William104
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Re: Can I finance a new home abroad (Carribean)???

Post by William104 » Thu Jul 05, 2018 11:30 am

Have been to Punta Cana a number of times and casually looked at real estate since I'm in the business. I assume you may be looking around La Cana or somewhere similar? From what I briefly saw while I was there last the prices are pretty significant for prime real estate already and I couldn't imagine rental income actually covering the costs to purchase. I'm sure there are exceptions and I have a limited view, but it would definitely be worrisome unless you had someone you knew and trusted actually managing the property out for you and had experience in doing so. Going blindly into something for "exponential growth" as you put it seems pretty farfetched although I agree the developers down there are continually dumping money into the area.

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Re: Can I finance a new home abroad (Carribean)???

Post by Meg77 » Thu Jul 05, 2018 11:41 am

ElmoHongZito wrote:
Tue Jul 03, 2018 9:24 pm
gwe67 wrote:
Tue Jul 03, 2018 9:00 pm
In April you told us you had $700k sitting in a bank account. No need to borrow money, then.
I am not comfortable purchasing a home cash and much less in another country. Got too little ones at home a large amount of my liquidity to that amount of risk I don’t think is a smart decision.
Banker here. If you won't take the risk, what makes you think a lender will?

Some banks will finance property purchases in Mexico and the Bahamas, but even those loans are hard to come by. I don't know of any bank personally that can or will loan directly against real estate in the Dominican Republic (they may exist, but I just don't know of any). Most US banks can't even lend against property in Canada due to their myriad different mortgage regulations and documentation requirements.

You may well be able to get a loan that is secured by cash, investments or other property located in the US. You may even qualify for some level of unsecured financing from a Private Bank if you are a client of one. But I highly doubt you'll find a lender to take a property in DR as collateral.
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whodidntante
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Re: Can I finance a new home abroad (Carribean)???

Post by whodidntante » Thu Jul 05, 2018 12:32 pm

Valuethinker wrote:
Thu Jul 05, 2018 9:50 am
whodidntante wrote:
Tue Jul 03, 2018 8:54 pm
You can borrow Yen or Euros for 1.5% at IB last I checked, and they convert really easily.
You are being sarcastic?

Foreign currency mortgages are one of the best ways to wipe oneself out financially.

Hungarians did so before the financial crisis. So did Icelanders. Borrow in Euros at 5 per cent not home currency at 15.

Then, the currencies collapsed. Double monthly payments and loan principal. I saw the same thing in the early 90s in the UK w Swiss franc mortgages. The pound dropped 20 per cent in *one* day.

If you don't have a salary in a currency or at least a rental income, do not borrow in it.
Not sarcastic. Currency risk is a real thing but sometimes the spread makes it worthwhile. Kind of a carry trade where the investment is imputed interest.

gwe67
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Re: Can I finance a new home abroad (Carribean)???

Post by gwe67 » Thu Jul 05, 2018 9:44 pm

It's spelled "Caribbean" by the way.
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denovo
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Re: Can I finance a new home abroad (Carribean)???

Post by denovo » Thu Jul 05, 2018 10:07 pm

ElmoHongZito wrote:
Thu Jul 05, 2018 9:16 am


I might have considered purchasing something locally and renting it out for the next 30 years, only to sell and use the proceeds to purchase our retirement home, however after reading through that post from @denovo that was suggested above, I do not think I am ready for that or will ever be unless I quit my day job and gain the construction knowledge that he has.
I agree with your decision.

--denovo
"Don't trust everything you read on the Internet"- Abraham Lincoln

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