20
Build an In-country Network of Reliable Contacts

Over the course of our multidecade overseas real estate investing careers, we have met hundreds if not thousands of real estate agents and developers, real estate attorneys, accountants, local investors, expat investors, and rental property managers. Most we never did business with, some we've remained in touch with, and a handful of them have become friends and even partners in different real estate investments. You're welcome to tap into our network to get yourself started. At our website (www.liveandinvestoverseas.com) you'll find, as the name suggests, resources for both living and investing overseas, including several free e-letters, one dedicated to buying and owning overseas property(www.overseaspropertyalert.com).

You'll also want to build your own personal network. The key contacts are a real estate agent, a real estate attorney, and a rental management company (or person). In fact, ideally, you want more than one of each in each market where you're focused or active. Also speak with other property owners in the markets where you're shopping, both expats and locals, who might give you very different perspectives on the market. Meet with at least one banker, both because you'll need to open a bank account should you buy in that country and also because a banker can have different market insights to share.

Taxi drivers are other good sources of economic and market context. They talk to people all day long, and they are living the local life. Not that you're going to base your buy decision on the advice of a cab driver, but add their insights to your knowledge base.

If you don't speak the local language, you'll need either to restrict yourself to English-speaking resources or to engage a translator. We have always chosen to work with English-speaking real estate agents and attorneys in the countries where we've invested. We both speak Spanish well enough to work with Spanish-speaking contacts, and sometimes we do in the interest of gaining better background. However, when we're ready to act, we prefer to work with professionals who have experience with foreigners. We foreign buyers operate differently than local buyers, so we seek out agents and attorneys who've helped others like us invest successfully.

That said, we've learned not to become instantly comfortable with or to trust a real estate agent solely because he speaks English.

Years ago, Lief was presenting the idea of buying property overseas at a conference. He explained that many of the gringo (North American) real estate agents you can run into in Central America in particular may not have been in the country very long and may not have had any real estate experience before they landed. Lief made up a story on the spot to explain. “Maybe your real estate agent on Roatan you're speaking with doesn't know that market at all yet. He could have just moved from Florida three months ago where he was a travel agent,” he said.

As he gave the hypothetical example, someone at the back of the room got up and stormed out. After his presentation, the conference director came up to Lief to tell him he had to apologize. “For what?” Lief asked. “I've been on stage. How could I have insulted someone while up on stage?”

It turns out one of the agents participating in the event who was with a real estate agency from Roatan had only been with the agency for three months. In fact, had only moved to Roatan three months before from Florida … where he had been a travel agent.

Although Lief really did make up the example on the spot, it was based on long experience dealing with real estate agents in markets across Central and Latin America. North Americans retire or otherwise move to their dream destinations overseas and either get bored or need to earn money. Becoming a real estate agent is the easiest job to get. In some cases, the only job they can take because they don't have work permits, and no training or licensing is required.

If the real estate agent you're speaking with isn't local, ask them how long they've been in the country. Ask them how long they've been selling real estate. If they've been in the country less than a year but have real estate experience from where they came from, then they're likely to have educated themselves quickly on the current state of the local market. You're better off working with that guy than with a former travel agent fresh off the boat from Florida.

You should ask the same question of a local trying to sell you real estate. How long have they been in the business? You'll find that everyone you meet anywhere in Latin America will have a piece of real estate to sell you. Mention to your taxi driver that you're shopping for an apartment, and he'll know someone who has one for sale. That can be an effective strategy for searching at a local level, but you need a lot of experience and knowledge of the local market before making yourself vulnerable in this way.

When shopping in the United States, you entertain any conversation about the purchase of a piece of real estate taking many things for granted. You're confident not only that you don't have to worry about things like history of ownership and promised future amenities, but also that, should something go wrong, you'll have some recourse. You assume that you could file your grievance with some oversight agency. Worst case, there'll always be somebody you could sue—right?

There's no Honduran government agency that regulates the sale of real estate to foreign buyers, and how are you going to sue somebody in Nicaragua? You aren't. So you need to make sure you don't end up in a situation where that seems your only option. How do you do that? As we're explaining, you engage a good attorney to protect your interests.

Your attorney is your most important ally when buying, selling, or renting real estate in any overseas market. While you might buy real estate in the United States without ever thinking of engaging an attorney, we suggest that you never buy real estate in another country without—first thing, before you do anything else—finding a local attorney you can trust who speaks real English, who has experience working with foreigners, and, who, critically, works for you. Not for the seller, not for the property developer, but for you, and sharing doesn't count. If you're sharing an attorney with the developer or seller, whose interests come first in his mind when an issue arises? Note that this is what most developers in most developing markets push for. “My attorney's great,” the developer you're intending to buy from will tell you. “He has helped dozens of Americans buy here. He knows his stuff. You'll love him. I'll put you in touch.”

Resist the temptation. It will seem the easy, efficient solution, but it puts you at a disadvantage throughout the purchase process.

