IL Postcard

How to Lock Down a $100,000 Brazilian Condo for $750

Date: 10/30/2008 Author: Ronan McMahon

Thursday, Oct. 30, 2008

Read more about Fortaleza, Brazil, in International Living Postcards—your daily escape

Dear International Living Readers,

As I told you yesterday, I am still extremely bullish on Fortaleza, even during the current global financial turmoil.

On my recent scouting trip to Fortaleza, I looked at many different types of real estate investment opportunities. Before I invested, however, I needed to weigh what opportunities would maximize my return on investment and suit my profile as an investor.

I looked at beachfront, second tier and back lots, pre-construction condos in the city and on the beaches, resale condos, parcels with potential for development…and even a coconut farm. The only investments I thought flat out made no sense were back lots with no infrastructure…in fact I’d go further and almost call selling these a scam.

How could I maximize the use of my limited capital?

As I’m not on the ground in Fortaleza, I’ve ruled out becoming a coconut farmer and concentrated on retail investments. The strength of the local rental market within the city got me interested in condo opportunities. However, financing isn’t available and I like leverage, so that narrowed my search to pre-construction opportunities.

In most markets, pre-construction terms are pretty standard and rarely deviate greatly from project to project. In this part of Brazil, I have seen projects that accepted as little as 0.75% down payment at the contract stage…others offered generous pre-construction discounts for early-in buyers who put 100% down. Some developers are offering terms in between the two examples given above. For example, 30% down, 40% during the build period, and 30% on completion. Some of the European developers sell with 30% down and the balance on completion.

One developer I met with was offering a genuine discount of up to 30% for the first eight buyers who would buy and pay 100% of the purchase price up front…before a sod was turned. So you could pay $70,000 for a condo that would sell for $100,000 today if construction was complete. (Pricing in Brazil is always in reais, so you need to consider your currency exposure.) You will be waiting up to a year for your unit to be delivered, and, of course, you are bearing some of the development risk. Effectively, you are financing construction and your payout is a condo. In this scenario, if the market sees an uplift of 20%, your $70,000 investment could yield a $120,000 condo. Interesting, but not the route I chose.

The low money down (as little as 0.75%) is what really got my attention. These are the terms offered by Brazil’s big developers to the local market. Here’s how it works: You would pay as little as $750 down on a $100,000 condo. Monthly payments over a three-year period would also be in the region of $750 with the balance due when your unit is handed over to you. Developers frequently offer financing of the balance once you take possession of your unit. In most cases (but you’ll need to check), your contract will be assignable, which means that you can sell on your contract. Now that’s what I call leverage…and in a market appreciating as quickly as the market in Fortaleza, that’s exactly what I’m looking for.

In the past, these terms have been restricted to “local insiders.” However, with the group buying power we have through Real Estate Trend Alert, I have been able to negotiate not only access to these terms, but even better…we get access to the deals before the local market and at a lower price. This August we got access to a deal one month before it was released to the local market. RETA members paid 15% less than the price that was offered at the official launch party. We paid 0.75% down, unlike the locals, who paid 5% down. IL’s Roving Latin America Editor Lee Harrison attended the official launch for this project in Fortaleza. He witnessed the local buyers scramble for the units we hadn’t bought. He didn’t really believe what I had been telling him about this market until he saw it with his own eyes.

Today I told members about another similar deal that won’t be released to the local market until Nov. 20. I have my name on the list of buyers for this project already.

Don’t worry if you are not yet a Real Estate Trend Alert member, I will be opening up membership again next week and will fill you in on all the details you will need to take advantage of these amazing offers…so stay tuned.

Ronan McMahon

Read related IL Postcards:

- Update: Fortaleza Is Still Booming

- Why Now Is the Time to Invest in Fortaleza…

- The Next Brazilian Hotspot…but Hurry