#958 – The Expat Files: Real Estate, Economic Shifts, and Life in Latin America

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

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came out to play and now I wonder Hello there all you ex-pat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here So let's get started. All right got a lot of stuff to cover today. Let's get into it first a real estate question from Jeff He says about prices in Guatemala City and Antigua, Guatemala and in between What do you think the average price per square foot is in the above mentioned areas?

[00:47] I can assume that the market will lose about 50% of its value in the next few years just like here in the states Additionally Johnny, what are the closing costs like with a Guatemalan bank provide financing or do you have to pay cash? I generally myself buy property in Colorado from a value-added perspective and almost always use seller Financing is that a thing in Latin America? I have a strange feeling that I might need to invest in a house in order to get permanent residency Thanks again sign Jeff. All right, Jeffrey just a few general things about real estate first You're talking about Guatemala City and Antigua Guatemala and points in between For those of you who haven't got the geography straight Guatemala City is where you land when you fly into the country

[01:34] It's right in the city now where most gringos and expats end up living nearby or around is Antigua Guatemala Which is about an hour from Guatemala City an hour by car that is well Let me point out for our listeners out there that what I'm gonna say doesn't only relate to Guatemala City or Antigua Guatemala and parts nearby it relates to all of Latin America even those gringified tourist areas And you know the chances are things will actually be worse in the gringified areas since it's all about tourism there and Tourism is the first shoe to drop when there's been an economic blowout. All right, let's first talk about low-end real estate You've got poor and middle-class neighborhoods that gringos and expats should never consider You've got middle-class neighborhoods that be middle-class Latin style

[02:19] Which equates to a lower middle-class in the states or kind of white trash That would be the majority of housing here in Latin America And I wouldn't consider any of that for gringos and expats either Although I do know quite a few long-term gringos and expats who end up living in middle-class Latino housing But that's mostly because they're short on dough and they've got no other options and they don't want to go back to the states Even under such reduced circumstances they find living middle-class Latino style again That's kind of like living in a white trash neighborhood up in the states Preferable to going back to the states and toughen it out up there So if you don't mind lowering your standards a little bit living in a neighborhood where chicken buses tuck tucks and rice burners are Ripping by at all hours with the pushcart vendors hawking their goods from dawn to dusk where everything

[03:08] I mean everything is kind of broken down and scruffy looking where paint jobs in front yards look depressing Where you're hooked up to dirty city water that might only come out of a tap Eight or ten hours a day. There's lots of litter outside missing manhole covers lots of busted sidewalks dogs barking at all hours Sifting through the endless garbage if you can handle that you can live for next than nothing It is an option, you know, and when we say a gringo is gone native, that means he's become part of that scene Hey, that's no way. I want to live only a very small percentage of gringos and expats live that way But some do and really it's all about the money what you can afford and some say it's all about how much you drink Because you see a place in a neighborhood like that might run you anywhere from a hundred to three hundred bucks a month

[03:55] Again, you're not gonna want to live there unless you're down on your luck You've hit the skids or your backpackers staying on for a couple of months and don't want to pay the daily rate of the youth Hostel because at 15 bucks a night if you're staying for months, it really does add up look 15 bucks a night Sharing beds baths and bedbugs at a youth hostel that works out to 450 bucks a month Hmm. What a catchy name for a low-rent franchise and you heard it here first bed baths and bedbugs That's right 450 bucks a month That's why you'll sometimes see a couple of backpackers get together and rent a place for two 250 or 300 by the month in a Latin style middle-class neighborhood, of course, they'll trash the place but that's to be expected again I think for 99% of listeners out there that style of living is not for you now

[04:44] As far as buying up a property or two in middle-class Latin America because you want to be a landlord Well, that used to be a very good idea, especially around and near tourist destinations Since backpackers never fork out for the nice expensive hotels But all that's changed now The real estate bubbles been popped being a landlord trying to collect rent or even trying to keep those rentals occupied You're kidding me, right? All right. So let's talk about real estate prices in upper middle-class Latin American areas Now we're talking about mostly gated guarded subdivisions Although there are some nice neighborhoods that aren't gated guarded with some nice old classic colonial homes There's not that many of them anymore compared to the newer gated guarded communities

[05:29] And some of those really nice old colonial areas aren't going to see as wealthier Latinos move to the burbs Now normally when you're discussing upper middle-class Latin American real estate The good stuff the nicely built stuff roughly speaking has been running around a hundred bucks a square foot Double that if you're on the gringo tourist trail But soon that's gonna collapse too in a big way Of course over the next months to a year when desperate sellers start thrown in the towel I expect Latinos prices will drop 50% Now as far as trying to get a guadamala and or any Latino bank to finance your real estate You long-time listeners will recall that many times I've said one of the sure signs of the bubble was that banks and finance companies Were no longer asking for 20 25 and 30% down but 5% sometimes 0% down

