If you have ever seen an episode of the television show International House Hunters, the thought of owning foreign property has probably crossed your mind. However, you probably became bogged down in negative thoughts almost immediately. After all, the entire process of buying rental property can be a daunting task and most people do not have a clue on where to begin. So it usually remains a dream inside your head.
As you read further, this article will provide a solid foundation for purchasing real estate worldwide in one foreign country I know very well, Brazil. The laws are different in most countries, but the basics still remain the same when buying property in Brazil.
Brazil encourages foreign investment and therefore does not place any restrictions on the ability of a foreigner to buy or sell property of any kind in the country. As a non-resident, you are allowed to own 100% of a property in your own name.
So now you just need to know where to begin, right?
First you need to go to Brazil and look in the area you are interested in and determine if you actually can see yourself living there, or staying there for months. Learn about the Brazilian culture and the area around you.
Do not trust online rental sites and their photos. Go and see the actual properties. Touch them, feel them, smell them. You need to know that you are 100% sure you want to do this.
If you are contemplating living in Brazil, then more than likely you have visited the country already. The cost of living in Brazil is very low in most areas, but some of the major metropolitan areas like Rio de Janeiro real estate are very expensive in some locales.
Assuming you already have your Brazilian visa in your passport, you will need one more thing before you begin the purchasing process, something called a CPF number.
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Apply for a CPF Brazil
What is a CPF?
The Brazilian CPF number is the equivalent to the American Social Security Number. You will need one of these to do practically any purchase in the country, including purchasing and registering a SIM chip for your unlocked GSM phone or even obtaining a grocery store rewards card.
Fortunately, these are fairly easy to get even though you are not a citizen or resident. For the property buying process, this number will identify you for tax and title purposes.
There are 2 locations to apply for a CPF:
- Corrieo (Post Office)
- Bank of Brazil
At either location, you apply in person by simply filling out an application and paying a small processing fee between R$5 - $R10. This application is processed by the Receita Federal, the Brazilian equivalent to the IRS in the USA. If everything goes right, you can go to the Receita Federal office with your identification and get your CPF number within days.
Your actual CPF card will be mailed to you at a later date, and you must have a permanent address to receive it. If you are not currently living in Brazil, you can have it sent to a real estate agent or travel agent, or other person living in Brazil.
You can also apply for a CPF number in your home country by going to the Brazilian Consulate in your area. Again, a small processing fee is involved. This method can be an issue in the USA because of the scarcity of Consulates. They are only located in major cities scattered around the US. Furthermore, another downside to this method is that it as much as 3 months to get approved and receive your card in the mail.
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Do I need a Lawyer for the Purchase?
This may seem like a dumb question, but the fact of the matter is that most Brazilians do not use lawyers when purchasing property in Brazil. Nor is there anything similar to what we call Title Insurance in Brazil. It exists, but as I was told by a lawyer I talked to briefly, it is usually only used for large commercial properties.
Brazilian residents are automatically protected when using CRECI registered real estate companies who are certified to know the buying process in Brazil. Therefore, many Brazilian opt to skip the additional cost of hiring a lawyer.
The situation is a little different if you area foreigner because you do not have those same protections by using a certified real estate company. Therefore, you can expose yourself to many risks as an investor, especially if you are not fluent in the Portuguese.
In my own personal experience, although I was a foreigner, I was also a Permanent Resident, so I was covered. Therefore, I did not use a lawyer. There is also a title and background search on the property that is performed by the ‘Catorio’ office (basically a legal services office) that you will eventually register the sale with, but I will talk about that later.
So if you are a foreigner new to Brazil, I recommend going through a reputable real estate agency and hiring an independent lawyer to oversee the purchase. You will want to look for a lawyer registered with the Ordem Dos Advogados Do Brasil which is the equivalent of the Bar exam in the USA.
Your lawyer and the real estate agency will research the property and verify the owner and if there are any suits or liens against it. The basic services that are provided by real estate lawyers are the same as in the USA.
