#89 – The Expat Files: Real Estate Challenges in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:03] Hi everybody, I'm Johnny Mueller and you're listening to The Expat Files, living in Latin America. The show that tells you what it's really like to live, work, play and or retire in Latin America. I tell it just like it is, not the version they give you in those glossy travel magazines, or the picture they paint for you in those international traveler websites, where they're only trying to sell you something. What's it really like for expats living in Latin America? Well, it's time to take off those rose colored glasses and find out. So let's get started. Now I'd like to talk a little bit about buying real estate down here in Latin America. Just like anything, there are good ways and bad ways, and cheap ways and expensive ways. And I've seen more than a little bit of all of those ways, and it's especially treacherous for your expat wannabes up there, who can only search real estate down here in Latin

[00:51] America through the internet, or through offers that you see in the back of international travel magazines, or nice strategically placed ads that you find in the real estate ads in larger newspapers. That is in the big English speaking newspapers up in the first world. Especially the large newspapers where there's a big Spanish population. In the southern United States like Florida, Houston, LA and the like. If you check those things out, you'll almost always see land and property for sale, especially in Latin American high volume tourist areas like Cancun and Costa Rica. And you expat wannabes up there are especially likely to overpay. If you end up buying property through a first world ad like that, if you don't speak any Spanish. Because then you're at the mercy of the English only websites, ads and promotions. And you can just bet that the people in companies promoting houses, land and subdivision developments

[01:38] are using every first world marketing technique in the book to hook you. Now let's say for example, you go on the internet and you google real estate developments or real estate sales Argentina. Well of course hundreds even thousands of websites are going to come up, mostly in English of course because that's how you googled it. And each real estate company will show you dozens if not hundreds of beautiful pictures of what's for sale along with wonderful descriptions and pricing in US dollars of course. And I'm here to tell you that it's a big mistake to search for properties in Latin America that way. Unless you're only looking to see the limit of what gringos and first worlders are willing to pay. Because the fact is, you could save a quarter or even a third on the very same or comparable properties. If you just check out the real estate ads in the local papers, which will be in Spanish of course, in that city or area in Latin America where the property you're interested

[02:26] is located. Because the fact is, unless you're in one of those high volume tourist areas like certain parts of Panama and the Dominican Republic, a property subdivision or piece of land almost never makes it to the international listings on the internet in English. And why should it unless it's marketed specifically for first worlders with money? I mean of course the average seller down here doesn't market his property first world style or through first world marketing outfits like you see with Century 21, Remax or Coldwell Banker. The fact is properties down here almost never get marketed that way unless they've gone through the real estate marketing mill down here through the local real estate guys or by just sticking a sign up in the front yard, putting in an ad in the paper and listing it themselves. So how do some properties get listed on the internet and in English with a big first world company like Century 21?

[03:13] Well sometimes it's because down here a big real estate developer will overbuild a high end project and hope to sell it off at high prices, relatively speaking of course for Latin America, to first world suckers that see it as a great opportunity. And down here in their own area where they built, there just weren't enough of those naive high rollers to sell out the project. So as to try to scrounge up some international interest, they listed it with some of the big boys. And another way a property gets listed with a big first world real estate company like Remax is if the property or subdivision was specifically tailored to draw in foreigners with money. Because the word is out down here that Europeans and gringos will pay a lot more than locals for any kind of properties down here. And that they have to cash money to do it and don't have to screw around with getting

[03:58] financing. That's what the locals think anyway. In fact everybody seems to know a case of a gringo that came down into a neighborhood and paid way too much for a property and didn't mind doing it. And even when that gringo or European found out that he got clipped a little bit and could have paid a third less for it, it still seemed to be a good deal because things are so much cheaper down here than in the first world. So if you pay $150,000 for a really nice condominium down here through Remax or Coldwall Banker and you find out later that you could have got it for $100,000 or $110,000 when you consider back in Boulder, Colorado it would have cost you $250,000 or $300,000 or more back in Munich or Stockholm, well you really don't have much room to cry about dropping $150,000 on something like that do you? So here's the point. It's all good and well to get on the internet and search properties down in Latin America