[06:18] Caches came down. It looks like throughout Latin America. We're gonna be looking at 30% down However as big numbers of properties foreclosed in the banks take possession of them All bets are off as to how they're gonna be able to dump them All I know is they're gonna have some big auctions coming up Oh, and there's so many new unfinished and half-built projects to just wait a couple months and you'll see the fire sales I guarantee you're gonna see a lot of those projects offering 0% down. They're not bank finance They're owner or developer finance, but look out no matter how nice the project looks If it's newly built or partially built and mostly vacant It would be a big mistake for you to buy in no matter how cheap the price You don't want to be the only solvent resident in a beautiful mostly vacant project For one thing, let's say it's only 25% occupied who's gonna pay the maintenance on the place

[07:07] You solvent guys you 25% will be covering those you get it All right Then Jeffrey asked about closing costs turns out if you buy a place and it's not brand new in other words You're the second or third or tenth person in you generally pay around a 3% sales tax So you buy a place for a hundred grand you pay 3% tax three grand But maybe not because there's a little trick that's often played With previously owned properties that can't be used with a brand new property or a first sale That is you and your lawyer make a side deal to give the seller two different payments for that $100,000 example you write up a bill of sale for 50 grand and you pay 3% on that and the other 50 grand you hand Over to the seller under the table, but on the books with the municipality

[07:53] It only looks like it was sold for 50 G's now again. I'm not advising you to do anything illegal I'm just telling you with lots and lots of gringos expats and locals do In fact often your lawyer will suggest it kind of greasing the skids for the sale, you know So then are you ripping off the government? Of course, but if you look at it like every Latino I've ever known getting over on the corrupt lard ass government is the national pastime Because though you rarely get a chance to rip them off. They're ripping you off all the time All right So you heard the number three percent when you're buying an existing property one that's not brand new when it's a brand new property You have to pay the EVA or vat tax to the government and you'll have to pay it on the full price Since you'll be the first time buyer. There's so much no way to get around it So for example in Guatemala their vat tax is 12% that means if you buy a hundred thousand dollar house

[08:43] You're gonna fork over 12 grand to their slovenly postulate government now That's not to say you can't make a sweetheart deal with the seller kind of like the one that was mentioned before Where you split it up in two payments and only pay tax on half of it That way you'll pay the 12% EVA or vat tax only on 50 G's instead of a hundred Well, you can try that and most buyers will bring that up to the seller But you see often with new properties They're in a gated guarded subdivision Where the developer is building most all the houses and they won't want to do that kind of deal because they want to remain On the up and up You see the bigger and more first-world like the company that you're dealing with the less likely they are to cook the books for you And of course, you'll never be able to pull that off if you're buying into a residential tower as the first-time owner Developers are not gonna make side deals like that

[09:31] They don't want to get into any trouble with the government down the line and they know they would for example if they're selling off a residential tower and they've got 20 units and they're all around a hundred grand and Suddenly they sell one for 50 that'll send up a red flag with the municipality Then again, if you're buying a place from a small mom-and-pop builder, they might do the deal for you Because his houses are one-offs doesn't hurt to ask After all it is a tradition down here to do everything you can to get over on the government Oh and remember you always want to have your lawyer in on those things If you're trying to bend the rules have him make the suggestions not you anyway, that's what I've heard Oh and by the way, that's why so many astute Latinos and gringos and expats buy a house with an SA corporation That way you can completely avoid both of those taxes whether it's 12% EVA or VAT tax or the 3% sales tax

[10:21] It's a loophole that's a hundred percent legal because you see with an SA corporation You have shares and you can sell your house or your property by just handing over the shares to the new buyer So the seller passes the corporation to the new buyer and everything in that corporation is now his and the house Of course, it's in the corporation and that's it the deals done Of course again, you'll need the lawyer to handle that transaction because there will have to be some signatures and documents signed Oh and speaking of closing costs a lawyer will generally charge one half of one percent of the total selling price all of that being Negotiable, of course, that's five hundred bucks for a hundred thousand dollar houses. And finally as for closing costs. There's a municipality registry fee which depending on a country ranges from a half of one percent to a percent and a half

