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Retirement Risks In Paradise

When some people picture retirement, they dream about an idyllic life abroad, perhaps in a home somewhere far from the hectic pace of urban life.

As dreams go, it has a lot going for it. There are many upsides to retiring abroad, and to homeownership in general. Those who entertain making this sort of dream a reality should remember, however, that both exercises involve risk. Those risks are even bigger when you combine the two.

Retirees who are eyeing destinations that are relatively inexpensive, but also less-developed, may face additional risks in the form of consumer protections and legal systems that are not as robust as Americans are used to. When the particular property you are eyeing in such a place is undeveloped and remote, risks continue to amplify.

Does that mean that no American should ever buy an undeveloped, isolated piece of property abroad? Of course not. But the disappointments and losses suffered by U.S. investors in a massive real estate project in Belize illustrates that such investments are inherently speculative – and thus have the potential to go badly wrong.

The U.S. Federal Trade Commission recently filed suit against the Belize project’s developers, along with that country’s Atlantic International Bank, which the FTC says facilitated the alleged fraud. (The bank has denied involvement in the scheme.) At the FTC’s request, a federal district court in Maryland issued an order to temporarily shut down the enterprise. The FTC’s complaint named Andris Pukke, an American based in California, as the project’s mastermind. This is not Pukke’s first run-in with the agency. A 2006 FTC complaint against Pukke required him to turn over assets including the parcel of land in Belize used for this enterprise, but Pukke refused. He spent 18 months in prison after pleading guilty to obstructing justice – but never relinquished control of the land.

The alleged scam in Belize took in more than $100 million, selling lots that would supposedly become part of a luxury development. Sellers promised consumers that the lots would rapidly appreciate in value once a variety of nearby luxury amenities were complete. These amenities, which developers told buyers would be finished within two to five years, were to include a golf course, a spa, an international airport and a hospital staffed with American doctors. The FTC claims that developers pocked the money for personal use rather than using it to fund construction on the site, which was marketed under a variety of names and called the “Sanctuary Belize Enterprise” in filings.

The FTC complaint contends that consumers who bought Sanctuary Belize lots have lost or will lose some or all of their investments. Some buyers purchased lots outright, while others made large down payments, in addition to substantial monthly payments and homeowners association fees. Developers allegedly assured buyers that the lots would be easy to resell; the FTC says that there is effectively no resale market for the lots, given that the promised development has not occurred.

Though the FTC’s complaint did not cite this aspect of the scheme, I would guess that the developers also failed to mention that more than half of Belize – including the site of Sanctuary Belize – is actually claimed by Guatemala in a longstanding border dispute, which may someday end up before the International Court of Justice. While it seems that this is now the least of Sanctuary Belize’s problems, it should have given potential American buyers significant pause.

The FTC action is merely the latest development in a years-long saga involving multiple lawsuits, interowner conflict and buyers’ so-far unsuccessful attempts to get their money back. In Jan. 2016, 10 lot owners filed a lawsuit in Belize against the nonprofit Sittee River Wildlife Reserve, which owns the land where Sanctuary Belize was meant to be built. The developers in turn sued the homeowners for libel and won in local courts. As for the homeowners, the FTC said that suits against the developers in Belize “were resolved under questionable circumstances.”

We should not blame victims of a scam for the misdeeds of those who allegedly deceived them. But the incident is a reminder that buying an undeveloped and remote piece of property in a nation like Belize is essentially the decision to buy a promise, or an elaborate and interlocking package of promises. Like any other speculative investment, you should only purchase such a package with money you can afford to lose without otherwise disrupting your life.

Buying property overseas, whether as a retiree or otherwise, involves a variety of additional complications compared to buying property at home. Buyers should be wary of hard sells, of course, but should also take extra time to make sure they understand their tax obligations in both countries and the necessary permissions and licenses they should secure. Buyers will also want to remain sensitive to currency exchange rates, since fluctuations could significantly affect the property’s value. An independent lawyer who is familiar with property law in the country you are buying is essential; he or she should be fluent in your language and the local language if they are not the same, and ideally should have experience with property sales involving foreigners. And while seeing the property in person is prudent, this alone is not enough due diligence. The FTC noted that many of Sanctuary Belize’s investors flew out to visit the site before putting money down.

More Americans are retiring abroad today than in the past. According to Social Security Administration data, more than 413,000 Americans collected Social Security while living overseas in 2017, nearly 40 percent more than the decade before. In fact, we devote an entire chapter of Palisades Hudson’s book, Looking Ahead: Life, Family, Wealth and Business After 55, to the financial planning aspects of retiring abroad. (The second edition will be available in paperback and for Amazon Kindle on Jan. 4, and we will link to the updated version on our site for those interested in reading more about the topic.)

If pursued prudently, retiring abroad is a practical dream for many. Despite the risks involved, it can also be hugely rewarding. Just remain aware that Americans affluent enough to consider retiring abroad can be a tempting target for fraudsters. Take steps to protect yourself as your pursue your idyllic retreat.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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