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6 Ways to Avoid Margarita Madness

Kathleen Peddicord

You and your significant other are on a well-deserved vacation in the Caribbean, enjoying two sun-filled weeks staying in a resort hotel on the shores of Ambergris Caye, off the coast of Belize. A few days into your stay, while you're reading on the beach one afternoon, a well-tanned American gentleman approaches you.

"Hello," he says. "I've noticed you guys out here these past few days. Are you enjoying your stay? Sure is beautiful here, isn't it?"

"Yes!" you agree enthusiastically. How could you disagree? You haven't enjoyed yourself this much in, well, you can't remember the last time you enjoyed yourself this much.

"I've been living here full-time for three years," the guy continues. "I moved here from Texas. No intention of going back. I don't think I could ever leave this place. This is paradise."

Again, how could you disagree? So you don't.

"Have you been to the bar down the beach?" your new friend asks. "It's a great place to watch the sunset and to meet other Americans like me, living here full time. I'm heading over there a little later. Maybe you'd like to come along? Margaritas are on me."

You go to meet your new friend at his favorite bar. He treats you to a couple of rounds of margaritas while sharing more of his story. He came on vacation just like you and fell in love. The he returned to Texas, wrapped up his affairs there, and came back down as quickly as he was able to. Now he tries to help other Americans find their own piece of this paradise. He's opened a real estate agency--"Gringo Realty." If you're interested, he could show you around a little in the morning and take you on a tour of the island. There's so much to see, and it's all so beautiful.

By the end of the evening, you've agreed to meet the guy in the morning. The next morning, he shows up in a golf cart. How charming. He takes you up and down the coast of the little island, showing you one beautiful stretch of white sand after another.

"That little house there is for sale," he mentions, almost as an after-thought, at one point. "And a little farther up the coast, a new development is breaking ground. That's really the place to buy right now, because you can get in for pre-construction prices. We could stop by and take a quick look if you'd like."

You stop. You look. The guy pulls out watercolor drawings of what the development will look like, including the pool, the dock, and the sunset from your balcony.

"No pressure," he says, "But you'd need to move quickly to get in on that pre-construction deal. As soon as they finish such-and-such infrastructure, prices are going up."

You and your significant other return to your hotel room. You flip through the brochure the agent left with you. You have a couple more margaritas while watching another of this island's glorious sunsets.

"Let's do it!" you agree. It's fate. Kismet. Meant to be.

You call the guy back the next day, sign a contract, and make a down payment, maybe with your American Express. (How handy that he takes credit cards.)

I call it "margarita madness," and it happens far more often than you might imagine, and not only in Belize, but in every developing property market around the world. I've watched it play out dozens of times personally and have heard dozens of other margarita madness tales secondhand. I recommend you guard against it. Tequila and real estate don't mix.

Not all purchases made under these circumstances turn out to be mistakes, but many do. It's not necessarily because the buyer decides he doesn't, in fact, want to own in that location. More often, the problem has to do with the particulars of the purchase. Buying that quick, while operating in vacation mode and under the influence of Caribbean moonlight and island margaritas, how can you be sure what you're buying? You can't, really. These kinds of purchases are a bad idea because they're made with a minimum (sometimes with an utter lack) of due diligence.

Specifically, here are six things to address before investing in a home of your own overseas:

--Verify the history of ownership (that is, the title), because, in developing markets, you can't always take clean, unencumbered, freehold title for granted. Does the person offering to sell you the house or condo actually own it? Does the kid showing you his uncle's beachfront lot have an uncle? Is the old guy aware his nephew is selling off his land? In emerging markets, these aren't silly, but sensible questions to ask yourself when shopping for a piece of real estate. Don't let these kinds of concerns scare you off the idea, but don't ignore them either.

--If you're buying from a developer, vet him. In these kinds of unregulated markets, you can't take all of any developer's promises at face value. Ask about other projects the developer has been involved with. Go to see them. Speak with past clients.

--Make sure you understand any relevant restrictions on foreign ownership of property in the place where you're thinking of buying. Almost all countries in Latin America, the Caribbean, and Europe allow foreign ownership of real estate without any restrictions other than those that apply to everyone (including local owners). These usually have to do with international borders (Often the land within so many miles of a border can't be privately owned.) and high-tide lines. (In most of the world, the coast itself can't be privately owned. You can buy and build only on land within so many meters of the high-tide line.)

--Understand how best to take title. In your name? Jointly with your spouse? In the name of a corporation? The answer depends on what you're buying and your personal financial circumstances.

--Budget for all the associated costs of both the purchase and the owning, including any local tax obligations you'll be liable for.

--Be clear on an exit strategy. If and when you decide you'd like to sell your personal piece of paradise, who might your buyer be?

If you visit a place on vacation and like it, great. File that fact away. Return home and begin your research. Plan a second visit, this one more for due diligence and scouting than snorkeling and sunbathing. It may seem more convenient to act while you're already in the country, and that's what the agent is counting on. In fact, it's just silly. How many times have you visited a new destination in the U.S. for the first time and, while there, bought a piece of real estate? You wouldn't act so hastily back home. You want to be more careful when making a real estate purchase overseas, not less. Don't let the sultry weather and the abundance of cheap alcohol conspire to cloud your clarity on that point.

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her book, How To Retire Overseas--Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.

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