Foreign Mortgage Opportunities

Foreign Mortgage Possibilities in Medellin

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 the 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 10-12% 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 many 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.

Thus First American Realty Medellin has reached out to our 325 owners (our listings) and 50 of them have indicated they will accept a mortgage. First American has completed several of these already and the mortgages are fully registered and legally enforceable in Colombia.

Here are the areas that need to be negotiated between buyer and seller along with the normal terms:

  • Down payment – 30 to 40% typically
  • Amortization – one to five years typically
  • Interest rate – First American 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)

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 insuring a positive cash flow if you rent

Example of leveraged investing utilizing an amortized mortgage

Example #1 – Purchase of two level penthouse which needs to be furnished, some remodeling and the addition of a roof top Jacuzzi

Sales Price$180,000 USD
30% down payment$54,000 USD
Balance due on Mortgage$126,000 USD
Net Rental Income per month$2,200 USD
At 75% average occupancy$1,650 USD
Average monthly expense$555 USD
Net Monthly income$1,100 USD
  • Assuming a mortgage with 30% down payment, five year amortization and an 8% interest rate, the monthly mortgage payment would be = $2555 per month.
  • Thus in this case an average monthly negative cash flow would be expected of about $1455 per month. Thus for this example you would be paying off your mortgage with an average monthly out of pocket expense of $1455.

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

Example #2 – Purchase of two level penthouse which needs to be furnished, some remodeling and the addition of a roof top Jacuzzi

Sales Price$180,000 USD
30% down payment$54,000 USD
Balance due on Mortgage$126,000 USD
Net Rental Income per month$2,200 USD
At 75% average occupancy$1,650 USD
Average monthly expense$555 USD
Net Monthly income$1,100 USD
  • Assuming a mortgage with 30% down payment, 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 a monthly positive cash flow could be achieved of about $340 per month.

Both of these examples assume that owner occupancy would not impact the 75% estimated occupancy rate.

In the future First American Realty Medellin does expect mortgages to be made available to foreign buyers of Colombian real estate either through Colombian banks or through private investor financing. First American believes the private sector will be the first and has plans to explore this with several private investor groups.

In the meantime First American does have about 50 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.

To find properties that have a mortgage available, use our search box on the home page and select “Mortgage Available” from the feature list.

If you are interested in finding out more about this service or any of the other services we offer then please send us your details in the form below.