Buying real estate in Colombia

[BogotaJim]

Several years ago I decided to make plans to leave the US and retire abroad.  I began to sell off my real estate holdings consisting of a restaurant, office building, and a couple of condo's.  The US market was peaking and I had no problem disposing of these properties without the use of any realtors.  My next problem was where to invest these funds.  I looked first at Mexico, then Costa Rica and Panama.  I had read so  much hype about what a great place Panama was for Americans to invest I was excited to check it out.  What a disappointment.  Americans everywhere greed ozzing from their eyes, buying everything in site at prices too high for me.  I drove the entire length of the country and all I can say is its so ugly and the only nice looking ladies I saw there were imported from Colombia.  A great sales job by some vested interests .  Their main sales pitch is no land taxes for 20 years on most purchases.  These taxes are so low in these countries to be honest it shouldn't be a factor in your decisions.  Prices in Mexico and Costa Rica were also much too high for me.


I decided that Colombia offered the best bargain for what I was looking for.   The prices in Cartagena were already bumped up beyond my price range so I decided between Bogota and Medllin.  Bogota has good jobs and is always growing but prices there were on average 30% higher than Medellin and I had fallen in love with Medellin so thats where I wanted to invest my US dollars.


I sold the condo I was living in in Fort Lauderdale for $300,000 and it was about 1000 s.f. so figure selling price $300 per s.f.
I bought my first condo in Medellin for $75,000 and it has 1330 s.f.  so about $57 per s.f.


The building in Fort Lauderdale. was 25 years old, taxes were $6,000 per year and monthly maintenance was $310
My new apt. building is 1 year old, taxes are $700 per year and monthly maintenance is $55.


As an investment I could get $1800 per month rent from my old apt. The net return looks like this at 100% occupancy.  Annual rent $21,600 less expenses of $9,700, net income $11,900 on $300,000 or about 4% return.


I am getting $1000 per month from the second condo I bought in the same building in Medellin.    This condo cost me $95,000 and is 1600 s.f..  ROI on this apt is :  Rental income $12,000 less expenses of $1,360, net income $10,640 on $95,000 or about 11% annual return. 


I just purchased pre-construction a small 3 BR 2 bath condo in estrata 3 for $29,600.  This condo has 650 sf so I paid $46 per sf.  This unit will rent for $260 per month, gross rental $3,120 less expenses estimated $600, net $2520 on investment of $29,600 or about 8.5% return plus nice annual appreciation.  I am tempted to buy more of these units because rental agents here will manage these units and they even guarantee 100% occupancy and their annual charges are very low  These units are quite nice with an exceptional view and nice swimming pool and common areas. 


Real estate agents here are virtually useless so you can buy from the builders on pre-construction or directly from the owners.  You should use a bi-lingual lawyer and they charge about 1%.  Years ago when I first brought property in Colombia it was necessary to form a corporation and at least one stockholder must be a Colombian with 1-2% of stock.  Now they are encouraging investors and making things easier.  Once the sale is completed here you need not worry later that a family member or other party might claim an interest in your property because this is not allowed in Colombia.  If they think they have an interest they must express this PRIOR to the closing or they lose their interest.  Many owners will want partial payment in dollars in the US or Panama and this works just fine.  The sale price of the property is shown as the amount of money paid in Colombia so your taxes will be less and everyone is happy.  A word of caution you must negotiate the rate of exchange from dollars to pesos prior to sending the money to Colombia as the banks here are less than honorable and you could lose thousands of dollars if you don't have this in writing prior to wiring the money,  You must wire your funds to Colombia via the Bank of New York to the Republic Bank in Colombia.  This is the legal way for you to bring funds into Colombia. Its not difficult and the lawyer can help you.


http://latin-retirement.com/gallery/get_details.asp?img_id=51

http://latin-retirement.com/gallery/get_details.asp?img_id=52

http://latin-retirement.com/gallery/get_details.asp?img_id=53

http://latin-retirement.com/gallery/get_details.asp?img_id=54

[Dan Las Vegas]