[04:44] in places you might want to go, check out the market, the properties, the views and all that. Go ahead and check Century 21, Coldwall Banker and Remax. They're all hooked into the more high end markets down here and first world companies like that have at least one branch like that down here in every city of a quarter million or so. But if you hook up with one of those agencies to buy property, you're never going to get the deal that you're going to get by searching out the real estate ads in the classifieds of the local newspapers. First of all, you're immediately going to save the commission which is 5 or 10% down here depending. And another problem is most of the time these big international real estate sales companies like Remax forced a seller to sign an exclusive agreement. And that means Remax or Century 21 or whoever will be the only ones that handle your property

[05:30] from one month to six months whatever you sign up for. And even though in most cases they force you to sign up exclusively for a period of time, there's no guarantee they'll sell your property. And if during that period that you're stuck with them, someone else happens to knock on your door and wants to buy it, you have to refer them to the real estate agency and if the deal goes through, you'll still end up paying the commission even if it's your own brother that wants to buy the house from you. Now here's the thing, in talking to some of the big real estate outfits down here myself, I was recently told that in most all of Latin America now, that for the first time in 20 years, the real estate market is stagnating and it's becoming very soft. And whereas for the last 10 years or so, the turnaround to sell a house, a condo, or a project, in a medium to high range, more or less first world style projects, has been for the past 10 years or so about six months.

[06:16] But nowadays, at least in the last six months to a year, real estate salesmen have been telling me something completely different, that they've had houses a year or even two years on their books and they aren't sold yet, and that it's getting worse month by month. And that's why so many people who are selling higher end pieces of real estate, stuff that the gringos and first worlders will be interested in, well they're getting together with these big international brokers that can advertise on the first world to foreigners. And that's why when you Google Latin American properties in English, you get so many listings. But the fact is, with that big first world bank crisis and international financial blowout in the last couple of years, just because your house in Cartagena, Colombia is listed with Coldwell Banker, and the photos of your property might look mighty nice on the internet, first world people with cash money to buy that kind of stuff are far and few in between.

[07:02] And that's been true since about 2008 with the financial blowout. And these days, if you buy any real estate down here in Latin America, and of course I mean the kind of real estate that first world people would want to buy, not to cement block tin roof matchbook style subdivisions that are going up for the common man that sell for 30 or 40 thousand dollars, and the locals can get bank or government financing for, I'm not talking about substandard properties like that at all, not for expats, because even if a first world person got one of those for nothing, you'd never want to live there. And I don't think Remax or Coldwell Banker are going to want to put up a sign in front of a place that's the Latin American equivalent of a trailer court. But in a punctured real estate market like this, who knows? So the best way to buy property down here is not through a Google search, but through the local classified real estate ads.

[07:48] But the problem again is that they're always going to be in Spanish. Whereas even down here in Latin America, if you go to Coldwell Banker or Century 21 at their office, they're going to have an English speaker there, guaranteed, because they'd like nothing better than to sell their high price stuff to some first world guy who doesn't know much at all about the market down here. All he knows is that he can get things cheaper down here than he can up north. So let's say you're willing to spend 150 thousand to buy a nice house or a condo down here. And you know that you can save 30% or even more if you don't buy it through a big outfit like Remax. So the best and brightest thing to do would be to get yourself a young bilingual interpreter from one of the local universities, and like I said in the past show, you can hire one for about $100 a week full time, and you just go out and buy the local newspapers and

[08:33] sift through the classified real estate ads. And you'll find that maybe 50% of the population in Latin America that are selling a house or property will place an ad themselves first and run it for a few weeks or so before they ever give it to an agency where they'll have to give up 5 or 10% commission. And those are exactly the properties you want to check out with the possibility of buying. And if at all possible, you want to buy directly from the owner. And since Latins are always into haggling, if someone let's say does offer a property at $150,000, you're not insulting them at all by giving them a lowball offer of $110,000 because they'll always come back with a counter offer. And since times are just starting to get rough down here, and there's getting to be a lot of real estate inventory on the market, not to mention huge upscale and middle class condominium

