Buying Real Estate in Central and South America

Today we decided to explain, not legalities, but a few idiosyncrasies about negotiating to buy real estate here that I think you are unlikely to read elsewhere. At least I didn't. I wish somebody had told me this ten years ago. It is easy to understand why expats are frustrated with getting things done in South and Central America. In some ways this market operates similarly to the U. S. and Europe, but in some ways it is very different. I think you will see that, insane as it might seem to a newcomer, it does have a certain logic.

We recommend doing your research, deciding what country seems best for your situation, moving to the area, renting, and living there for a year or so before buying. We know that this is not always possible. Some of you can only come with the idea of establishing a retreat for your family and then you need to return to your home. But we think that ours is the best plan if you can do it. Here are the reasons.

First, you almost have to live in a place for a while before you know if it really suits you or if another area is better for your situation. 

And then there are the idiosyncrasies of the real estate market. In parts of the world with which most of our readers are familiar, a seller would never set a sale price for real estate and then raise it after he or she has a buyer. But in this part of the world, they sure will. In fact, it may well be part of the strategy.

This doesn't happen all the time, but it happens often enough. It will frustrate you and challenge your patience unless you understand it. There is a different sales psychology here. 


For the purpose of illustration, let's say you have found something you like. You have negotiated and reached an agreement on the price and terms. Ah, you think, it's a done deal, right?


Not necessarily! It is common for the seller to raise the price mid-stream. I have personally had them, not just go up, but double the price after we reached an agreement. And of course I didn't buy. I left town in disgust and shook the dust off my feet! That was back when I didn't understand how deals are often made here.


And then there is the counter strategy. Let's say that you are the buyer. You and the seller have reached an agreement. It appears to be solid. But a few days after you reach an agreement, you contact the seller to say that you have thought more about it and have decided to reduce the offer.


Think of the psychological effect. Maybe the sellers have been trying to sell for a year or two. They are relieved because they think that they have a deal. Mentally they may have even begun to spend the money. And here you are reducing the offer. You are getting away . . . maybe!


If the drop is not too ridiculous, the sellers may not want to take a chance on losing you--a real, live buyer. Or they may. It probably depends on how they perceive the market and their personal situation. But the point is that you just never know until the deal is closed.  You are still negotiating, even though they thought it was over.


For these reasons, it can take a year to negotiate an equitable real estate price. Here is a good example of how it often goes. A friend who lives in Uruguay had been trying for some time to buy some commercial real estate that she liked in the downtown area. She would negotiate for a while, the owner would not agree to her offer, or vice versa, or they would have an agreement and he would change at the last minute and my friend would cease negotiations.


A couple months later he was back making a new offer, more negotiation, until no agreement could be reached and the negotiations again ceased.


I was in her home visiting her when the bilingual person who was helping her with the negotiating came to the house to say, "He has agreed to sell. This time I think he means it." My friend could hardly believe it. But I accompanied her to the closing and it did, indeed, close on schedule. But it took almost an entire year to achieve it.


This is not unusual in our experience.


Here is another interesting idiosyncrasy of real estate sales here. These people are not very trusting--even of banks. You don't take a cashier's check to the closing. No! You go to your bank and get the cash and take that to the closing. A closing can take all afternoon or--who knows--all day depending on the size of the purchase, because they scrutinize every bill, hold it up to the light and scrutinize it some more before it is accepted. 


In light of all this, it is not difficult to understand why it's better to decide where you want to settle, move there, rent, and go about your life. Stay cool! Look for real estate for sale that you like, be careful not to fall in love with any of it, so as to keep yourself in a strategic mindset, and do as my friend in Uruguay did. Eventually you are likely to get what you want.


In another example, one real estate purchaser we know in Uruguay had reached an agreement with the seller and then returned before the closing and lowered the offer. The sellers accepted the new offer. In that case there were four siblings who wanted to sell. All were living outside Uruguay and the building was vacant and needed repairs. Therefore, they were all motivated sellers.


Too often when there are several siblings, you might as well look for another property. Many of these people have such strong family ties that when it comes right down to it, if you have several owners who are family, one of them will not be able to bear to see Grandpa and Grandma's home sold outside the family. One person we know in Argentina has several aunts and uncles who, along with her mother, have tried repeatedly to sell real estate they inherited from the grandparents thirty years ago. Each time there was a buyer, one of the heirs would decide they could not bear to go through with the sale. They finally decided that it will not get done until the dissenters all die and leave it to the next generation and hope that none of the great grandchildren share the emotional ties with the real estate. In this case, only one of the owners still lives in Argentina. Therefore the burden of looking out for the property falls on her alone and she really would like to sell. But until all are willing to sell, nothing is going to change.


Many exchanges here are what we would consider normal. For example, in 2004, during Argentina's last financial crisis, one of my family members walked into a real estate office in Bariloche, Argentina, and bought a small apartment overlooking Lake Nahuel Huapi with no negotiation. He paid $14,500 at that time. Incredible. But it was during one of Argentina's worst crises. The Argentina peso had been devalued through inflation, leaving many middle class families in poverty, whereas the dollar at the time held fairly stable value. Prices were ridiculously low then. I could have bought a two-bedroom apartment in Bariloche at that time, also overlooking the lake, for $60,000.


Bariloche is one of the prime ski resorts in Argentina. One might compare it to Vail, Colorado. Those prices are unheard of except in a crisis. They tell me that two-bedroom apartment now would run about $130,000, which illustrates the reason for timing your buying right in Argentina. This is not as dramatically true in other South American countries as it is in Argentina.


Uruguay, for example, has an excellent banking system and more stability. In fact, it is currently the dollar that is falling against the Uruguay peso. But Argentina's crises usually do affect their neighbors as well--only just not as much. For those who are interested, there is a crisis in the making right now. Argentina has a financial crisis every ten years, give or take a year. Everyone who lives here knows it. Savvy investors do not buy when the recovery has reached a peak. Like now. They wait for the crisis.


Argentines invest in real assets. They have little faith in banks and they invest in what we would call hard assets, not fiat currencies. But normally they do keep their money outside of Argentina in other currencies and wait for the crises.


Crises involve risk. We tend to be afraid of the risks. But at the same time, crises also offer opportunity. There are likely to be fantastic opportunities ahead. We need to look for opportunity.  And as with all investments, knowing our markets is primary.


This is a primer on the psychological factors that are often at work here when buying real estate. We do believe that there are good buys in just about any market. It just takes more dedication--or more good luck--to find them.


In a later article we hope to give you a bit of a run down on the legalities of buying real estate which, in our opinion, are pretty straight forward. There are a few cautions, as there are in any investment. As usual, we will try to flag some of them for you. 


We encourage  your comments!

Copyright Arlean Kelley 2012 All rights reserved.

-------------------------------------------------------------------------------------------------------------

If you know anyone who might be interested and benefit from these posts, we sure would appreciate if you would pass it on to them.

If you think we can help you with anything, don't hesitate to email at newsfromlatinamerica@yahoo.com. Send us an email too if you would like to be added to our mailing list and you received this from a friend (if you received it from us you are already on our list). Likewise, if you decide that you want to cancel your subscription, just send us an email with "unsubscribe" in the subject line. We will miss you, but we understand.