Very interesting post jim, thanks

Dan

[papi]

Thanks counselor…words from the opposing side of the bench:   

Panama is a great place to retire! For starters, they make it a lot easier than Colombia. You can stay up to 90 days on a passport and then just leave for 72 hours. No limit on annual stays like Colombia. And getting a retirement visa is a lot less red tape.  Panama wants gringos and is aggressively going after them offering substantial savings for retirees including large discounts on plane tickets, restaurants, entertainment, etc.

Panama is a far more stable country with a better infrastructure and economy. There is plenty of beauty, beaches and so forth if you know where to go and the city also offers a lot.  Regarding chicas…I have seen many hot Panamanians  (www.panamatalents.com) and the country is also full of Colombians.  Plus, it is an easy trip south to Colombia from Tocumen airport. Finally, your novia can travel to panama.

www.panamainfo.com

I also happen to be a fan of Costa Rica.

If I was going to buy real estate in latin america…i am not sure Colombia would be tops on my list.

[papi]

i noticed one of your competitors is selling real estate to gringos. Will you be putting out a real estate shingle in Mde?

[papi]

Benefits for Foreign Retirees
The government of Panama has the best incentive program in the world for foreign retirees.

Some of the benefits are:

One-time importation duty exemption on all your personal and household goods up to $10,000.

Importation duty exemption of a car free of taxes every two years. (Other taxes do apply)

All foreigners ( not just retirees) who purchase a home of more than $200,000 have the right to a residency visa.

100% Property tax exemption for sole residence

The following benefits are for all retirees- both Foreign residents and Panamanian:

50% off closing costs for home loans.

25% off both international and domestic airline tickets.

50% off hotel accomodations Monday-Thursday

10% off prescription medicines ( which are inexpensive to begin with)

15% off dental and eye exams.

30% off bus, boat and train fares.

25% Restaurants

25% Airfares


15% Fast Food Restaurants

20% Doctor visits and Surgery


25% Monthly energy, phone and water bill

15% Optometry services

15% Dental

50% Hotel from Monday thru Thursday and 30% on weekends

50% off entertainment including movies, concerts, sporting events and theater everyday. ( This means for example, a movie ticket will cost you $2. And Panamanian cinemas receive American movies about the same time they come out in the States.)

In Panama all banks (mandated by law) have special express lines for Retirees.

And don’t forget, you can hire a full time maid for less than $200 a month. That is probably the most helpful “retiree benefit”.

[doombug]

You're a very fortunate chap, BJ.

And thanks for putting together and sharing all of that info.

[papi]

well Doom...you didn't expect me to agree with Jim did you? hehe. Medellin is a beautiful city - I myself would have a lot of reservations though about
buying property anywhere in Latin America. Although, gringos that did it 5-10 years ago have probably seen nice increases, especially in Panama and Costa Rica. If I was going to buy in LA - I think I would first look at Panama and/or maybe Cartagena.

If guys want to buy - they should look at the Rio Grande Valley in S. Texas - the area is booming and very low cost. I am renting a brand new place with a pool and fitness center for less than I was paying in property taxes in the Midwest. Consider the following:

1. Immigration (some wealthy)
2. Better climate (Winter Texans)
3. Very low cost housing
4. A more stable market than Latin America
5. Far easier financing

[papi]

Over the past few years, some expats have been moving from CR to Nicaragua for low housing costs, etc. Managua is a dump but there are some areas maybe worth a look-see. Yet, the infrastructure is going to lacking and the gov’t is questionable.  Still, there might be some excellent low cost buys on the beach

[markanthony7]

Jim I was curious as to how you arrived at the deduction that the prices for real-estate are inflated?

