Rent Before You Buy Overseas. . . Or Maybe Not

I always advise readers to rent first — for at least six months to a year — in a new country. It’s what we’re doing ourselves. When you rent first, you give yourself time to settle in and assure yourself that you’re where you want to be. You also save yourself the potential agony of buying what you think will be your dream home and finding instead that it’s the stuff of nightmares.

But there’s always the contrarian point of view. . .

Guest Post by Lee Harrison

If you’ve done any reading about living or retiring abroad, you’ve heard these words:
“Rent before you buy.”

In fact, I hear this frequently from my own publisher, Kathleen Peddicord, probably the world’s foremost authority on retiring overseas. And expat author David Finzer once wrote that he would not buy a house in heaven until he’d lived there for a year or two.

The idea behind this axiom is to be completely sure of the location you choose before you invest the money and effort in buying a home. It’s sound, conservative advice.

But I don’t follow it.

In fact, I’ve quit saying it, since I’ve never been willing to do it myself. I’ve “bought first” in Ecuador, Uruguay, Brazil, and Colombia, and it has turned out great each time. In fact, a significant part of my income over the past 11 years has come from my first year of home ownership in each country. And it’s not just me; the majority of the expats I’ve met over the years have done the same thing, immediately buying a piece of property in their chosen location.

There are good reasons for buying rather than renting from the start of your new life overseas adventure…

First, you might be moving into an appreciating market. When many of us make a country selection, one thing that attracts us is a strong and healthy real estate market. If you rent for a year before you buy, you’re essentially marking time while the healthy gains could be passing you by. Remember, the market dynamics that attracted you are attracting others, and the early buyers will see the best gains.

Further, furnished rentals can be hard to find in many expat destinations, unless the place is a resort or a foreign enclave of diplomats or businesspeople. And even if they’re available, a furnished rental can be expensive when compared with an unfurnished rental on the local market.

But if you opt for an unfurnished rental, you have to furnish it locally…or bring your furniture from home for what you’ve deemed to be a temporary residence. Neither of these options is very attractive.

And many of us don’t relish the thought of moving twice, once to your temporary rental home and then again to your permanent one. The move overseas and getting settled-in is trouble enough…contemplating another move a year later is not a pleasant idea for most of us.

Another advantage of buying right away is that it allows you to “take the plunge.” That is, it allows you to move your life forward, unequivocally, embracing the new adventure. Many who rent before they buy, do so to be able to maintain a property back home, “just in case.” While this is conservative and can be sensible, it’s also an anchor…a drag. It divides your attention and keeps you looking backward instead of looking ahead to your new life. Keeping one foot on the pier and the other on the departing boat is stressful. You may remain only partially committed, which will be a handicap.

Finally, most Americans would simply rather own than rent, whether in the United States or abroad.

To be fair, there are times when renting first makes sense. In fact, sometimes it’s the only smart thing to do.

For example, renting first is a good idea if you’re unsure of the country you’re going to. Maybe there’s little written about it, or you haven’t had time to research it to your satisfaction.

Also, you may plan to be in the country just a short time…too short to make the hassle of buying worthwhile. I have a friend who is now spending three to six months in a series of countries around the world–indefinitely–to get to know them. It’s a great expat plan, but one that doesn’t lend itself to buying and selling.

Another reason to rent first is that you may be moving into a declining real estate market. The residential markets in Uruguay and Argentina, for example, are weak right now; yet these countries remain great places to live. If I were contemplating Uruguay today, I wouldn’t let a soft market stop me…but I would rent first before buying, until things settle down.

Many expats buy building lots and then build their own homes. In this case, it can be a good idea to rent a place nearby so you can keep an eye on things.

Finally, maybe you know that you’re on an un-thought-through “fling.” Let’s say you heard about a great city in Peru, it sounded like fun, so you decided to go and give it a try. Renting makes sense in this case, too.

I think the bottom line is that you should follow your instincts when it comes to renting versus buying. You know yourself…your motivations and preferences…and how well you’ve researched your chosen destination. If your overseas plan is for full-time living, again, you know your level of commitment to living abroad.

There’s no right answer to this question, but there is a course of action that’s best for you.

Lee Harrison writes about Latin America for Live and Invest Overseas.