Should I buy a condo overseas?
August 14, 2010 11:31 AM   Subscribe

Should I buy a condo overseas or live in the one my company provides? Special snowflake details within!

I'm an American living and working overseas in the capital city of a country in SE Asia.

Currently my company is providing condos for myself and our coworkers to live in, but instead
of providing us our own individual condos, they rent these big 2-3 bedroom condos and we have
to share, which kind of sucks for 40+ year old professionals.

Our boss recently informed us that this will be changing (yay!) in that they will now be issuing
us individual condos, but the rent cant exceed what they were paying per person for the big
condos ($700 per person per month). The only thing available for this amount close to our
office are studios or 1BRs that have MAYBE 40 sqm/400 sqft which is pretty darn small.

I personally prefer something larger (60 sqm/600 sqft+) and am willing to pay extra (rent on these
units runs US$1000/month or so), but my company isnt willing to give me the money nor allow
me to subsidize the rent theyre paying to get a bigger place. They want to rent a bunch of the
smaller units and issue them to myself and my coworkers; the thought being if someone quits/is
fired, the former employee moves out and their replacement is given that unit. They also want to
try to avoid the inevitable "HIS condo is better than MY condo!" whining.

Oh, and did I mention that my girlfriend is pregnant? So yeah, 400 sqft is not something I
really want to do with a newborn (not that it cant be done, I would just feel more comfortable
having a little more room to stretch out it in).

So thats why I'm thinking of buying a condo here. The problem? All the units I've looked at
near my work run US$100k+ (which I dont exactly have in cash), so a mortgage is needed.
My bank here quoted me a 10 year loan at 11% interest with 30% down. Yes, really.
There is also a building that is close to completion where the builder provides financing
at, oh, 16% with only 10% down. Yes, really. My bank in the US wont do a mortgage for
property overseas as they cant foreclose on it if I stop making the payments.

I'm making over US$100k, have NO debt so I should be able to pay the loan off pretty
quickly, but is this the best idea? Here are my options as I see it today:

A) Suck it up and live in the small company provided unit with my gf and baby.
B) Take the 11% mortgage from the bank and buy a larger unit and pay it off as fast as I can
C) Buy a unit in the building where the builder provides financing and pay it off as fast as I can
D) Rent my own larger condo and pay out of pocket.
E) Do something I havent thought of?

tl;dr I want a bigger place to live than my company provides. Should I suck it up, buy/rent my own
place and pay out of pocket or do something else?


P.S. Anonymous because nobody knows my gf is pregnant yet.
posted by anonymous to Work & Money (9 answers total)
If you makeover 100,000 and you can buy a place for 100,000 this is a no brained. Do it. Most people will never have the opportunity to buy a place that costs less than their annual salary.

Of course consult with a competent tax adviser to ensure that you know what the tax implications of such a purchase are.
posted by dfriedman at 11:42 AM on August 14, 2010

Couldn't you simply rent a larger unit? Sure, you lose out on the subsidy, but it's less of a hassle than dealing with overseas property ownership or usurious mortgages?
posted by Oktober at 11:43 AM on August 14, 2010 [1 favorite]

How long are you going to live in the area? Are you planning on selling it? What is the housing market like?
posted by aetg at 11:49 AM on August 14, 2010

anonymous - first, congratulations on the pregnancy.

As a U.S. citizen, you have the enviable honor of having to pay taxes on your worldwide income regardless of where you live, so this is for you really a tax question.

Any coin you make at the time of sale will probably be taxable. Depending on the specific agreements between the U.S. and the country where you will be living, you may not be able to defer the tax by buying a new primary residence in the U.S. or in that same country.

Mortgage interest expense may or may not be deductible against U.S. taxes or the taxes in the country where you will be living.

Finally, you take a risk buying and selling in two different markets. In addition to the risks of currency exchange - which could help you or really screw you - you might find the market bad when you need to sell and overheated where you need to buy. If you are on the upside of this great, if you are on the downside ouch.

If you are an expat, your company should provide tax advisors. You should talk to someone who knows the specifics for the country where you will be located.
posted by three blind mice at 11:54 AM on August 14, 2010

As part of your considerations, remember that some amount of your foreign earned income spent on rent will be excluded from your U.S. income taxes under the Foreign Housing Exclusion, as you are already make more than the Foreign Earned Income Exclusion limit ($91,400 in 2009).
posted by grouse at 11:58 AM on August 14, 2010

Its not clear, but from your post you sound like an ex-pat on secondment. I used to be one, but went onto a local contract when my employer at the time underwent some financial stress. Previously my employer paid all my rent, provided two flights home, tax equalisation, etc. So your situation sounds familiar.

If you haven't already, I'd advise you to check your ex-pat contract. There are several options available to your employer that you must consider. Most of the time folks aren't aware of these options until the employer exercises them.

For example, they more than likely can terminate your secondments with minimal notice, relocating you back to The United States. Or they might offer you the choice of switching to a local contract or we will terminate your secondment, bringing you back to The United States. Finally, they can probably relocate you to another country if they need someone with your specific skills; my contract had that option which my employer exercised (several times). You'll probably get several months notice but you'll still be moving.

If you purchase a condo but one year from now have to return to The United States or even move to another country you've either got to dump it fast, put it on the local rental market, or service the mortgage yourself while assuming a certain degree of currency risk.

Also US citizens who purchase real estate in nations where they aren't going to permanently reside face the combined risk of fluctuations in the value of foreign country property and exchange risk. It is possible that the gain in property in a foreign nation gain can be wiped out by adverse currency movements. Note the IRS has their own rules that apply to US citizens owning property abroad, and I've known folks were presented with large tax obligations even though they lost money on a real estate transaction.

Both three blind mice and dfriedman are correct in that you need professional insight to help you make a decision. You can't get competent advise without divulging an excessive amount of personal information (gross salary is by no means sufficient), and its inadvisable to do so on the internet.
posted by Mutant at 12:27 PM on August 14, 2010 [2 favorites]

Rent for at least six months and then decide.

What happens if the GF has the baby and decides she would rather be back home with family?
posted by davey_darling at 7:51 PM on August 14, 2010 [1 favorite]

I wouldn't buy a place if you're only in the country because of work and if you would leave if the job ended. You don't want to be in a situation in which you HAVE to sell and are trying to manage that AND coordinate leaving the country at the same time, that just sounds like a recipe for financial disaster.
posted by Jacqueline at 8:13 PM on August 14, 2010 [1 favorite]

Mod note: From the OP:
Thanks to all for taking the time to read my questions and respond. Thanks also for the congrats on the baby!

Here is what I decided to do: Not buy a condo now. Save as much money as I can. Rent my own place before the baby is born. Let my GF nest it. Use the company provided unit as a retreat if one of us just needs some place to decompress.

I have spoken with my accountant in the US about buying a place here and he said pretty much "Go for it". I've been an expat for several years now so both I and my accountant are familiar with the Foreign Earned Income Exclusion and Foreign Housing Exclusion. I'm not on secondment as Mutant once was, but my contract here is year to year. I really like the country I'm living and working in now, so even if I lost my job or quit, I would probably keep the condo (especially since my GF is from here).

That being said, I think it would probably be a better financial move to rent my own place (subsidy or not), save as much as I can and later if I find a unit I REALLY like, I can pay cash for it. I dont really want to pay credit card interest rates on a mortgage.

Thanks all!
posted by jessamyn (staff) at 9:04 AM on August 16, 2010

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