[bundy_138]

The best time to buy real estate in Panama was when the US turned the canal back over.  The was uncertantity about what was going to happen and many foriegn investors dumped properties to invest elsewhere.  I was in Panama for several months while in college.  My dad was stationed at Ft. Clayton.  I met a wealthy family that had purchased several oceanfront properties at reasonable prices.  I can only imagine what they are worth now.

Man, those were the days. 

Bundy

[papi]

I met a wealthy family that had purchased several oceanfront properties at reasonable prices.  I can only imagine what they are worth now.

A lot!! far more than any gains folks have made in colombia

[Fuzzyone]

Jim

   Thank you very much for the post. I think you are a vauable source for this forum. I have to agree with you I feel that the best place for retirement is Colombia. I plan in the futre of living in Barranquilla. Your comments of Panama I think were right on. The market there is way over heated alot of investment is flowing into the country. Not to say anything bad about Panama but I think if you are careful you will get alot for your money in Colombia.

[Gator]

Since you asked about Colombia (having bought both residential and commercial) I will confine my reply to that country.

"Existing law in Colombia has given full legal rights to foreign citizens who want to invest in Colombian real estate. Anyone can buy and own a real estate in Colombia. The new law (Decree 241) has made the procurement procedures much simpler, firstly, by permitting foreign investment in real estate without limitation; and secondly, by repealing a constitutional provision that empowered the Colombian government to confiscate foreign-owned property without providing any compensation.

In order to purchase real estate in Colombia, the buyer and the seller have to enter into a purchase/sale contract that is to be contained in a public deed and registered in the real estate records office in Colombia, which is called the departamento de bienes raíces in Spanish. The contract must include the name of the buyer and the seller, their respective I.D. numbers, the property’s boundaries, the sale price, method of payment, and all other general information such as property’s real estate number and commission plan, if a broker is used.

The buyer can sign either directly or through a third party representative. In the case of the former, the purchase/sale contract is realized through a preliminary public deed (minuta) that is later finalized by the notary for registration. In the later case, the buyer must provide a special power of attorney to his or her notary, who must have a proof of certifiable Colombian identification to sign the contract on the buyer’s behalf. The power of attorney needs to be signed by the buyer before a public notary unless made abroad in which case the Colombian Consul in the country where the document is made must legalize the signature. A power of attorney that is signed abroad is considered valid if legalized by the Ministry of Foreign Affairs.

Before purchasing property, it is essential to verify that the property offered for sale actually belongs to the person selling it and that it is not subject to any liens or other financial attachments. This can be accomplished by requiring the seller provide the property’s ownership history and a no-lien certificate (certificado de tradición y libertad), which should date back not more than one month. Requests for the ownership history and no-lien certificate of the property can be made at the local public instrument records office (Catastro in Spanish) in the area where the property is located. Included with the request should be the property’s real estate registration number, the owner’s address or I.D., and evidence that the certificate issuance has been paid.

The clearances of all the taxes can be ensured by obtaining an account statement of the property from the treasury office (known as oficina de información fiscal in Spanish) of the city or district where the property is located.

The purchase/sale public deed requires the following documentation:

• Power of attorney issued by the buyer, if applicable.
• Value-gain payment certificate evidence of payment of the value-gain taxes; generally levied by all municipalities.
• Property tax payment certificate or photocopy of the latest tax return statement, with evidence of payment.
• If the property is subject to a condominium regime (in the case of condos or houses in a residential complex) a payment certificate certifying that all maintenance and other fees are up to date. Alternatively, the seller may submit a notarized copy of the public deed that contains the condominium or association rules governing the property.

Financial Matters
The Colombian government requires foreigners to use “clean, non-laundered money”. Investors must deposit funds into the seller’s account by completing the Central Bank’s Form No. 4. This cash transfer is not subject to any taxes since it is a foreign investment. However, the buyer within 30 (or 60) days must register (using Form 11) the foreign investment with the Central Bank and attach the property’s ownership history and no-lien certificate. This registration is mandatory if the buyer wants to exercise his foreign exchange rights, such as remitting the money abroad when he or she resells the property.

