The thought cannot help but occur to you:

“Bermuda real estate values are so terrific, and all they do is increase in value. My mortgage balance is now at a manageable level so perhaps it is time to think about diversifying elsewhere. I understand that it is possible to use the equity in your home here in Bermuda to find that little cottage by a lake, or on the water in the US, the UK, possibly Canada. Let’s get a little place in the country; or let’s buy a condo in Florida, perhaps at one of those heavily advertised retirement villages.”

It’s hard to resist, isn’t it? Gaze at those idyllic shots of gorgeous looking couples strolling on the beach, having wine in crystal glasses, shooting superb golf at any number of Master courses, the sun setting, light breeze swirling the silk skirt around her ankles, he of the hero-type square jar, she with a model figure and cameo skin. What could be more perfect!!

The lure of such a carefree existence can be alluring. I’d bet more real estate is sold based on those euphoric feeling photos than any other way. You love your life in Bermuda, but it is more populated than it used to be. With lines of traffic (and working hours) taking disproportionately higher amounts of energy and longer amounts of time, it is more than a temptation — it is time to act now, you say. After all, you deserve it.

Not to burst the bubble, but thinking clearly and calmly about major cash outlays does have its own reward. Subliminally, we know that those models couples don’t truly reflect (or even begin to resemble) the rest of us less than svelte regular types. The real estate purchases (and truer than fiction escape venues) that are being offered, say in Florida, have far more complex ramifications long-term than what the average resident of Bermuda assumes.

Along with those fabulously composed lifestyle messages, two very recent headlines from Bloomberg this week caught my attention:

Vacation Homes Boom in Spain May Bust as Banks Recoil:

By Esteban Duarte and Charles Penty.

Vacation home prices in Spain, a leading indicator of Europe’s property market, may face a slump that’s worse than the real estate decline in the US, based on the loan terms banks are imposing on developers. Property agents in Spain, Europe’s hottest housing market this decade, are likely to cut vacation home prices by as much as ten percent this year. A slowdown may have a “psychological’’ effect throughout Europe, said Tobias Just, an analyst at Deutsche Bank AG in Frankfurt. Spanish house prices averaged 276,300 euros ($368,000) in December, according to Sociedad de Tasacion, a Spanish property company.

Homeowners, Lenders Skirt Default, May Curb US Housing Slump

By Kathleen M. Howley

March 21 (Bloomberg) <\m> Rolando Ruiz and Stephanie Rodrigues telephoned their mortgage lender two weeks ago and offered to hand over the keys to their three-bedroom house in Providence, Rhode Island. They lost their jobs and haven’t made a loan payment since January. Homeowners such as the Rhode Island couple are finding their mortgage companies eager to accept a sale price that falls short of a property’s loan balance <\m> a so-called mortgage short sale. The number of US loans entering foreclosure reached an all-time high in the fourth quarter, according to the Washington-based Mortgage Bankers Association. That’s spawning a cottage industry of real estate investors who profit as lenders try to avoid adding properties to their portfolios>How do you define market value$>Generally, it is the price that a buyer is willing to pay, and a seller is willing to let it be sold for. Market value is inexplicably intertwined with mortgage financing since it the one of the numbers that is used to define how much, how long, and how easy it will be to collateralise your property for financing.

What happens if the market value of the property drops? In both Spain and the US, if we read those article vignettes correctly, there is cheap real estate out there ... but just supposing, you were one of the property buyers in Spain when the market was hot, hot, hot. Now your wonderful vacation retreat is worth 30 percent less than the mortgage you contracted for. In your home court, though, mortgage interest rates continued to rise and your payments (on an adjustable rate mortgage) are going less to principal and more to interest. Combine all of these factors with a slow economy, or a job slowdown, or a depreciating local real estate market (value) and one can readily understand how the entire purchase can become triple double trouble. Note, that my co-columnist Roger Crombie was the brave one last week, to mention the possibility of changing Bermuda property values, and not always upward.

As it is always said, for every door that closes, another door of opportunity opens. You can consider all things financial, as I’ve always said, but planning and anticipating for these events is absolutely imperative. Hold yourself back from taking that impulsive leap, but when you do, there just may be a bargain out there!

What these observations reveal is that not only is it about the cost of financing, but it is about maintaining a job, finding a mortgage interest rate (and monthly payment) that is affordable, and weighing the market value reality in both countries.

That’s the financing part — but there is far more to buying abroad than just the money.

Does your purchase include preparing for tax consequenc<$>

If you have never lived in a tax regime country, you don’t know what you are missing! There are laws to regulate how you title these assets, how your report any income that you derive from these assets, what you declare in profits and pay tax on if you sell these assets, and other tiers of taxation that you never knew existed, such United States Federal tax, United State tax assessed by the state that the property is situated in, property taxes, assessment taxes, local use taxes, and a truly significant estate tax. Spain taxes non-residents, too — but that’s a subject for another day.

Next week, a detailed analysis of mortgage financing, regular and reverse! Until now, my co-columnist has gotten all of the press, literally, on this subject, but I have some additional thoughts from a financial planning perspective that need to be added to the mix.Martha Harris Myron CPA CFP|0xae| is a Sr. Relationship Manager at Argus Financial Ltd. She specialises in investment advisory services with objective comprehensive financial solutions for private clients planning for retirement and lifestyle transitions. DirectLine: 294-5709 Send emails to marthamyron[AT]northrock.bm

The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product.