Gringo Dollars

Saturday, Feb. 16, 2008

Read more about buying foreign real estate in International Living Postcards—Saturday Edition

A fellow investor friend moved to Latin American four years ago and started buying land. The first year he thought he was getting the “local price,” as he was paying only three-quarters what local real estate agents were asking for comparable land. In the second year, he was buying land for about half the agents’ list prices. By the third year, he was paying 60% less than the going Gringo rates.

Of course, this ratio won’t hold up in all markets. Many factors, including market nuances and negotiating skills, come into play. But you get the idea.

Here are a few tips on how to get (almost) local prices:

Avoid local real estate agents: To be able to buy at true local prices, you need to avoid the local real estate agents. Buy raw land through an agent, and I guarantee you you’re over-paying. Agents in emerging and unregulated markets know that, as a foreigner, your price perspective is skewed. Where you come from, land is generally far more expensive, so you’re happy to pay more than the going local rate. In your mind, you’re still getting a good deal.

Be aware of the agent’s commission: The agent makes his money as a percentage of the sale, so, of course, his objective is to sell for the highest price possible. Don’t believe for an instant that he’s on your side. He’s on the side of the biggest commission.

Know where to shop: How do you navigate a purchase in an emerging market on your own? You shop for properties for sale by owner. Reading the local newspapers and driving around looking for se vende (for sale) signs is a good way to start. If the sign is in English, you can bet that the price is in Gringo. You’ll need to speak the local language or have a friend who does and who is willing to make the calls for you.

Finding property for sale through the local paper or by driving around yields a better price than through a real estate agent, but it’s still not likely to get you a true “local price.”

Find a trustworthy scout: To dig to the next level, you’ll need to find a local you can trust...someone to act as a scout for you. Using a scout puts a buffer between you and the seller. That is to say, it eliminates the need for you to ever meet him...thus eliminating the risk of a higher asking price thanks to your foreign accent or skin color.

Your scout must speak directly with the owner...not the person living on the land. Make sure he understands the distinction, as the two are often different people. In the kinds of markets where we direct you, typically the land owners live in town and the land is occupied by tenants or employees.

You also want your scout to pin down an asking price...for obvious reasons...before you enter the conversation.

If you have a good and trustworthy scout, you’ll find that you’re able to purchase land at close to true local pricing. This is my friend’s secret...the reason he’s now able to buy land for a 60% discount from the going Gringo rates.

The key to success at this game is patience. All this digging takes time. Best case is when the seller comes to you. If you ask a local if he wants to sell, you’re likely to get a positive response and an inflated price. You want the sellers to come to you.

That is to say, you want the sellers to come to your scout.

Which means he needs to get known. And that takes time.

Lief Simon
For International Living

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- Double Your Money in 3 Years in Eastern Europe

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