[11:10] Just another way for those human blood clots in government to gouge So bottom line if you're buying a brand new property and you're the first one in You'll pay the EVA, which is twelve percent in Guatemala plus a half of one percent for the registry and the municipality Plus a half of one percent for your lawyer total about thirteen percent of the selling price. No small potatoes However, if you're buying a used place your second or third or tenth one in you'll pay a three percent tax plus half a one percent tax for the municipality Registry plus a half of one percent for your lawyer, which works out to be a total of about four percent of the total price Of course, that's if you're doing it totally on the up-and-up and you haven't made a side deal with the seller to split the payments So the registry shows a much lower sales price

[11:57] Then again if the property is in a corporation a society that an animal The shares will be handed over and all you'll do is pay the lawyers half of one percent fee What a deal again leave it all up to your lawyer He'll handle everything now since we can expect tons of desperate sellers out there coming out of the woodwork in the next couple of months To a year or so the question comes up Can I buy a property and just take over the sellers payments in other words get the seller in on the financing? Well sure that's always possible, but it's not common down here people don't know what you're talking about You have to explain it to them You see a lot of financing options you have up in the states are totally unknown to people down here It's less complicated old-school remember in many ways living here in Latin America is like going back 30 or 40 years in time

[12:43] So it's not out of the question to get the seller in on the financing It's just that you'll have to educate them though at first I might look at you like you're nuts You've got the gringo advantage going for you and the fact that Latinos trust gringo is a hell of a lot more than they trust Their own in fact, they'll come right out and tell you that Somehow it seems like we've got this sterling reputation in many cases. We don't deserve life ain't fair But you knew that already oh and speaking of lying lard ass government slugs You know I say that a lot and I believe it 100% as if we need more proof Well, here's some according to the International Watchdog organization SPIN political communication workshop the president of Mexico Lopez Obrador has made almost

[13:28] 25,000 yes thousand Untrue statements during his daily morning conferences since he came to power in December 2018 Yep, people in that organization are actually counting down the lies and they said off the record, but I guess it's on the record now It should be no surprise that Mexico's Lopez Obrador would be first place in the Guinness Book of Records if there was such a category The undisputed most deceitful leader on the planet. Oh, and this is off topic, but I forgot to mention this I ran into a Cuban doctor the other day You know they're all throughout Latin America, right and he confirmed everything you've heard and all that I've been saying in the past shows about oh, they're farmed out to other countries that pay Cuba $3,400 a month and his take he says he makes

[14:16] $390 a month about 11% of that the rest goes back to Havana But he says in Cuba doctors only make about 80 bucks a month So to live on 390 bucks a month is still a big raise compared to the wages in Cuba It's still minimum wage in the rest of Latin America At least he says a lot of them get to sleep at the hospital and get to partake of the doctor's lounge and free food from the hospital cafeterias He says he sends around $200 of that each month back to his family So this doc lives on 190 bucks a month in Latin America where the minimum wage is around three to four hundred bucks a month So he's living at sub poverty levels. Well, he kind of knew that already, right? But then he told me something. I didn't know he said when you land in the foreign country

[15:01] You're assigned in you're met at the airport by a representative of the Cuban embassy who collects your passport All you carry after that is a certified copy to show cops or other authorities if they somehow request your id on the street That means he says Cuban doctors can't even get a bank account in the country that they're assigned in because you need your real Passport to open an account and to withdraw money. Oh and something else I never knew He said if you happen to be single and they usually don't like single doctors to be farmed up, but some have been Why you might ask besides the fact it's easier to cut and run if you're single Because they've had problems in the past when a cuban doctor has fallen in love with a local and wanted to get married But you can't get married without your legal passport

[15:47] Remember the cuban embassy in your assigned country is holding your passport And the cuban embassy knows that if you marry a local You automatically get residency that leads to a passport The cuban government knows if that happens the doc will go a wall Legally, but without their original cuban passport, none of that can happen. They can't get married They can't open a bank account. They can't fly they can't go through borders They can't even get internet service or a smartphone without their original passport unless of course, they have someone else buy it in their name Socialism ain't it grand then he told me the topper He said the world thinks the cuban government allows them to have 20 to 25 percent of the money That a country pays for each doctor. That'd be 20 to 25 percent of 3,600 a month instead. He said we only get half of that while we're on the mission in a foreign country

