Questions Related To Buying Property

Here’s What You Need To Know Before Even Thinking About Buying Property Overseas

Entering a new market is no easy thing, no matter how many times you’ve done it before. For the first-time investor, the experience can be overwhelming.

Your first instinct these days when doing anything for the first time is to turn to the Internet, to google help. In the case of entering a new real estate market, you’re tempted to go to a search engine and surf around for local agents and listings.

Try this in English, and you’ll find all the gringo agents in town and maybe a few locals who speak English. You can start here but understand that, at this point, you’re operating very much at the gringo level.

Working with a real estate agent who speaks English will make your life easier (assuming you don’t speak the local language), but it won’t get you all the information you need or even, usually, accurate information. For that, you have to expand your search to include local agents.

If you don’t have the language skills to communicate with them directly, engage help from a friend who does. If you have no local language support, you at least can use local agents as a source of listings to compare with what you’re getting from the gringo agents.

Meantime, you also want to speak with an in-country real estate attorney, a local accountant, a banker, and other expats if you can find them. If possible, speak with more than one real estate attorney and try to speak with locals not in the real estate business about the current real estate market.

In Medellin, for example, on one of our first scouting trips, Kathie and I had one of our most helpful getting-our-bearings conversations with an antiques dealer whose shop we stopped in one Saturday afternoon. Smart, successful local businesspeople can give you valuable insights into a market that a real estate agent might neglect (or choose not) to mention.

Ask everyone you speak with the same questions. You’ll be surprised by the variety of answers you’ll receive. Some will be completely contradictory. In some cases, you might ask six people the same question and get six different responses.

In Medellin, we asked one real estate agent we met with if it were possible for a foreigner to open a bank account in Colombia. “Yes, of course, no problem. You just need your passport,” he told us.

We asked another real estate agent we met with the same question. “To open a bank account in Colombia, a foreigner needs a cedula,” he told us. “Do you know what that is?” he asked.

Yes, we know what that is. A residency card. Issued only to those with legal foreign residence status.

In this case, the second agent was more on target. Opening a bank account in Colombia as a non-resident foreigner is not a “yes, sure, no problem” kind of a thing. It’s possible, I can tell you today, two years later, but you need more than a passport. Specifically, you need the right introductions and a banker willing to entertain your application. The alternative, if you’re unable to open a local bank account in your name, is to open an account with a local fiduciary agency, as they’re called. This is more straightforward and was our first step to getting established in this country.

In addition to questions related to opening a bank account, when entering a new market as a potential investor, you should also ask everyone you encounter about:

  • Which are considered the “nicest” neighborhoods?…
  • Which are considered the up-and-coming neighborhoods?…
  • How much does an apartment cost? Boil this down to a per-square-meter price so you can compare among areas within the country and among other countries…
  • Where are most foreigners buying?…Why?…
  • What types of properties are most foreigners buying (one-bedroom apartments, houses, undeveloped land, etc.)?…Why?
  • Are most foreigners buying for personal use or for investment?…
  • Is there an active rentals market? Short-term, long-term, or both?…
  • How much would a particular property rent for per month long-term or per week short-term?…
  • Where would you (speaking to a real estate agent, an attorney, a business owner, an expat, or a taxi driver) invest yourself right now?…Why?…
  • In which direction is the market moving?…

In addition, ask general questions about the local economy and local industry. Ask about the current president or whoever is in charge of running the place. Not to be political but to get a read on the political situation from the man on the street.

Ask about taxes. Are they high? Do people pay them? How are they collected? Is there a property tax? On what value is it based?

Again, you’ll be amazed at the variety of answers you’ll receive. All this input, conflicting as it will seem, will help give you the lay of the land. The more conflicting the responses, the wilder the market. In Medellin, I’d classify many of the responses we received during our initial scouting trips as wildly conflicting.

The next step is to begin to get a handle on procedures. As I said, you want to meet with more than one attorney if possible. For each one you meet with, ask:

  • What are the transaction costs for buying and selling real estate? You’ll want to know the “round-trip” costs, as I refer to them, for a single piece of property. In some markets, it is more expensive to buy than to sell, and vice versa. You don’t want to find out too late that, while it cost only 2% to get into an investment, it’s going to cost you 15% to get out…
  • What is the buying process? What documents are required? What is a typical down payment? Are there any local nuances you should know? In Colombia, we were told, it’s common practice for the purchase price for a piece of real estate to be under-stated (perhaps significantly) on the sales documents. This can have advantages (when it comes to paying property taxes, for example), but it also can create big problems down the road (as I’ve witnessed several times) if you’re the last owner in the chain before the country decides to crack down on and eliminate this practice…
  • Also, very important, ask every attorney you meet with if you will have any trouble taking your money back out of the country when you decide you’re ready to do so. That is, are there exchange controls or other currency restrictions in place?…

While you’re playing private detective and asking everyone you meet the same series of questions, you also want to be observing. As you make your way around the area, do you notice signs of an active economy? Are people out at the malls and restaurants shopping, spending? In Medellin, the answer, we noticed right away, is a strong yes.

What’s the infrastructure like? Are the roads well-maintained? Are the parks and public areas taken care of? Again, in Medellin, we have been impressed by the superior level of the infrastructure everywhere we’ve been, from the pot hole-free roads to the like-new aboveground metro system.

Do you see garbage in the streets or on the sidewalks? Medellin is one of the cleanest cities I’ve ever visited.

When a strong local economy exists, that can be one possible exit strategy for your real estate purchase. This is the case in Medellin.

If no local economy exists or if the local economy is small and limited, then you’re likely going to be limited to selling on to another foreigner when the time comes for you to cash out. This is the case in many resort markets in Mexico and Spain, for example.

Your first visit to any new market, see as many properties in as many different neighborhoods and areas as you have time for. You want to get a feel for the type of construction, the options for building materials, common amenities, etc. See how apartments are typically laid out. Is space well used? Collect and catalogue every listing sheet for every property you view.

Then go home. Don’t buy anything your first trip no matter how tempted you are.

Take all this boots-on-the-ground information with you back wherever you came from. Sift through it. Compare responses. Fact-check what you can with as many sources as possible.

You’re ready for your second trip.

Lief Simon

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