- Check the title is accurate and belongs to the current owner
- Check for any liens and liabilities still owed on the property
- Advise and assist the transfer of funds for payment of the property
- Ensure the property is registered in your name at the local Catorio office
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Upfront Taxes and Closing Costs
The following represents the taxes you will pay when you purchase the property:
- ITBI is 2% of the purchase value declared, and is paid at the local City Hall)
- Public Deed and notary fees usually come between 1% - 1.5% of the purchase value declared
- An extra ocean tax between 2% - 5% of the purchase value declared applies for some ocean front properties
- There is an annual property tax (IPTU) of approximately 0.6% per year of the assessed value
- If land is involved, the Matricula is 2% of the purchase declared value
- Catorio office services usually are about 1 – 2% of the total declared sale price
Property registration is fulfilled by private notaries located throughout each area you are buying in and each charges a separate fee, usually a percentage of the total price of the property. You can look at this as a type of closing costs that exist in the USA
If you are buying a property that was built after 1973 it should come with a legal document know as a Matrícula. This document lists a detailed property description, all previous owners, the boundary details, any outstanding debts and all legal, financial and judicial transactions relating to the property.
Signing the Contract
A sales contract is prepared by the selling broker and contains all required information of the buyer and the seller, location and specifications. The contract is then signed by both parties. However, you can authorize Power of Attorney to have someone else be present if you cannot be in the country at the time.
A down payment is normally paid when the contract is signed, usually between 10 and 30 % of the the purchase price. This will legally prevent the property from being sold to someone else since it has already been registered as a sale in progress at the catorio registry.
Overall, the taxes and registration fees that you pay at the time of purchase range between 4.5% and 10% of the agreed declared purchase value. The buyer usually pays these fees.
Again, think of it as closing costs. Depending on the type of real estate market you are purchasing in, you may be able to negotiate with the seller to pay for some of the these costs, but normally the seller has already reduced the sale price (at least in their minds) to accommodate this cost. In short, the seller probably will not agree to this unless they are desperate to get rid of the place.
From this point the lawyer or acting real estate agent will arrange and pay the registration of the property into the authenticated buyers name via the cartorio office. This can take several weeks.
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Wiring Money for the Purchase
After the property is registered and the taxes are paid, the full payment will need to be wired to complete the sale.
It is imperative the funds are sent directly from your own bank account to the seller’s bank account in Brazil so that you have an official receipt of funds into the country. This also allows the Brazilian government to record your investment into the country to ensure that there are no problems if and when you decide to sell the property and attempt to transfer a large sum of money out of Brazil.
The funds will be held by the receiving bank until the change of title has been approved. The seller is required to present the purchase agreement contract to the bank to release the funds so you can rest assured that until the contract is signed and the sale is finalized, the seller cannot run off with your money.
Converting to the Brazilian Real
At this point, you are at the mercy of the exchange rate Gods or more likely, greedy or shall we say opportunistic bank officials. They have been known to hold the money for days until a more favorable exchange rate (more favorable to them) can occur. And when you are talking about large sums of money, even small changes of 2 or 3 cents in the exchange rate of the Brazilian currency can equate to thousands of dollars lost for you. For instance, if you are expecting the transfer to go through at 2 Reias to 1 USD, and it goes through at 1.95 Reias to 1 USD, on a $200,000 wire transfer, you are talking about thousands of dollars lost by you. Brazilian Real
If you do get an unfavorable exchange rate and fall short of the purchase price, your agents on the ground can help manage any additional transfer with your bank to ensure that the process is completed. On rare occasions, the exchange rate will spike higher in your favor during this time, and you might end up with an overpayment, which will then be refunded to you. However, I would not hold my breathe on this happening.
But again, this is out of your control so sometimes in life you just have to take a deep breathe and hang on to get through it. I will say that there is something unnerving about sending that much money to a foreign country, but if you have good people working for you, you can relax.
You now own Brazilian real estate, hopefully near the beach so you can have some fun after this month long process. More than likely, your new purchase will need to be renovated and that can bring its own set of challenges. Most restorations will take as much as a month or longer.
Again, you do not have to be a Permanent Resident of Brazil or have any type of investment visa, or Brazilian co-owner or anything like that to buy property so if you hear or read anything like that, someone is lying to you.
So now that the process is over, sit back, relax on the beach or take a ride through the country and enjoy living in Brazil.