[16:38] The other half is withheld in havana by the government and we can only get it when we return That's why he says says cuban doctors send a portion of our 360 a month back home to our families Even though an equal amount is building up in an account back home But even that it's not exactly correct You don't get it in u.s. Dollars when you return they convert it to pesos at the government rate not the real rate He says you lose about 50 percent that way Socialism ain't it grand? All right now getting back to how popping the everything bubble is affecting latin america on that theme I've got this email from gen an expat insider seminar repeat offender. Oh and about seminar repeat offenders You know with every single seminar i've ever done i've had repeat offenders except the first seminar

[17:27] That's logical because how could they repeat if it was only one seminar? And you know when people ask me is the seminar worth it? How do I know i'm gonna get my value for the money? Well, really when you think about it All you have to do is look at the numbers of repeat offenders Would somebody repeat the seminar one two even three times if they didn't think it was absolutely worth it? Just the opposite it really is the best Indicator because you know if it wasn't worth it and people didn't get a hell of a lot out of it I'd have zero repeat offenders wouldn't I think about it? And if you're still on the fence about coming down to my august 2020 seminar Just go to expat plan b.com and click on the seminar link Did I say clink on the link? Go ahead clink on it

[18:12] And remember if you sign up you get a one-hour phone consult with me. That's part of the deal Anyway, our repeat offender gen says question johnny. I understand that most of latin america is in lockdown How will this affect their economy? Will they be looking at a massive inflation as we will in the us? Where will they get the money to pay all the bills if no one's working? I know of several expats who have bank accounts and cds and ketsalas That's guadamala money because for a long time the guadamala currency has been very stable. Will it continue to be so? What's your take johnny? If there or rather when there is a monumental collapse of the economy other than real estate What will be the changes in latin america? What can we look forward to I was made to believe that except for real estate life in latin america will continue to be

[18:58] The same because they don't have too far to fall Do you believe this while you're at it johnny? Please send me the information about the home air filters You mentioned the hepa filters and the solar panel companies too signed gen Well gen I sent you that hepa filter stuff. You know, I have a really great little hepa filter myself I picked it up a little over a half a year ago before all this covid stuff I just figured hey You walk into your apartment or house have you been gone on a trip for a couple of weeks or months you come back and you dust Everywhere, of course, it looks like dust but it's dust mixed with a lot of city pollutants and stuff So I thought look hey in hospitals they use hepa filters all the time. So why not get a good one? So I did my usual exhaustive search that took me hours and hours on the internet And i've got an excellent little hepa filter for around 100 bucks

[19:46] In fact What I really like about it is you can clean the filter a couple of times at least before you have to put a brand New one in which comes from 20 bucks and it really does clean up the air Noticeably the one I have will do a nice job on up to three regular size rooms So anyway, if you're really looking to clean up and tighten up your air supply Send me an email the expat files at gmail.com and i'll send you the amazon link Of course, I know I am somewhat of a hypocrite I hate google but I end up using it for google maps sometimes But never do I do a google search though. I do have a gmail account Who doesn't but I never use it for crucial critical or sensitive things for that. I use encrypted start mail I just love their disposable alias feature. Oh, and i'm a hypocrite about amazon too I love the concept, but I absolutely hate the fact they've got contracts with the nsa cia and run their cloud service

[20:38] What the f***'s up with that? They're deeply in bed with the u.s. Surveillance state. How screwed up is that? But their shopping and delivery service is so valuable if you live in latin america now that they're around and very efficient There's nothing down here. You can't get Oh, and by the way, did you know that tesla's have a built-in hepa filter that they use to recycle Incoming and recirculating air I did some checking and I found out that tesla's hepa filter is four times better In other words, it removes four times as much crap from the air than the best air filtration systems Any other car company has by the way, I haven't got an electric car yet I'm waiting for tesla to come out with a small suv or a normal looking pickup That doesn't look like it came out of a 1950s b grade science fiction flick

[21:26] Then of course i'll have a dedicated solar system to charge that thing up at home So I never have to spend a dime with the electric utility company and i'll be talking about that on the show Just how to do that i'll tell you the exact system i'm using and my recommendations all around And really the only reason I don't have a tesla right now is because they're really too low to the ground for latin America for sure within a couple of months you'd rip out the undercarriage with those tumor loads You know those speed bumps plus down here. You've got the ever-changing minefield of potholes not good for the car or your nerves However, if they made a small suv or pickup truck That'll give you three or four more inches of clearance Plus your tires would be wider and heftier too and believe me down here in latin america That makes all the difference in the world So for now i'm waiting at a nice small electric suv or pickup