The payment of the agreed sale price has to be made to the seller in full. If the property has liens, then an initial down payment of 20 to 30 percent of the sale price is made to commit the seller to clearing the liens and other encumbrances such as unpaid taxes and unpaid municipal utilities.

The prevailing interest rates in Colombia vary annually for real estate loans. These loans are short-term loans and are primarily given to Colombian nationals.

Foreign buyers should engage a local broker with ample experience. The commission that the buyer has to pay to the broker is customarily 3% of the property value.
Other Important Issues
Taxes and other charges applicable during the process of acquiring real estate in Colombia as well as certificates dealing with the history of the property, detailed title enquiry and two certificates from the municipality, the Paz y Salvo Predial (which indicates that all municipal taxes on the property have been paid) and the ‘ Paz y Salvo de Valorización (which indicates that all taxes related to the increases in the value of the property due to improvements to the property or area have been paid) are generally borne by the buyer.

The notary office where the public deed is registered charges notary fees equivalent to 2.7 per each thousand of the sales price (normally the buyer pays 50% and the seller the other 50%).

If the seller is an individual, then 1% of the sales price is deducted as withholding tax (this tax corresponds to the seller). It is deducted at the source with the objective that the income does not leave the country with out being taxed.

Registration of the purchase/sale public deeds with the Public Instrument Records Office (Catastro) carries a payment of the corresponding registration tax (equivalent to 1% of the sales price), as well as the registration fee (equivalent to 0.5% of the sales price)."

I can not stress strongly enough a GOOD attorney, knowledge in real estate, is an imperative investment. There are companies that do will real estate records searches-ask at any notary for a recommendation.  Also find and retain a good Contadore Publico (Certified Public Accountant) to help in filing the required forms, especially Formularios (forms) 4,5 and 11. Do not depend on the banks or a "run of the mill"attorney as these form are not that commonly filed so you NEED someone who is familiar with the process.

Net profits earned from investments are taxed by the Colombia government, at reasonable rates, before profits can be transferred out of Colombia. If you do NOT plan to repatriate funds it becomes simpler.

There are strict and somewhat complicated laws and regulations in Colombia for the import and export of dollars and converting dollars to pesos. If you do not follow the exact instructions regarding forms and time frame you will have a painful and probably painful experience. Funds transferred may be taxed at 46% on the repatriation of these funds.

You must report or make a declaration to the Banco de la Republica in Colombia. Form 5: This is a form you may use for reporting the importation and conversion of your funds to the Banco de la Republica. Assuming the funds are remaining in Colombia you have no further reporting responsibilities for the importations of your dollars. However, if at a latter date you have a need to sell the property and repatriate the money, the funds will be taxed at a 46% rate.

Declaration No. 4 and Declaration No. 11: A Foreign Investment in real estate is better handled by filing forms 4 and 11. Declaration of the import of dollars are reported to the Banco de la Republica with Form 4. Within 3 (this may have changed) months you must follow-up with Form 11 to legalize your purchase. Form 11 must be presented along with the contract of purchase, or promesa de compra venta, with-in this 3 month time frame. There are some exceptions to the 3 months. Professional help is best to navigate the exceptions you might be able to use.

If you use Form 4 and 11, and maybe 5 for the foreign investment you will be able to repatriate the funds out of the country without the 46% government tax. Most can purchase a house or apartment using this method. You will also likely need from DIAN a a tax ID number called a RUT. This number will identify you as a tax payer. You will use this number to report any annual tax liability on assets.

P.S. If you have an attorney NOW don't worry about what I say-you are PAYING him for his/her advice so I damn sure would follow what advice he gives you. You paid for it so use it.

Good luck, take your time, and doth the "i's"and cross the "t's."

