Buying Property in Colombia: Putting It All Together
The following is intended to complement our video tutorial “Buying Property in Colombia: Putting It All Together.” Anyone planning to buy property in Colombia should review all the videos and articles in this series prior to actually making an offer.
If you have reviewed our prior articles in this series you should now have a pretty solid understanding of the property purchase process in Colombia. As a reminder, here are links to our prior articles:
The focus of this article is to synthesize all the concepts, observations and recommendations outlined in our prior articles into a comprehensive, step-by-step summary of how to purchase property in Colombia. Remember that the actual mechanics and chronology may vary quite a bit depending on (1) the attorney you use; (2) the actual deal terms; and (3) the specific strategy involved. Bottom line, we consider the following to be the least risky way to purchase property in Colombia.
STEP 1: FIND A REPUTABLE ATTORNEY
There are plenty of great legal service providers in the local market so doing a bit of leg-work should identify several solid options. During this process do avoid the following:
- Attorneys Used/Referred by Your Real Estate Agent: Some of these solo attorneys can be fantastic. However, many are less than reputable. More importantly, many of these lawyers have an incentive to dismiss the actual risk factors involved in a potential transaction because their actual client is your agent.
- Attorneys Used/Referred by Real Estate Management Companies: As mentioned in our “Buying Property in Colombia: Preliminary Considerations” article, there are benefits to using some of these big real estate management companies to locate target properties. However, we do recommend you use an independent attorney to manage the legal aspects of any transaction to minimize any conflicts.
- Attorneys Referred by Locals: Whether it’s your significant other, their family members or even a new local friend, be careful when Colombians recommend a local attorney to manage your transaction.
STEP 2: KNOW HOW TO USE YOUR AGENT
Using local real estate agents can be a double edge-sword. On the one hand, a good agent can be knowledgeable about the local market and can identify great target properties for you to purchase. On the other hand, MOST local agents will engage in unethical behavior throughout their representation. This will include disclosing confidential information about you and/or your deal terms to local sellers and agents in order to maximize their commission. Again, we do believe using a local agent can be useful to a foreign investor but only if the foreign investor is careful during the property purchase process.
STEP 3: CHOOSE IDEAL PAYMENT STRATEGY
As outlined in our “Buying Property in Colombia: Paying Seller” article, organizing a strategy to pay the seller can take weeks and sometimes months. Options include:
1. Using a Local Bank Account: This option is only viable if (1) you are a tax resident; (2) you previously set up a local bank account; and (3) have been using that account for a while.
2. Using a Local Brokerage Account: This option is, by far, the most popular option to buy property in Colombia.
3. International Transfer to Seller: While not ideal, this option is definitely on the table in situations where a foreigner cannot use a local brokerage account.
STEP 4: IDENTIFY TARGET INVESTMENT
There is no MLS system in Colombia and most online listing sources are either outdated or unreliable. This means you really need to do your homework before finding a viable target property. Local agents can be very useful in this process, though many foreigners actually look for listings themselves or even via local assistants.
STEP 5: CONDUCT A SOLID TITLE ANALYSIS
As mentioned in our “Buying Property in Colombia: Title Analysis” and our “Buying Property in Colombia: From Purchase Agreement to Closing” articles, drafting a comprehensive title analysis will help you identify any defects in the title AND will help your local attorney draft a purchase agreement that is tailored to your own specific target property. This will serve to minimize overall risk during the property purchase process and after closing.
Separately, remember that your attorney could experience some push-back from sellers who may not be used to a comprehensive title analysis process.
STEP 6: DRAFT A SOLID PURCHASE AGREEMENT
As described in our “Buying Property in Colombia: From Purchase Agreement to Closing” article, drafting a solid purchase agreement is where your local attorney can shine. Make sure the terms of the agreement (1) anticipate any issues that were found in the title analysis, and (2) protect your interests in a wide variety of scenarios.
STEP 7: TRANSFER FUNDS
Remember that you need to have funds available in Colombia to pay (1) the total purchase price (including the earnest money deposit) and (2) all closing costs. Make sure you follow the instructions of your local attorney closely. Your most important focus, other than getting clean title, is to make sure that you register your investment with the national bank correctly during the transfer process.
STEP 8: PAY EARNEST MONEY DEPOSIT TO SELLER
Remember that you will likely need to pay the earnest money deposit on the day that the purchase agreement is signed. Actual values can vary but it’s between 10% and 20%. Your local attorney should provide clear instructions as to how to disburse funds from your brokerage/bank account to the seller via a certified check or wire transfer.
STEP 9: ENGAGE IN RELEVANT PRE-CLOSING ACTIVITIES
After you sign the purchase agreement, both you and the seller may need to do any number of things including, but not limited to:
- paying off existing mortgages;
- cancelling existing liens;
- paying past due HOA fees;
Actual activities will vary depending on the property involved. Remember that there is not real escrow process in Colombia. This means that you may be acting as your own escrow agent by prepay a ton of expenses/fees weeks, maybe months before you even get title to the property.
STEP 10: ATTEND CLOSING
The closing process in Colombia involves having a fairly lengthy meeting at a local notary (2-3 hours long) where the parties sign the deed documentation that serve to transfer title to the foreign investor. By this point, your local attorney would have drafted and finalized a new deed that is approved by the local notary and would have rechecked to make sure that title on the target property continues to be clean. It is at this point that most sellers will hand over keys to the buyer.
STEP 11: TRANSFER OF TITLE
If you are purchasing your property in a city you may need to wait just 2-3 weeks to have title transfer into your name. If you are purchasing rural property the title transfer process can take longer.
This post is being published for general informational purposes only and it is not intended to provide specific legal and/or tax advice. It should not be used as a substitute for competent legal/tax advice from a licensed attorney and/or accountant in your jurisdiction.