[09:19] projects still in various stages of construction, anyway, there happens to be one very easy way to tell if a guy who's selling a property is desperate, not just a motivated seller, a guy who badly needs to get rid of his property and is probably at the edge of losing it to the bank. And here's how you find a guy that's in straights like that. When you're looking through the real estate ads in the big papers down here, you'll often see buried within that ad, some statement like, we'll trade for another house or for a down payment or we'll accept car as down payment. Now that's something you don't see in first world real estate ads. We'll take a car as a down payment for a house. Well the fact is, you see a lot of that down here because people, as they do in the first world, often bite off more than they can chew, especially when it comes to real estate.

[10:05] And the fact is, often down here, a guy's so desperate to sell his house that he'll take a car as a down payment or another property or another house or condo and immediately try to sell that too, just to get some cash out of the deal so that he doesn't go bankrupt. Because the fact is, many of the people down here with college degrees and white collar jobs often get themselves just riddled with credit card debt, right out of the box as soon as they graduate from college, just like a lot of people in the first world. And even though their salaries are a lot lower down here, they still get bombarded with credit card offers from banks, just like young college kids in the first world do. What often happens, for example, is a young newlywed couple, where let's say the guy's an accountant or an engineer with a college degree and a white collar job, making maybe a thousand dollars a month, which is solidly middle class down here.

[10:51] Anyway, a guy like that's got a little cash flow and the first thing he does is he goes out and gets himself a new car on time, because all the dealerships down here offer finance plans, just like they do up in the States. Only down here, car dealerships don't offer cash back and 5% or cheaper interest rate deals. Down here, you have to pay anywhere between 12% and 25% interest when you buy a newer used car. And middle to upper middle class guys down here, making a thousand dollars a month or which again is half again below the poverty level up in the first world. Anyway, a guy like that and his wife are prime targets for every credit card company in the area. So now they got a car on which they're going to have to pay terrible interest rates. But since down here, you are what you drive, every guy who's got decent credit gets as much car as he possibly can afford.

[11:38] And he and his wife load up on a bunch of credit cards with even worse interest rates. Anywhere from 25% to 50% is normal down here. Because you see, the thing is, Latins have the same mentality we had in the 60s, 70s and 80s. Most of us first worlders actually felt as if we'd arrived when we first got our handful of credit cards until we realized they were sucking the blood out of us. Now the second thing that guy does when he buys that new car right after he gets out of college and he gets that white colored job and for the first time in his life suddenly becomes credit worthy, well he goes out and buys himself a house or a condo in an existing somewhat upperscale subdivision or in a subdivision that's building new houses and who are offering big discounts if you buy in before the units are complete. Now a guy like that can't build a house from scratch or buy a single family home that's

[12:25] not in a subdivision development because he doesn't have a down payment, he's just starting out in his career. So what most of these guys do is they buy into a big subdivision development that offers its own financing, usually with a very, very low down payment of maybe a thousand to five thousand dollars, which some of them can scratch together from their parents and family members. The same kind of deal that they were offering right before the housing bubble blew up in the first world. Remember that when you could get a house for practically no money down and almost everyone qualified? Well that's what happens down here if you're white collar and suddenly credit worthy. People get suckered into buying into these housing developments that offer their own financing. And to tell you the truth, I think a lot of these big developments that do offer their own financing were actually built with big time narco dollars because that's a great

[13:10] way to launder money down here. Instead of going up against all those new first world banking regulations, they just build big subdivisions and office projects and pay the general contractors with cash. And I don't know if a contractor big or small down here will ever say no to doing a job for cash. And even if the contractor gets a couple of suitcases full of money, he doesn't have to deposit much of that money into a bank either. He can pay all his suppliers and subcontractors in cash too. The cement companies, the brick layers, the window installers, the roofers, the plumbers, the electricians, all of that, they'll all take cash. And in fact down here, most people prefer it. Wouldn't you? I would. Especially when down here, you often have to wait an hour or two in line just to get a check cashed. And another reason I think that a lot if not most of these new subdivisions under construction,

