If you want to buy an asset in an economical way, a consortium could be a great option for you. A consortium is a type of purchase based on the union of people - individuals or companies - in groups with the aim of building up savings for the acquisition of movable goods, real estate or services. These groups are formed by a Consortium Administrator, authorized and supervised by the Central Bank of Brazil. In Brazil, this market had revenues of 110 billion in 2019, and has been growing at approximately 20% per year.

The best-known type of consortium is the car consortium. But in this post, we're going to go into more detail about the real estate consortium, which has been gaining more popularity in Brazil in recent years. Property consortia, like all other types of consortia, are promoted by consortium administrators, which exist with the aim of enabling their members to acquire goods or services by means of self-financing.

Every month, all the members of the consortium group contribute a certain amount, forming a common savings account for everyone. Unlike a mortgage, a consortium only charges an administration fee, making it cheaper. That said, all participants have the same chances of winning a consortium, and there are two ways to do this: by drawing lots or bidding. And to use either of them, the consortium member just has to be up to date with the installments.

Sweepstakes

The draws basically serve to define the order in which the letter of credit is received. In other words, whoever is drawn first will be awarded first; whoever is drawn second will be awarded next; and so on.

The draws are made with numbered balls, which are placed inside revolving globes. However, for a draw to take place, the administrator must have enough money to buy the asset. If this is not the case, the other alternative is bidding.

Bids

In this option, consortium members can offer bids, advancing a certain amount of their future installments. For this to work, the amount of money in the consortium and the amount of the bid must be sufficient to purchase a new unit of the property.

How can you use your Brazilian property to buy a house in the USA?

To give you a better understanding of the mathematics behind this process, let's look at an example below:

Imagine that you are in a consortium where the credit offered is R$1,000,000, has a term of 240 months (20 years) and a rate of 1.2% per year. This means that you have a total administration fee of 24% (1.2% X 20), giving a total value of the loan plus the administration fee of $1,240,000 (1,000,000 X 1.24). This means that the monthly installment to be paid is R$5,167 (1,240,000/240).

Imagine also that you bid RS310,000 and were then awarded the contract at the end of the first month. So the amount you will receive will be R$690,000 (1,000,000 - 310,000). With this, the monthly amount to be paid from then on will be adjusted to approximately R$3,870 ((1,240,000 - 310,000 - 5,167) / 239)).

Up until now, there has been no need to present your property in Brazil. However, once you have been awarded the loan, you will have to indicate what you want to do with it, such as buying a property in the USA, for example. In order for this to happen, you will need to put up your Brazilian property as collateral. In this example, the value of your property in Brazil should be approximately R$920,000 (690,000 / 0.75), as the value of the credit has to be 25% less than the value of the property.

Any type of property can be used, regardless of whether the property is residential or commercial. And to assess the value of the property offered, the comparative method is used. In this method, they compare your property with other similar properties in the area to arrive at the value.

The only factor that is analyzed that can prevent your property from being used is the liquidity of the property. Properties that are not very liquid, such as a farm, for example, may have problems being used as collateral.

Finally, it can be said that a real estate consortium is ideal for those who want to buy a property but aren't in a hurry. What's more, buying a house in the USA through a consortium in Brazil gives you the advantage of having your income in dollars and your expenses in reals, thus dollarizing your assets. At a time of uncertainty like this, people tend to go for the strong currency, which is the dollar.

If you'd like to learn more about this subject, The Florida Lounge held a webinar on real estate consortiums. In this webinar, Leonardo Martins, CEO of The Florida Lounge's US Operations, chatted with Avelino Andrade, commercial director of Ademilar, one of the largest real estate investment companies in Brazil. To watch this chat, click here.

I have other questions! Who should I talk to?

In all these cases, The Florida Lounge can help you understand the impacts of events like this on the real estate market in Florida! Our relationship agents have expertise in real estate investment for Brazilians in the state of Florida and can accompany the entire process of acquiring your dream home, assisting with visa issues, bank accounts, remittances and much more.

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