If you want to acquire a good in an economical way, a consortium can be a great option for you. A "consórcio" is a purchasing modality based on the union of people - individuals or legal entities - in groups with the purpose of saving money for the acquisition of furniture, real estate, or services. The formation of these groups is done by a Consortium Administrator, authorized and inspected by the Central Bank of Brazil. In Brazil, this market invoiced 110 billion in 2019, and has been growing at approximately 20% per year.
The type of consórcio that is generally better known is that of cars. But in this post we will go into more detail about the real estate consortium, which has been gaining more popularity in Brazil in recent years. The real estate consortiums, as all other types of consortiums, are promoted by consortium administrators, who exist with the purpose of providing their members with the acquisition of goods or services, by means of self-financing.
Monthly, all the members of the consortium group contribute with a determined value, forming a common savings to all. Differently from a real estate loan, a consortium only charges an administration fee, being cheaper. That being said, all participants have the same chances of winning, and there are two ways to achieve this: by raffles or by bidding. And to use either one, the consortium member needs to be up to date with the installments.
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The raffles 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 conducted with numbered balls, which are placed inside rotating globes. However, for a draw to be held, the administrator must have enough money to purchase the asset. If this is not the case, the other alternative is to have a bidding process.
In this option, the consortium members can offer bids, advancing a certain amount of their future installments. For this type of contemplation to work, the consortium's cash value and the value of the bid offered must be enough to purchase a new unit of the asset.
How to use your Brazilian real estate 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 you are in a consortium where the credit that is offered is R$1,000,000, has a term of 240 months (20 years) and a fee of 1.2% per year. This gives you a total administration fee of 24% (1.2% X 20), giving a total amount of credit plus administration fee of $1,240,000 (1,000,000 X 1.24). Making the monthly installment to be paid R$5,167 (1,240,000/240).
Imagine also that you bid RS310,000, and then win at the end of the first month. So the amount you will receive is R$690,000 (1,000,000 - 310,000). With this, the monthly amount to be paid thereafter will be adjusted to approximately R$3,870 ((1,240,000 - 310,000 - 5,167) / 239)).
Until this moment there was no need to present your property from Brazil. However, after being contemplated, you must indicate what will be done with the credit, such as buying a property in the USA, for example. And for the process to be done, you will need to put up your Brazilian real estate property as a guarantee. In this example, the value of your Brazilian property should be approximately R$920.000 (690.000 / 0.75), because the value of the credit has to be 25% less than the value of the property.
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Any type of property can be used, regardless of whether the property is residential or commercial. And to assess the value of the property being 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. Illiquid properties, such as a farm for example, may have problems being used as collateral.
Finally, one can say that a real estate consortium is ideal for those who want to buy a house, but are not in a hurry. And besides, buying a house in the USA through a consortium in Brazil brings you the advantage of having your income in dollars and your expenses in real, thus dollarizing your assets. In a moment of uncertainty like this, people tend to go for the strong currency, which is the dollar.
If you want to know more about this subject, The Florida Lounge made a webinar about 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 view this chat, click here.
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In all these cases, The Florida Lounge can help you understand the impacts of events like these 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 purchasing your dream home, assisting with visa issues, bank account, remittance of values and much more.