At the present time, there are non-Colombian real estate investors who would like to purchase real estate in Medellin and, other parts of Colombia, but need mortgage assistance. Unfortunately, this is quite difficult in that Colombian banks are not set up to handle foreign mortgages so a foreigner would have to have an established long-term credit history in Colombia, including in most cases, property ownership.

This of course does not bode well for first-time foreign buyers real estate buyers. 

Mortgages in Colombia, even for Colombian citizens, are difficult and quite conservative. Typically, such mortgages require a minimum of 30% down payment, amortizations of 5-20 years, fixed-rate mortgages now in the 12-14% range and an established credit history, including proof of acceptable income.

Such conservative financing prevents leveraged real estate investing and is one reason the Colombian real estate market is steady and not overheated. It is also a big reason why Colombia did not, and does not, have a real estate bubble like the one in the United States in 2007.

Another reason is that there is very little pressure on sellers to sell because the cost to carry is much lower (lower taxes, utilities, administration) and most owners paid cash or made larger down payments on their properties. Thus there has been no forced panic selling.

This lack of mortgage financing is particularly troubling for those foreign investors who have “for sure” funds coming in the next 1-5 years and do not want to miss out on participating in the undervalued Colombian real estate market before international investing potentially kicks prices into high gear.

There are a number of buyers who have specified dates for property sales contracts and closings, lump-sum retirement distributions, account receivable loan repayments, inheritances, business and asset sales, etc., that are certain income distributions in the near future.

Foreign Mortgages are possible with Primavera Realty Medellin

Primavera Realty Medellin (PRM) has reached out to our owners (our listings) and a number of them have indicated they will accept a mortgage. PRM has completed several of these in the past and the mortgages are fully registered and legally enforceable in Colombia.

Here are the areas that need to be negotiated between buyer and seller:

• Down payment – 30 to 40% typically
• Amortization –  one to five years typically
• Interest rate – PRM suggests negotiating the middle between the US market mortgage rates (4-5%) and the Colombian market (10-14%) 6-10% with 8% being the average (but no points)

What information is needed from the buyer in order to ascertain what owner financed property listings that PRM can provide:

1. How many years does the buyer require to make mortgage payments?
2. What is the largest monthly mortgage payment can the buyer afford to make during this time period?
3. What is the largest down payment can the buyer make at this time?
4. Will the buyer be renting out the property, and if so, for how many months per year?
5. In case the buyer prefers a lower monthly interest payment with an interest-only mortgage, 
   1. What is the amount of money that the buyer will be using to pay off the principal? 
   2. What is the source of that payment (i.e., inheritance, sale of an asset, 401K liquidation, loan repayment, etc.)?
   3. What date is the source of payment going to be due?

Some interesting considerations are:

• If you are going to rent your apartment the net rental income can offset, or even fully pay for, your mortgage payment
• Some owners will consider an interest-only mortgage with a balloon at the end thus ensuring a positive cash flow if you rent your property

Example of leveraged investing utilizing an amortized mortgage

Example #1 – The purchase of a well-located three-bedroom El Poblado condo with great views and is well furnished

• Sales Price – $180,000 USD
• 30% down payment = $54,000 USD
• Balance due on Mortgage = $126,000 USD
• Net Rental Income per month – $2,000
• At 65% average occupancy = $1,300
• Average monthly expense = $555
• Net Monthly income = $745

Assuming a mortgage with a 30% down payment, five-year amortization, and an 8% interest rate, the monthly mortgage payment would be = $2,555 per month.

Thus, in this case, an average monthly negative cash flow would be expected of about $1,810 per month. Thus, for this example, you would be paying off your mortgage with an average monthly out-of-pocket expense of $1,810.

Example of leveraged investing utilizing an interest-only mortgage with a balloon payment

Example #2 – The purchase of a well-located three-bedroom El Poblado condo with great views and is well furnished

• Sales Price – $180,000 USD
• 30% down payment = $54,000 USD
• Balance due on Mortgage = $126,000 USD
• Net Rental Income per month – $2000
• At 65% average occupancy = $1300
• Average monthly expense = $555
• Net Monthly income = $745

Assuming a mortgage with a 30% down payment, an interest-only mortgage with a balloon at the end of the mortgage, and an 8% interest rate, the monthly mortgage payment would be = $840 per month.

Thus, in this case, the monthly negative cash flow would be about $110 per month.

Both of these examples assume that owner-occupancy would not impact the 65% estimated occupancy rate.

In the meantime, PRM does have some mortgage opportunities available and is seeking to add more. These seller-held mortgages are legally enforceable in Colombia and fully registered so they do show up on title searches. All terms are negotiated between the buyers and sellers.

For more information on how you can obtain a seller-financed mortgage in Colombia, or to find out which properties in our database are offering a mortgage, Contact Primavera Realty today.