[22:13] But i'm all set to put the solar charging system in i'll keep you posted and walk you through it So stay tuned. Oh, and of course there are lots of other electric car competitors coming online now So the best choice doesn't necessarily have to be a tesla But I figured for now anyway, they're way ahead of the pack and they always have been so why not stick with the leader? Though all that might change so do stay tuned the dust will settle All right Let's get to those questions about the lockdown effect on the latin american economy It's more or less the same as what's happening up in the states only there's about a three week lag time down here So when you peek out with infected cases in california new york, wherever about three weeks later The cases peak in most countries in central america and about five weeks later They peek in south america

[23:00] It just has to do with the way the virus is making its way around the world And yes, of course latin america will be looking at massive inflation. Just like the us will be looking at it very soon Wait a minute. Did I say rat in america? We'll leave that in warp speed. Mr. Sulu Anyway, only as usual it'll mostly track the dollar so whatever inflation you guys get it'll be the same down here So then where will latinos get the money to pay the bills if no one's working? Well, you heard me say on last week's show that most latinos actually are working They've not only started opening up places, but clandestinely people have been working all the time You know, they've got that small but obvious signaling going they leave one of their blinds or window shutters halfway And you just knock on the door they let you in you do your business whether it's a clothing shop barber shop

[23:48] Whatever and they're saying by june 1st, most all the factories and malls will be open too Oh and about the guadamalan currency being stable against the us dollar. Yes, that's true It's been perhaps the most stable latin country currency in recent history It's pretty much been hanging within the same range for the last 20 years against the dollar Now my advice to gringos and expats has always been if you have extra cash and you want to put it in a cd Put it in a very short term us dollar cd here Even though guadamala has a very stable currency and it's paying Nearly twice the interest rate of a us dollar cd i've always been gun shy of cds and foreign currencies You just never know Now taking that point one step further looking at the info page of a very solid bank here in latin america

[24:35] And right now as of may 22nd 2020 They're advertising a two-year cd in the local funny money equivalent of around 20 000 us dollars They're offering 10.1 annual interest. That's in the local funny money and compared to us interest rates in the states 10.1 is massive still I wouldn't bite but they have another cd they're advertising i'm looking at right now a us dollar cd minimum 10 grand It's a four-year cd And they're paying six percent interest annually, which is also massive compared to us bank cd rates But personally I wouldn't bite on that one either even though the bank is very sound Why because it's a four-year cd and most probably will be into hyperinflation in four years and you'll be screwed Personally i'd say in this blown out bubble scenario

[25:22] If I needed to put some us cash into a cd because i'm already stocked up on inflation hedge stuff gold silver bitcoin, etc I'd want to keep it in the short term 30 60 or 90 day cd So as the market shifted I could cash out in a hurry and move it elsewhere I'd never want to have us dollars in a long-term instrument Because you know, even though the dollar is strong right now. We're in a deflationary cycle It's just a temporary lull before big time inflation does kick in but remember you do have to diversify You have to have some cash around i'd say a good idea is to have six months worth of cash on hand to cover all your bills All I can say is if you have a lot of us dollars sitting in a bank account somewhere or a cd You must diversify into something that's inflation proof or very shortly within a year or two. Anyway, you're gonna get creamed

[26:10] For example, let's say you had a half a million bucks. I know for some people that seems way out there But others no if it was me What I would do is put a hundred grand into gold a hundred grand into silver a hundred grand into bitcoin Keep some loose cash around the house. Maybe 20 grand in hundreds well hidden I mean from the kids your delinquent nephews and the cleaning lady Of course take the rest and put it into 30 or 60 day us dollar cds. Keep rolling them over buy it in your time While you're doing that Look for desperate sellers of houses condos and homesteads and get ready to drop 100 grand or so On something worth twice or three times that but that's just me you could do what you want You really have to protect yourself from what's coming down the pike. It won't be pretty Oh and jen you mentioned when the walls start tumbling down that latinos won't have far to fall

[27:00] Well, you're absolutely correct except that is for the upper middle class and wealthy latinos The ones who've positioned themselves as gringo wannabes. They're all tapped out They've got no cash even before the covet thing. They could barely pay their bodyguards and cleaning ladies on time They're the ones along with their entitled kids who are really going to be hurting But the latino middle and lower middle classes not so much. Remember the food supply is local They've got four growing seasons and no heating or air conditioning bills Unfortunately, none of that applies to you guys living up in the states You've been listening to the expat files living in latin america If you need some help with your own plan b we can schedule a one-on-one phone or skype consult Just send me an email the expat files at gmail.com And if you want to get on the waiting list for my next week long expat insider seminar in central america

[27:50] Where you're guaranteed to get a two to five year head start on your plan b. Send me an email the expat files at gmail.com nos vamos