Purchasing property can be a great investment, but the situation with overseas real estate investment isn’t as clear cut. There are so many factors involved in this deal that some small technicality can turn it from profitable to a money sinkhole. One of such “technicalities” is the currency exchange rate. Finding a more affordable way to pay for your new property than the one offered by banks can make a huge difference in the overall profitability of the deal.
Paying for an Overseas Property: International Money Transfer Fees Incurred by Banks
One of the big but often overlooked challenges of purchasing a property overseas is the fact that this very action is expensive. Sending big payments abroad can take a significant cut out of your profit because of the fees involved:
- Bank fees.
The exact fees charged by your bank for an international transfer will vary by country and bank itself. You also need to understand that banks often charge so-called “hidden fees”. Therefore, the advertised amount can be $35 like the Bank of America or 3% of the transfer amount, like charged by Fidelity (NerdWallet). However, the actual amount you’ll pay for the transaction can go up to and even exceed 10%. In the majority of cases, the bigger the amount, the bigger are your losses.
- FX margins.
FX margins also vary by country. However, in the majority of cases, they rest around 1,5%. This amount can make a difference in an overseas real estate deal.
- Recipient and/or intermediary bank fees.
If the transfer goes through different banks, be prepared to pay various fees at each of them.
There are some ways to reduce fees charged by banks. Starting with changing your bank to one that has lower fees to become a VIP client. In many cases, they will have special terms and discounts. However, this membership might be dependent on the volume of your regular transfers. Therefore, it might be too expensive for many people who want to start investing in overseas real estate.
However, fees aside, losing 1.5% in FX margins alone can make your property deal a losing one. Do not forget that there are many unavoidable expenses associated with purchasing a property abroad.
Additional Expenses to Consider When Buying Property Abroad
- Foreign lawyer fees.
It’s imperative to hire a local legal expert when purchasing a property abroad as it’s the only way to be sure that the ownership paperwork will be in order. Without proper legal representation, you might get conned into paying without actually becoming the real owner of the property due to the exploitation of loopholes in local laws.
- Taxes you’ll need to pay as a foreigner purchasing property in the country vary greatly. Note that you might need to pay some taxes both in your own country and in the one where you bought the property. You should research this matter beforehand because some countries make it prohibitively expensive for foreigners to own real estate.
- Property maintenance and management.
Depending on what you want to do with your new asset, you might need to pay professionals for its renovation and then hire a local real estate agent to sell. Or you can rent out the building, but you’ll need to hire a local property management company for that as you won’t be able to act as a proper landlord when living abroad.
And there will, no doubt, be more minor expenses that will take out a chunk of your profit from this deal. The international real estate investment industry requires a lot of money and clever maneuvering if you want to become successful. There is also no way to make this kind of deal as affordable as a local one.
But if you are determined to take this path, there are ways for you to cut the costs associated with payments, which can make a huge difference for your profit margin.
More Losses on Foreign Currency Exchange: Volatility
Before you start looking for cheaper ways to pay for an overseas property, you need to consider one factor that’s hard to predict and can wreak havoc on your plans. The volatility of foreign currency exchange rates is not a thing to be dismissed because it can cause you to lose up to 1% and in some extreme cases, even more than that.
You see, these rates fluctuate all the time because they are affected by a multitude of factors, from international trade to local political developments. Therefore, even if you find a money transfer option that will charge no fees at all, you might be at risk because the currency exchange rate might make a huge jump out of the blue. This means that you also need to check websites like MoneyTransferComparison.com to track the best foreign exchange rates at any given time. You’ll need to monitor those rates for a period of time as well as follow the news coming from the country you want to invest in.
But these observations can only do so much good when you aren’t an expert. If you want to become successful in this industry, you should get some expertise in regards to foreign currency exchange rates and guidance on how to time your purchases the best way.
Can You Make Paying for an Overseas Property More Affordable?
Today you can cut the costs of an international money transfer thus increasing the profitability of an overseas real estate investment deal. It’s possible because a variety of companies emerged that specializes in inexpensive, secure, and fast cross-border transfers.
These are companies like WorldFirst, which provides currency guidance as one of its se4rvices to account holders. This means that the company can offer advice on the best times to make an exchange in order to make the most out of the currency exchange rates fluctuations. There are specific rules to these transactions that take into account various factors, even details like the time of day. WorldFirst’s experts review all shifts in the FX market and make predictions, which they share with their customers.
This company, like other top providers in the industry of online international money transfers, also offers hedging tools. These allow you to secure a favorable rate to minimize the risks involved in such transactions.
Speaking of WorldFirst, its new pricing policy dictates a 0.5% margin per deal. This means that if you were to buy a property abroad for $1,000,000, you would save $10,000 immediately as compared to routing this transfer through a bank on that alone. Fees charged by international money transfer companies are also significantly lower. Therefore, the total amount you manage to save on a deal will surely increase.
WorldFirst is one of the biggest and best-known companies in the industry, but it’s not the only one that can offer such great terms for real estate investors. Some of the other options you should look into include TransferWise, Currencies Direct, OFX, Moneycorp, Payoneer, and many others.
If you want to be sure that you are getting the best possible terms, you should create accounts with several of the top companies and compare their rates, which change constantly. This way, you will be able to make a deal with the best rate fast.
Bear in mind that you should look not only at the currency exchange rates offered by the company but also its fees and various terms and conditions involved in the deal. Sometimes, the offer that appears the cheapest at first glance turns out not to be so if you study it closer.