What Is the Most Important First Step Needed for Foreigners to Purchase a Property in Medellin?
Since 2007, Primavera Realty Medellin and its predecessor companies, have assisted more than 600 foreigners to purchase a property in Medellin. And all 600 of these purchasers had to take this critical first step: to open a Colombian brokerage account in order to bring their US Dollars into Colombia and convert their USD into Colombian pesos (COP).
Foreigners need to understand that because of very strict money laundering restrictions imposed by the Colombian Government, opening a brokerage account here is not like opening a brokerage account in the United States or even Canada and Europe. The Government (and Colombian brokerage company) need to have a little more information about you, your background, where your money is coming from and for what purpose are you bringing those funds into Colombia.
It is not difficult or onerous and the process typically takes 2-4 weeks and is done by email. Once your account is approved and set up, you then will bank wire your funds to Citibank New York who will in turn forward those funds to your Colombian brokerage account. Depending upon which Colombian brokerage firm that you use you will have the option of setting up your account in your personal name, a joint account, as a corporate account (both US and Colombian), a trust account or an IRA account.
And what is the cost for opening your account?
Nothing, there is no cost. The only cost that you will incur is when your transfer your funds from Citibank NY to Colombia. Most brokerage firms have a sliding scale of 0.4-0.6% cost to convert your USD into COP. When that is done there will be an additional government charge of 0.4% that is referred to as the ¨cuatro por mil¨. So, figure worst case 1% to get your funds transferred into Colombia for your property purchase.
For example, if you are buying a home for $200,000 USD you would need to add another $2,000 USD to your wire. Additionally, you also need to consider any legal costs for using a qualified real estate attorney (Primavera Realty can make an excellent referral if needed) which typically are about $1,000. Also, a buyer will need to have funds in place for the closing which is 1.8% so in this case, $3,600 USD. Thus, for a $200,000 USD purchase the buyer should plan on sending a minimum of $206,600 USD. Finally, if furniture, accessories and appliances are required, an estimated amount can be included at this time or bank wired later.
Primavera Realty is proud to be associated with and able to recommend two excellent Colombian brokerage firm options:
The first being Acciones & Valores. Acciones & Valores is the oldest brokerage firm in Colombia and was established in 1959. You can see their growth and history on this page. Also, their Linked In page and Facebook Page. And finally, this informative, in Spanish but easy to follow two-minute You Tube Video.
The second would be Alianza. Alianza is one of the leading financial and investment companies in the Colombian marketplace. They also offer accounts to be opened under LLC’s, trusts, and IRAs rather than just individual accounts. Here you can see their Linked In page as well as Facebook Page.
When buyers make their initial inquiry to Primavera Realty, their assigned realtor will encourage serious buyers to immediately open their Colombian brokerage account. They will by introduce clients to an English-speaking brokerage representative who will assist them in the account opening process.
So why should a buyer act promptly and open up their Colombian brokerage account?
- The account is free to set up and open.
- By having the account set up and ready to fund, foreign buyers have equal leverage, or even better, than competing local buyers who may not have their funds in place.
- You do not have to fund your account right away or send any money, simply get the account opened.
- Sellers are more motivated in price negotiations with buyers who they know are serious and already have their brokerage accounts set up.
- For more desirable property’s sellers can change their minds even after agreeing to sell to a foreign buyer, if the seller receives a better offer and the buyer has not sent at least a 10% down payment to secure a Promesa (a legally binding sales contract). Over the past 15 years there have been a number of instances where foreign buyers have lost some great deals because they were slow to set up their brokerage accounts and get their funds in place.
- When the buyer´s account is set up there is no cost or obligation to ever fund, in case the buyer does not find his or her ideal property.
- Once the funds arrive in the buyer´s brokerage account it starts earning money market interest which typically is 2-4 times that being earned in US money market accounts.
- For those investors who will be renting out their Medellin apartments/homes, they can direct rental proceeds to their Colombian brokerage account and earn money market interest.
- Foreigners visiting Medellin can tap into their brokerage account for pesos that they can use for spending during their trip or making additions to their property.
- At any time, buyers can direct their brokerage firm to send their funds back to the United States or any other country they wish.
In summary, the buyer´s most important first step is to open a Colombian brokerage account, quickly and in a timely manner.
Your Primavera Realty bilingual real estate agent is ready to assist at the very beginning of the real estate process to ensure that all goes smoothly as you explore being a Medellin homeowner.