[13:57] the ones that are still building like gangbusters, especially in this economic climate where the writing is on the wall. Well, they just have to be financed by people who have money to burn, like narcos and crooked politicians. Anyway, even though projects using legit money are grinding to a halt down here, nearly everyone, except astute expats of course, think that it's nothing but a tiny dip in the business cycle. And they think naively that an upturn is just around the corner. Hmm. Anyway, the unfinished subdivisions that are still going gangbusters, the ones that are still building and adding on like there's no tomorrow, any rational person from the first world with any brain, has to believe that there's some bottomless pits of money involved. Because when new housing units aren't selling in subdivisions, and they keep building, how

[14:43] are they getting the cash flow? There's only two ways. One is that someone's laundering narco money, and two it's the usual political chicanery that goes on down here, where high level politicians have both hands in the till. And sometimes that till is so huge that you have to spend that money somehow, no one can stuff that kind of cash under their mattress. And you definitely can't bring it in suitcases down to the bank. In a traditional way that politicians down here spend that money they've skimmed from the coffers is in real estate. Real estate and offshore banking deposits. But new strict banking laws are making that real estate option the only viable one for a lot of these guys. Anyway what's happening down here now is you'll see a lot of these white collar workers, which by the way make up only about 5% of the Latin American population.

[15:28] Anyway these are the people that buy into these subdivisions for almost no money down, but of course with killer interest rates. Now normally a hard working white collar guy down here, along with the combined salary of his wife, might just be able to afford a house like that and pay the payments. But then he's got that car payment, that television payment, that refrigerator payment, the furniture payments and all those credit cards. And eventually he finds himself in a real tough bind, and before he gets sued by the finance and the credit card companies he decides he has to sell his house. And you'd be surprised just how many people are doing that down here, and how many millions are just on the edge of doing it. And the real desperate ones will take a car or another house in trade, and sometimes they'll take a car in trade and let you take over their house payments. Which could be a really good deal for an expat, depending on how much principal the guys got

[16:16] paid down. Each case is a little different, but just know this, if you find a nice piece of property in the real estate section of the local newspaper, then the owner is offering various ways of financing, you know he's desperate, and you can lowball him. Anyway, anyone who walks into that kind of deal with any kind of cash at all, has got the upper hand, that's for sure. And here's another thing, remember some years ago up in the first world, when every other late night TV cable infomercial offered some kind of low or no money down real estate program, CD home study course, not to mention all those TV and magazine ads about buying distressed and foreclosed properties at foreclosure from banks. Well I'm really surprised as of yet, that no one's gotten in on the act down here. Just lately, the papers are loaded with bank foreclosures and page after page of property listings at auction, which is something I've never seen before in my 20 years down here.

[17:06] But to me, this looks like not only a huge opportunity for anyone who wants to come down here and sort through those foreclosed properties, and try to buy the house of your dreams for dirt, dirt cheap. But there's another angle to this too, this could be the perfect opportunity for any expat wannabe up in the first world, who knows a little bit about the foreclosure business, somebody who bought and sold some properties that way, and knows about auctions. Just think, if you came down here and offered a seminar on it, reheat that old no money down real estate course you bought for 3 or 400 bucks 5 or 10 years ago, translate it into Spanish, and gave a joint English Spanish presentation and PowerPoint seminar. If you were to follow all those little pointers I gave in the last few shows, when I spoke about how easy it would be to come down here and give seminars, even on old moldy topics

[17:53] like timeshares, commodities, and stock investing, just check my PRN archives for that. Anyway, there's another tip for your expat wannabes up there, who have some old dusty skills you want to put to good use again. Because we're a few years behind down here in Latin America, a lot of those old and moldy seminar programs that will never work up in the first world again. Well believe it or not, some of those old clunkers just need to be translated into Spanish and they'll do their magic all over again. All you really need is a good bilingual translator, and down here they're a dime a dozen, well almost that cheap. And I think that's especially true when you're talking about distressed and foreclosed properties. I've never seen anyone down here yet offer a seminar on that. Now admittedly, when I look through the newspapers and I see all these hundreds of distressed and foreclosed properties at auction, I always check out the addresses, and in a lot of the

