By: Graham Hill
Global lifestyles and remote work are stimulating more international real estate transactions. Recent increases in foreigners renting and buying overseas real estate are being driven by at least three lifestyle trends. These include second-home and vacation-home purchases, remote workers on long stays in foreign countries, and more permanent expatriate relocations. Each of these lifestyles requires those individuals to switch from short-term, tourist-like behaviors to choices that fit longer-term relationships in the target countries.
Beyond housing costs, cross-border renters and buyers pay additional fees to bring money into the country that locals do not.
Establishing Housing in a Foreign Country
Housing costs represent the biggest expense for locals and non-natives alike. However, while locals pay in their own currency, foreign residents pay for housing with funds drawn from their home country. As payments are made in the new country, the funds are transferred via banks and currency services, and additional fees are added to the cost of housing.
For renters and buyers paying with funds from their home country, paying for a place to live creates attendant fees (again and again) as these housing costs are paid. While some kind of fee to enable the transfer and exchange of currency may be unavoidable, there is a marketplace for these transactions.
Americans paying international real estate costs can potentially save thousands of dollars by making smarter decisions about how they transfer their money.
Wire Transfer Fees Add 0.5% to 5% to Real Estate Expenses
The fee to move money across borders for real estate depends on the countries involved and the method used to transfer it. Money transfer and currency exchange fees may be a relatively small percentage of the transfer, but can become significant when payments are large or ongoing.
Fees for international money transfers vary widely; A rate of 0.5% is on the low end, 1% is better than most options, and fees as high as 5% (or more) are not uncommon.
For renters paying $1,000 USD for rent in the foreign country each month, wire transfer fees might add $10 to $50 per payment, or $120 to $600 per year. For foreigners who can own property in foreign markets, even a 1% fee adds up quickly. Transferring money to pay for a $100,000 condo in a foreign market might add $1,000 in wire transfer fees to the purchase. For more expensive properties, those fees scale with the purchase price. A $500,000 property could potentially include a $5,000 fee to whichever bank or service transfers and converts the currency.
Many expats find the fees financial institutions charge to convert funds to the local currency particularly painful.
“Most of our traffic is US buyers looking at property outside the United States, so nearly every purchase that starts on our platform ends with money crossing a border. What surprises people is that the wire fee itself is rarely expensive; the exchange rate is the greater part of the expense.”
JanusHermes, global real estate platform
For long-term stays, these foreign residents encounter money transfer fees again and again as a part of the daily expenses in their new country.
International Wire Transfers and Currency Exchange Fees
Internet banking has, in some cases, made some money transfers faster and less expensive. In the US, domestic ACH transfers are often free, fast, and convenient. If you have to use a traditional wire transfer (within the US), some banks offer those transfers for free as well, or charge a small, flat fee.
In some ways, international wire transfers are similar. The originating bank in the US may indeed charge a relatively small international wire transfer fee (approximately $35) to initiate the transfer. The receiving bank, however, may also charge a fee for receiving the wired funds and then apply a second fee to convert those funds to the native currency.
Banks will declare the exchange rate they offer clients, but it is less clear whether the rate on display is below the market value of that currency. Banks get better rates for access to currency than they offer customers, and they keep the difference between their rate and the market rate.
The percentage of the currency the banks and financial services keep for themselves varies by service. Some services keep 3% to 5% (or more) of the money they transfer. While rates and fees depend on the currencies and countries involved, the transfer size, and the banking service making the transfer, customers who shop around can find relatively good rates for currency transfer and exchange.
The percentage charged to convert funds to the local currency can become a considerable expense for large purchases and real estate transactions.
Banks vs Forex Brokers vs Money Transfer Services
A bank-to-bank transfer is the most basic way to move money internationally, from a bank in the home country directly to a bank in the new country. Many local real estate agents in foreign countries will instruct clients to transfer money directly to a specified bank account. Sending money before you have residency often means paying directly to a property owner, a leasing office, or a local real estate escrow company. The local bank then converts the funds to the local denomination.
Foreign currency exchanges are intermediary services that can receive, transfer, and convert funds into the local currency for a fee. Examples include companies like XE.com and Currency Exchange International. The fees charged by these companies are often more than fees charged by local banks.
Alternative money transfer services are increasingly common. These companies sometimes charge higher rates than banks or currency exchanges, though pricing varies widely from one provider to the next.
Some of these companies offer discounted rates compared with other transfer methods. Companies such as Wise offer currency transfer and exchange services to and from most countries worldwide, often at competitive rates. Other companies like ARQ offer low, flat-fee transfers and are available in select markets (ARQ provides service in Mexico, Colombia, Brazil, and Argentina).
How Much Can You Save as You Move Money Internationally
As stated earlier in this article, 1% may be a relatively attractive benchmark for the cost to move money across borders. Some currency transfer services offer even lower rates for the large transfers required by foreign real estate transactions, potentially saving you thousands of dollars for an initial purchase, and on ongoing related expenses.
“In our market, international clients buying real estate often pay about 0.7% of the transaction for currency exchange. On an average condominium purchase in a big city, the local banks’ fees to receive the purchase funds add the equivalent of $4,000 to the all-in cost. Other services will charge below $2,000 for that same transaction.”
OsakaAgents.com, a Japanese real estate service for foreigners
Each year, international renters and buyers can save thousands of dollars by choosing among available services and contacting the service to negotiate a better rate.
To Save More, Contact the Service to Ask for a Better Rate
Many services offer lower fees for larger transfers, but you may have to contact the company and personally request a better rate.
For a service like XE.com, if the transfer is substantial, you can contact their team directly to ask for a better rate. For the kinds of large transfers required for real estate, some providers offer meaningful reductions on their standard transfer and exchange fees. Wise’s everyday exchange rate is often one of the more competitive options available, and they also offer further discounts for large money transfers when you contact them directly.
“We regularly work with people who want to safely move big money from one country to another so they can complete a property purchase.”
Wise.com
International renters and buyers can shop around for a better rate, get clarification on total fees (compared to the market rate for that currency exchange), and ask for more detail about the size of a transfer where an additional discount may be available.
Promotional and One-Time Rates for Currency Exchange
As you explore the rates offered by the various banks and wire transfer services, be cautious about introductory or promotional rates. Several of the companies marketing money transfer services offer potentially confusing or misleading “one-time only” rates. A company like Remitly may offer a “promo” rate for only part of the first transaction, charge higher rates for the remainder of the funds in that first transfer, and charge higher rates for any future transfers.
Be sure to clarify what rate will be offered when promotional rates expire and what fee structure will apply to ongoing payments.
Ongoing Housing Expenses for Expats and Foreign Home Owners
Identifying an efficient method for large international money transfers offers benefits long after the initial transaction.
For renters, that means lower fees when paying rent every month. For homeowners, finding a low-cost service to transfer money for real estate means you will save money on post-sale taxes, on annual property tax remittances, on home-improvement costs, and more.
As you establish a good relationship with a service that transfers and converts your currency at attractive rates, you save money again and again.
