As you consider launching a new life in retirement overseas, I strongly recommend that you plan to rent a place to live rather than buying a home of your own. Renting first wherever you relocate overseas gives you a chance to try the place on for size and to confirm or reconsider.
My husband and I have done this for each of our international moves, and, in each case, we've been glad we did. Arriving in Ireland about 15 years ago, for example, renting first saved us from making the big mistake of settling in Waterford City. It took only a few months living in town to realize that where we really wanted to be was out in the country. After renting in the city for a year, we purchased a 200-year-old Georgian-style house in Waterford County, where we enjoyed the best of Irish country life for about seven years.
We also rented in Paris, again for a year, before investing in our own apartment in that city. And now, in Panama City, Panama, we've been renters for five years. We've yet to find the right fit for us in this city, and so have held off investing in a home of our own.
The important thing to understand is that, just as the would-be property buyer should beware in a new market, so should the would-be renter. Here are five caveats to keep in mind when renting long term in a foreign country:
1. Think twice before renting new construction or a just-completed renovation. You don't want to be the first person living in a place. It makes you a guinea pig, and forces you to work out the kinks.
This was our very frustrating experience in the house we rented in Panama City's Casco Viejo neighborhood our first year living here. The owner hadn't done a punch list after the extensive renovation he'd undertaken just prior to our moving in. We were left to discover a long list of things that didn't work and that hadn't been properly addressed, including a roof that leaked in nine places, no hot water in the guest bathroom and bedroom doors that couldn't be closed because they bumped into the ceiling fans.
We discovered too late that the long-distance owner didn't seem to care whether anything worked or not, leaving us to deal with his incompetent and unresponsive property manager. Fortunately, we'd made sure that our lease allowed for an early exit. We exercised that option and moved on to rent an apartment in the city center that has proven much more comfortable.
2. Investigate the reputation of the management company responsible for the property. Renting in a foreign country, your primary point of contact for questions and problems to do with your rented home will be either the owner or (often) the rental management company the owner has engaged to manage his property for him.
When considering rental choices, ask for details about the management company in each case. Then ask around. If the feedback for the rental manager is unusually negative, consider finding another place to rent.
This also applies to building management in the case of a high-rise apartment building. In Panama City, for example, most new buildings come with loads of amenities such as swimming pools, grill areas, children's playrooms, basketball courts, tennis courts and even putt-putt golf. However, if the building administration isn't maintaining the amenities, and you therefore can't use them, what's the point of paying for them, as you will through your monthly building fees?
3. Understand what documents you will need to rent. Depending on where you're moving, the answer could be none. On the other hand, in some markets (France, for example), you're going to have to prepare a complete dossier of paperwork, perhaps including recent bank statements, pay stubs, reference letters and even a letter of guaranty to submit for approval before you'll be able to sign a lease. In Panama, you generally don't need any documentation to rent. You find a place, sign a lease, pay your deposit and move in.
In Paris, on the other hand, you'll need a folder full of paperwork - unless you rent on the black market. Renting long term on the black market can be more expensive, but it overcomes the dossier hurdle, which, depending on your situation, you may not be able to meet.
4. Understand what deposit you will be required to make. The general rule is that you'll have to pay the first month's rent plus a deposit equal to one month's rent. Sometimes the deposit can be 1 1/2 or two months' rent. Whatever the deposit, don't expect to see it again. Friends in Paris joke that the best way to think about any security deposit you make in that market is to amortize it over the lifetime of your rental. In other words, consider it part of the rent. (I'm speaking about long-term rentals, not short-term tourist stays.)
In Panama, if your landlord is following the law, your deposit will be posted with MIVI (Panama's department of housing). MIVI holds the funds and then releases them at the end of the rental term. If something is to be deducted for damages, the landlord informs MIVI, and the renter is given a chance to sign off on the amount to be withheld for repairs.
Unfortunately, not all landlords do this and many foreign landlords aren't even aware that they're supposed to do this. This means your deposit can be at risk.
5. Use an attorney. You know to use an attorney when you buy property overseas, but you should also use one when signing a rental agreement in another country. Unless you are very familiar with tenants' rights and the particulars of rental contracts in the country where you're renting, it pays to engage a professional to review the documents before you sign. A good attorney will also inform you of any negotiable clauses, and look for any opportunities for you to adjust the terms of the agreement to your benefit.
Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 28 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring and investing overseas in her free e-letter. Her newest book, How To Buy Real Estate Overseas, published by Wiley & Sons, is the culmination of decades of personal experience living and investing around the world.