[18:46] properties are in. And believe me, just like in the first world, a lot of these properties are in really ratty parts of town. I mean, you wouldn't want your worst enemy to live there, because the area just sucks. And you have to really sift through those things to find a little gem or an uncut diamond. And there's always a few scattered in with every big listing. And that's why, even if you know your Spanish pretty well, you have to really hire a bilingual college guy or girl to tag along with you. Because when they look at that ad, and they look at the address, they're going to instantly know what kind of class of people are living in that area, if it's got good infrastructure, good water service, decent roads, and a nice view and all that. And in general, if it is or isn't a good place to check out for a first world person looking to live in a decent neighborhood. And like I said, a bilingual college student will tag along with you for a whole week for

[19:34] a hundred bucks. And a kid like that will know everything there is to know about the ins and outs of various sections of his city. Now for those of you that might want to invest in farmland, which is a mighty good idea these days, considering what's happening with the price of food, especially up in the first world, and considering that down here in Latin America, about 70 to 80% of the farmland is so fertile, you could get four great crops out of it a year instead of one or two, like up in the first world. And that's because in most of Latin America, you just have two seasons, the rainy and the dry season, and you don't get snow or frost, so you can grow crops all year round. And there's also the fact that a great deal of the farmland in Latin America is volcanic soil, the richest soil in the world. And of course, they do have land not good for farming. They have some desert land in Peru, Chile, and Mexico. And of course, if you're in the mountains past 8 or 9,000 feet, you can forget about

[20:23] growing anything at all there. The string of mountains that comes down through Mexico, the Sierra Madres, down through the Andes in South America, are only good for goats, rams, and llamas. But I'm just referring to common farmland, which if you look from a satellite map like on Google Earth, makes up about 60 to 70% of Latin America. And of course, we'll include rainforest in with that figure, because stripping out rainforest and growing crops is what people have been doing down here for 500 years. Because the fact is, when the Spanish conquistadors got here, there was no such thing as farmland, really. It was all standard forest or rainforest. And the Spanish and Portuguese settlers ended up clear-cutting it for agriculture. And the natives are still doing it, only now they're doing it with caterpillar tractors. Anyway, if you're interested in buying farmland down here, that's always for sale in the classifieds

[21:09] too. But not so often. Instead, when you're driving through the boonies, you'll often see a for-sale sign here and there. And generally, the sign won't have much on it but a phone number. And it's often hand-painted and looks like a child did it. And you won't have any idea whether it's 1 acre or 10,000 acres that are for sale. And by the way, they don't sell things in acres down here. And they don't use square feet either. They sell land in manzanas, vadas, or square meters. And I don't want to confuse you by going into all those terms, but I'll just say this. When you're inquiring about the size of any piece of property, just ask them how many square meters it is. It seems like almost everybody knows how many square meters their property is. So if someone's property is 300 square meters, for example, just remember that one square meter is about 10 square feet.

[21:56] The conversion is that easy. So 300 meters is about 3,000 square feet. And if you can just remember that one thing, you won't get confused. You got that? 1 square meter equals 10 square feet. Not exactly, but close enough. So when you hear anything in square meters, just multiply it by 10 and you get square feet. Now what I've noticed lately in a lot of the property foreclosures in the papers down here is that more and more farmland and sections of undeveloped rural property are going up for auction. And that's happening now in every single country down here in Latin America. And I've been told by some agronomists working down here, there's a big reason why a lot more farmland is coming up for sale these days and you see so much more of it at auction than you ever did. That's because a lot of the small farmers, the campesinos and indigenous people who've

[22:41] been eking out an existence in the same way for hundreds of years on these properties, well now suddenly we're in the age of cell phones and the internet. And for the first time in history, the kids don't want to follow in the parents' footsteps and work the farm anymore. Instead they want to move to the big city where all the so-called opportunities are and live that city life. And they do that usually as soon as they get out of high school or even sooner. So as the parents and the uncles and the aunts get older, there's no one young to work that farm anymore. So they end up selling it or when they die off, the kids inherit it and they don't want to work it so they sell it. It's much the same kind of thing we saw with small time farmers in the 60s, 70s and 80s up in the first world. The kids didn't want to work dad's farm anymore so they went off to college and the old man either sold out to the big corporate farms or the lucky ones living closer to the big

