The pandemic might have triggered the worst global economic crisis since World War 2. This plunged millions of investors into the chaos of uncertainty. However, no matter what is happening with the world, real estate investment remains a relatively safe haven for an investor. Of course, today you should focus on residential property instead of vacation homes or office space. But other than that, buying property abroad is still a good idea. And if you go about this right, you’ll be able to get a cheaper deal. Start by cutting things like huge bank currency transfer fees.
Why Buying a Property Abroad Could Be Very Expensive for You
Buying a property abroad is expensive not only because real estate is costly by default. You also need to consider the fact that this purchase will carry additional costs.
First of all, you need to understand whether you are even able to buy a property in a different country. Countries of the world have a variety of foreign property ownership restrictions. Therefore, you need to check the state laws pertaining to this issue. There are many scammers who pose as real estate agents trying to con foreign investors. Avoiding them and only going for countries where you have a legal right to buy property will help you avoid the biggest waste of money.
Another cost to consider is the many legal fees related to buying a property abroad. In addition to this, remember that your taxes will also change with this new addition to your portfolio. You can’t avoid these costs completely. However, hiring a local legal expert to help you will ensure that you pay only the necessary fees. The same goes for hiring an accountant experienced with this kind of foreign income to manage your taxes at home.
Money Transfer Cost
Finally, a huge cost that many overseas real estate buyers overlook is the cost of the money transfer. It might not seem to be too big at first because your bank will only tell you the direct transfer fee. This could be a fixed fee of under $100, depending on the bank.
However, the real cost of a bank money transfer will also include the currency exchange. Banks are notorious for using high foreign currency exchange (FX) margins. This means that you’ll get a rather FX bad rate. Also, the recipient bank might charge a fee for an incoming transfer. And there might be additional, often hidden, fees involved in a complicated cross-border bank transfer.
Overall, buying a property abroad using your bank for transfer could cost you 5-10% of the transfer amount. If this is an investment property, this cost alone will set your returns behind by years. But this can be much cheaper if you use the best money transfer, which is definitely not a bank. Today, the best source of this service is money transfer companies, also known as FX companies or currency brokers. The leaders among global money transfer companies right now are WorldFirst, OFX, TorFX, Moneycorp, Currencies Direct, and TransferWise.
These companies can cut down the cost of an international money transfer to under 1%. In the majority of cases, you’ll have to pay about 1-3%, depending on the currency pair and the provider.
Why Money Transfer Companies Can Make Transfers Cheap
Such cheap money transfers make many investors wary because the deal sounds “too good to be true”. However, if you understand exactly why they manage to keep the prices low, you’ll see that it’s not a con.
You see, money transfer companies are mostly online-based and rather small. Therefore, they have much lower overhead costs compared to banks.
Also, this type of transfer doesn’t really make a cross-border transfer. It goes in two steps, you transfer the money to the company’s domestic account. Then, the company makes a transfer from its local account in the recipient country. Therefore, instead of one expensive cross-border transaction, your money goes through two cheaper local transfers.
By cutting their own costs this way, money transfer companies manage to not only keep the fees very low or avoid them entirely. They also can keep the FX rate close to mid-market, which is the lowest available.
Buying a Property Abroad: Final Thoughts
To make buying a property abroad cheaper you should use the services of a money transfer company instead of a bank transfer. This choice will immediately save you about 5% of the total transfer volume. You’ll need to compare offers from all leading providers that support your chosen currency pair. This is the best way to find a deal that will benefit you the most.
Also, remember that using a secure and trustworthy money transfer provider is important. But you also need to be sure that you use this money well. Therefore, you should hire a local real estate attorney instead of only using the services of an agent. You can use the same money transfer company to pay the attorney, who will ensure your interests are protected.