“As an expat coming to Greenville on a 3 to 5-year contract, should I rent a house or buy one?”
As an international relocations and realty company, we have fielded this question countless times. Over the years the Wetzel Services realty team has helped over 1,000 expat families move to the Greenville area, taking them on realty tours and guiding them through their housing options. Many are attracted to the idea of home ownership.
With home rental rates increasing by 5-12% a year (one factor being increased taxes, the cost of which is usually passed on to tenants), expats have been asking more frequently about buying houses rather than renting. While touring available rental houses, clients may realize that they have to make a frustrating choice. They can either downsize expectations to stay within their budgets, or they can contribute personal funds on top of their company’s monthly allotment.
Most international companies’ HR departments discourage expats from buying houses and do not support housing purchases. This is because purchases carry a higher level of risk than a lease contract, and also make people less flexible in terms of future moves.
Nonetheless, in our experience, between 5% and 8% of our expat clients end up deciding to purchase a home rather than rent. The decision is very much a personal one, dependent on each expat’s particular situation, finances, and goals. What Wetzel Realty brings to the table is expertise in helping house hunters evaluate the pros and cons of both leasing and buying.
CAN you buy?
The first question we help clients consider is, CAN you buy? That is, how are you going to pay for it?
Typically, expats are able to get a mortgage from a U.S. lender, although it can be complicated. It is also dependent on recent banking trends. Getting approved generally requires at least 6-8 months of building credit in the U.S. International clients may also arrange financing in their home countries, where they might have access to lower interest rates. Again, each situation is different, and we are prepared to help clients consider their options.
SHOULD you buy?
Realistically, most expats should not buy houses for a few reasons:
- Normal house purchase risks: the break-even point on a house purchase made with a 20% down payment is around year 4 (not factoring in appreciation). Many clients come to the area on a contract of only 2 to 3 years. Some contracts are extended, but if not, a house will likely have been more cost than benefit. It will typically cost homeowners 7% of the value of the house to sell it.
- Market risk: property values go up and down and may not be to the owner’s advantage when they need to sell. Because of the specific end of an expat contract, owners may have limited flexibility regarding when they need to sell.
- Exchange rate risk: there’s no telling how the world economy will affect clients who are bringing funds from one currency to another. The sum you bring to the table in 2019 could drop dramatically by 2022 or 2024, simply because of currency exchange rates. Of course, it could increase, too — so each buyer must weigh the risk he is willing to take.
- Employment contract risk: as referenced earlier, expats’ companies generally want them to be flexible to move with limited complications. Owning property definitely qualifies as a possible complication.
All that said, home buying can still bring great benefits:
- The house is yours to improve and adapt to your satisfaction.
- Putting savings into a home is a hedge against the equity markets. Real estate is usually less volatile than other types of investments, historically appreciating.
- At the end of their contracts, some expats keep their Upstate houses and rent them out. They are often able to lease them to other expats who have similar housing preferences. As a rental house, the home becomes an ongoing income source that will probably continue to appreciate. This appeals to owners who want to retain the asset for a time before selling it for a potentially higher profit.
So, to buy or to lease — which is right for you? Every scenario is different, so give us a call if you want to talk about yours. Reach Wetzel Realty at 864-627-9004 or [email protected], or learn more about us at Wetzelrealty.com.