[23:30] cities were able to make real estate developments and subdivisions out of their properties. Well as usual down here in Latin America, everything is some years behind the first world and that's what's happening now. Which makes it a very good time for expats and expat wannabes to snap up farm property. But it is admittedly a bit more difficult proposition than buying let's say a condo or a house in the city. Because down here there are hundreds and hundreds of land disputes that go to court every year, in every local county and in every jurisdiction. Because every time some big landowner dies and the property gets split between his sons and daughters or nephews or cousins whatever the case may be, it seems that always someone in the family takes it to court and disputes the will. Because especially when you're dealing with indigenous populations, a lot of deals went

[24:17] down orally or just scratched in a back room on an old piece of paper with a witness or two. And when some landowner dies, there's always someone in the family who thinks he got ripped off. And I know a case, personally myself, of an expat who bought a foreclosed piece of farm property from a bank. And the bank of course made sure the property was free and clear from all encumbrances and there was nothing wrong at all about the title. The property transferred correctly and all was okay for about a year or two or so my friend thought. But this is Latin America and anything can happen. Now this piece of property was about 30 or 40 acres and had a river flowing through it. And it was spring fed so it was mighty nice for cultivation. And it had a dozen nice mature mango trees growing on it with really good fruit. Anyway, the first thing he did was put up a cyclone fence around the whole thing.

[25:04] And his whole plan was to grow a plant called Jatropha, which is excellent to make biodiesel and it grows like crazy down here. And by the way, this was in Nicaragua. So one day, where he's growing a test patch of this Jatropha, he drives onto his property one day and he sees a bunch of cows eating up his plants. And about 30 feet of his fence is laying down broken on the ground. And there's three guys on horses and cowboy hats sitting around watching their cows eat the guys' plants. And by the way, these cowboys and their vaquero hats were packing guns. And my friend drives up to him in his Jeep and he says, what the hell's going on? And they said it was their grandpa that used to own this land. And the old man had given him and his brothers perpetual grazing rights and water rights on that property. Now, my friend kept this cool and when they left, he ran back into town and made a quick

[25:52] visit to the bank and to his lawyer and spent the next few days in the city screwing around in meetings, trying to sort the thing out. And his lawyer said, you know, guys like that, that live in the compo, they might actually have had an oral agreement like that with the previous owner, the grandpa, but of course it doesn't stand anymore because you own the land now. And if they had perpetual water and grazing rights and it was all legal and signed off by attorneys, there would have been an appendix saying so on the title. And if you go to court with this, they're going to lose, but they're going to be extremely pissed off and they have guns and they have friends in the area who are going to hear that story and they're going to be pissed off too. And since these guys live kind of by their own rules and have been for hundreds of years, not to mention there are a lot of oral contracts and handshake deals that never get registered

[26:37] in court, but do crop up now and again. Anyway, the lawyer said, the best thing you could do is let them graces cows on your land for a while and let those cows drink the water too. Get that old guy a little bit and then buy him off. It might take 500 or a thousand bucks, but buy him off. And when you do, do it with a legal document with a lawyer and everything will be okay. If you make a deal with him like that, he'll never bother you again. In fact, he'll probably end up being your friend because the fact is everybody wants to be friends with a rich gringo. And even if you're not rich, they want to be friends with you because they think you are. But the last thing you want to be is enemies with a cowboy type like that because they have this macho tradition and of course they have guns and they want to feel like they're still in control by grandfather claws or whatever. Even though they really don't have any legal rights and what they lack in legal rights,

[27:25] they make up for in stubborn pride. Hey, what can I say? It's a macho society and that goes double when you're out in the hinterlands. You've been listening to the expat files living in Latin America. And don't forget, you can email me on anything at all about Latin America, the expat files at gmail.com. That's the expat files at gmail.com. See you next time. Nos vemos.