Ask an advisor: Will buying real estate in Europe improve my retirement?

A schoolteacher in Manhattan is considering buying property in Italy.

Financial Planning is proud to unveil "Ask an Advisor," where financial pros answer today's most pressing investment questions. The topics can include just about anything, from retirement to taxes to wealth management — or even advice on advising — and the questions are from real people.

This week, our query comes from a New York public school teacher on the cusp of retirement. She lives in Manhattan, but is looking elsewhere for a novel investment opportunity. Speaking anonymously, and without divulging every detail of her finances, here's what she wrote:

Dear advisor,

I am 65 years old, and I live in New York City. I have a savings account worth $200,000. Other monies are tied up but usable in two years. I also have a pension.

I have some money to invest in property and am thinking of buying something abroad. I'd like to invest about $350,000-400,000. Is this a good idea? There are places, like Italy and Portugal, that offer good tax incentives for expat retirees. Or should I wait until I receive Social Security at 66 1/2 before I even consider this option?

— Mulling in Manhattan

Here are the answers we heard from advisors:

Go for it!

Kashif Ahmed, CFP and president of American Private Wealth in Bedford, Massachusetts:

"Yes, I think that is a great idea. If the person is already retired, why wait? The cost of living and the quality of life is much better, especially after you make a change from the high stress of NYC. Italy and Portugal are great options — pretty laid back, so expect to get culture shock. Again, because you are going from NYC! I would consider other parts of Europe as well. I am nowhere near retired, but we own a home in Romania. It's great to go there and unwind, yet have access to Starbucks, etc., so you don't feel like you completely abandoned life as you knew it."

Courting catastrophe

Noah Damsky, CFA and principal of Marina Wealth Advisors in Los Angeles, California:

"I don't think I can overstress how I think it's a potentially catastrophic decision for a retiree to invest such a large proportion of their money into a house abroad. I'll summarize the issues:

Concentration: Investing a large percentage of one's net worth in a single property can be risky, especially when it's located abroad in a jurisdiction with which the investor is not as familiar. 

Currency risk: Invest in Portuguese or Italian real estate? I hope you have a favorable view of the euro over the long term or will have a majority of your spending/liabilities denominated in euros. The euro has plummeted in recent months and years, so if you have to convert your euro investment back to dollars at some point, your investment might be severely impaired simply from volatile swings in currency markets.

Limited liquidity: Real estate markets are more liquid in the U.S. than they are in other markets. As a result, it's harder to sell and can be more costly to sell in other markets where there are often fewer buyers."

A lot to consider

Adam Scott, CFP and founder of WellAcre Global Wealth Advisors in Santa Monica, California:

"So there are three separate questions here: Should I retire abroad? Should I invest in a property abroad? Should I buy now or wait a year or two?

Here are some things to consider:

Should I retire abroad in a country offering incentives? Yes. From a financial point of view, this can make perfect sense if you choose the right place for the right incentives. Of course, there are other lifestyle considerations. You have to consider the friends and community you might or might not make there and those you leave behind. You have to consider the healthcare system and costs. But many expat retirees are very happy and would say it's the best decision they ever made.

Regarding investing in a property in Europe, some visa programs require it, so it might make sense. Who knows if these programs will be around forever?

On the plus side also, the dollar does have record value against the Euro right now, so this might offset losses in the local currency. However, Europe is heading for very difficult times. No one has a crystal ball, but real estate prices are starting to fall as interest rates rise and house sales are falling out of escrow. Maybe things will be a better buy in a year or two? Who knows?

Getting a mortgage on a foreign property can be difficult and a bit of a minefield with the IRS. The best thing to do is to buy in cash or get a second mortgage against a U.S. property.

And never underestimate the stress and cost of looking after a property. If you are going to live there or rent it out through a management company, that might make sense.

Social Security timing is a whole different issue and should not be dependent on your move. If you have a job, I suggest you wait until you are at least full retirement age before claiming Social Security — and before moving. If you don't have a job, and can move there now and live cheaper than in Manhattan, then why not do it now?"

Join the conversation

Do you have a question you'd like to contribute, or want to answer someone else's? Please email us at nathan.place@arizent.com and we may be able to include you in our next column. Thanks for reading!
MORE FROM FINANCIAL PLANNING