That's the first important point to understand about engaging an attorney to represent your interests as you shop for real estate in any foreign market. The second has to do with language. What do we mean when we say you need an attorney who speaks “real” English? We mean that you need to find an attorney who understands what you say when you speak to him not only literally but figuratively, as well. Think of the differences between U.S. English, British English, and Aussie English and the misunderstandings that can occur as a result. Now imagine you're speaking to someone who learned his English with the help of a tutor later in life or someone who learned to speak English by watching MTV as a kid (I've known many in many places around the world for whom this has been the case). That person may understand the words you're speaking, but that doesn't mean he's following your underlying meanings, your slang, your metaphors, your points of reference, and so forth. When your money is on the table, you want someone who processes the nuances of your instructions as well as the literal details.

Finding a good local attorney, one who speaks English and who has had experience with foreign property buyers, should be your number-one priority when you enter a new market with the intent to buy—your first order of business—best accomplished before you begin scouting, searching, or viewing. How do you find a good attorney in a foreign country? You do it by referral. You don't want to make this decision based on an Internet search. You want to work with an attorney you find via some personal recommendation, ideally the personal recommendation of a fellow expat. Ask everyone you communicate with in any market where you're thinking about buying for an attorney reference. Identify two or three attorneys whose names come up again and again. Contact them. Interview them, by e-mail and then by phone. Take time to get to know them.

Once you've made this all-important first connection, you can build out your in-country network of contacts from there. The attorney you choose to work with can recommend real estate agents, bankers, accountants, even carpenters, contractors, electricians, and, very important, other expats who've already invested in the country. This is how we've built networks of contacts that we trust and that in some cases I've now worked with for going on three decades in dozens of countries.

In addition, when trying to get your head around a new market, seek out and spend time with locals not in the real estate business, from taxi drivers to waitresses, shop owners to bar tenders. Their insights into the real estate market can be most valuable. In Medellín, for example, on one of our first scouting trips, we had one of our most helpful 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 to mention.

Ask everyone you speak with the same questions. You'll be surprised by the variety of answers you'll get. Some will be completely contradictory. In some cases, you might ask six people the same question and get six different responses. Our first scouting trip in Medellín, 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. Do you know what that is?” he asked. Yes, we knew what that was—a residency card issued only to those with legal foreign residence status. That left us out.

Here's a checklist of questions you should also ask everyone you encounter in any new market you enter:

  • Which are considered the “nicest” neighborhoods?
  • Which are considered the up-and-coming neighborhoods?
  • How much does an apartment or a house 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?

Ask general questions about the local economy and local industry. Ask about the current president or whoever is in charge of running things. 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 though it will seem, will help give you the lay of the land. The more conflicting the responses, the wilder the market.

The next step is to begin to get a handle on procedures. For this, you'll need help from your attorney. Here's a checklist of questions to ask him:

  • What are the transaction costs for buying and selling real estate? You'll want to know the “round-trip” costs, as we 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 many emerging markets, for example, you'll be told that it's common practice for the purchase price for a piece of real estate to be understated (perhaps significantly) on the sales documents. This can have advantages (when it comes to paying property taxes, for example), but it also can create problems down the road, to do with capital gains tax and foreign exchange controls if they exist. Even if you're assured that “everyone does it,” we recommend that you don't. Even if it means paying the seller a little more (as it can), insist that the full purchase price be represented on the purchase documents.

Exchange controls are an important point to understand with the help of your attorney. Will you have any trouble taking your money back out of the country when you decide you're ready to do so?

While you're playing private detective and asking everyone you meet the same series of questions, you also want to be observing. As you are learning your way around the area, do you notice signs of an active economy? Are people out at the malls and restaurants shopping, spending? What's the infrastructure like? Are the roads well maintained? Are the parks and public areas taken care of? Do you see garbage in the streets or on the sidewalks?

A strong local economy can translate into one possible exit strategy for your real estate purchase. If no local economy exists or if the local economy is small and limited, then you're likely going to be limited to selling 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. Having a local market can reduce your investment risk.

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, and so forth. 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 your 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.

An in-country network of reliable contacts is the first part of the pre-purchase infrastructure you need to create. The second part has to do with logistics. Here's a checklist for the administrative infrastructure you're going to need in any country where you purchase real estate:

  • A local bank account or whatever alternative is going to allow you to transfer money into the country and then pay local expenses. In Colombia, for example, you'll have trouble opening a bank account as a nonresident foreigner. It'll be much easier (and just as effective) to open what's called a “fiduciary” account. This is the equivalent of a Schwab account in the United States.
  • The ability to wire funds from your home-base bank account using fax or phone instructions. This may mean switching banks at home, because some US banks require you to come to your bank branch in person to organize a wire transfer. This won't work if you happen to be in Belize, say, or Italy at the time you decide you need to send the wire.
  • The holding structure for the property if you aren't going to take title in your own name—a real estate holding company or a limited liability company (LLC), for example (more on this in Chapter 24).
  • A bank account for that company. We recommend you start the process to open this account as soon as the company is set up, even if you don't intend to use it for some time. It's increasingly difficult to open a bank account anywhere in the world as a nonresident, and it's more difficult still to open a nonresident corporate account.

When you have an in-country network of support established and the necessary purchase infrastructure in place, you're ready for the next step—finding the piece of property you want to buy.

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