[markanthony7]

When I purchased my Condo 3 and a half years ago, it was so inexpensive I purchased it with my credit card! seriously   www.cartagenacondos.com, I guess thats why I did not understand the suggested property was expensive in Cartagena, in the last 3 years property has begun to appreciate vastly more people are starting to find out about the opportunity, so in you are thinking, don't think anymore just do it before it goes through the roof, because the prices are still very moderate in comparison to everywhere else

[BogotaJim]

I have closely watched the real estate market in both S Florida and Colombia for years.  My opinion is that Colombia is about 6 years behind S Florida.  This means that I expect prices to continue to increase in Colombia for at leaST 4 YEARS AND PROBABLY MORE. I like the Colombian market because there are not a lot of spectatulators buying in hopes of flipping the property when the pre-construction is completed.   The occupancy rate here is very high when buildings are completed, these are owner occupants - not speculators.  I have noticed that in Colombia houses that were for sale or rent have been turning over rapidly and its hard to find available rentals. I also like the fact that many Colombians who left here 5 to 10 yearw ago are selling their expensive US properties and returning home with the windfall to invest here.   As in investor I want to get about 10% or more return -cash on cash- for my investment.  In addition I expect the property to appreciate.  At this point in time I find many properties here that fulfill these requirements so my advice is buy now.  If you are looking in Costa Rica, Panama, or Mexico you won't find many properties that will allow that  kind of return. 

Everyone who is buying now in S Florida is watching their insurance cost triple and taxes also about triple so even after a cash purchase the new owners are taking a bath.  The sellers are going to N Florida or N Caroling with their money and re-investing there. 

[daytrader]

Good post Jim....the other thing not mentioned is that the USA is dumping $3 billion into the Colombian economy in foreign aid each year;  this is aiding the country's currency, and also the building boom prevalent in Cali and throughout other cities of Colombia, particularly Medellin. 

I've read where there is more construction in Medellin and more leased cranes (to build the multi-story buildings) in Medellin than anywhere in the World...wow!  The time is now, it looks like. 

I did read where there are some higher than average vacancy rates due to all the new construction in Medellin...that is good for renters for the time being.  There could be an issue with Medellin being overbuilt in the coming years I would defer to the real estate experts in that area for advice. 

DayTrader

[Ctg Bound]

Not sure where you get the 3 billion in US aid coming into Colombia each year from the USA.

Possibly you mean plan Colombia which works out at 500 million a year in military aid.

There is very very little actual real money involved, it is mostly equipment and advisors, which are from the US, so most of the money never leavers the US.

The UK is the same, which sends approx 100 millon dollars a year, they like to keep it quite, so most people don't know about it.

The  money flowing into Colombia is from overseas Colombians sending money home, wealthy Colombians returning money, foreign investment money and of course drug money.

[daytrader]

Sorry, we're both off on the foreign aid figures, I was doing it from random access memory of my brain, which is definitely not perfect.

The amount of financial aid is about $750 million annually from the USA.  Here's the table.  So, maybe it IS $3 billion a year including drug money...LOL! 

http://ciponline.org/colombia/aidtable.htm

DayTrader

[Ctg Bound]

Not really, Plan Colombia is approx 500 million a year, if you look at the time since plan Colombia started.

Don't think they get much more AID here in Colombia, a few hundred million certainly, but not billions.

But much military AID comes with strings attached, like you have to buy the bullets and spare parts from the source Country, so then pesos in this case flow in the other direction.

I used to be involved with international weapons sales in the UK, there are always a lot of strings to benefit the nation sending the equipment.

[Ctg Bound]

Thanks for the link, I have book marked it.

[valuedcustomer]

Thanks for the informative post.  I plan on retiring to Bogota.  There are some really charming communities there in the safe part of the city and there are always many things to do in Bogota.  I sent some money to my wife’s mother in Santa Marta and she was followed by two men and almost robbed.  My wife says that Santa Marta is becoming dangerous.  Based on my information, I wouldn’t retire on the coast.