Buying apartments en verde

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otravers
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Buying apartments en verde

Post by otravers » Tue Jun 14, 2011 9:12 am

This theme was discussed a few years back, with a warning that some builders are outright scammers:
http://www.allchile.net/chileforum/topic1786.html

That said, buying en verde has interesting financial advantages for the purpose of building a portfolio of rental properties. (We're looking at Santiago Centro and Bellavista.) Does anyone have practical experience with this and recommendations for builders who deliver? Meanwhile I'll be researching the blacklist of builders proven by 27F to have taken shortcuts.

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Re: Buying apartments en verde

Post by admin » Tue Jun 14, 2011 9:53 pm

First, want to say this is likly exactly the sort of patio topic I had in mind originally. The sorts of topics that a random reader could cut themselves on, without a full appreciation of the issue but also something we would spend endless posts simply trying to explain the 101 issues about. I think likly another thread on auctions would be in order also. I have been reluctant to jump in to that, as people get big eyes without really understanding it.

I am still debating however the readability to the rest of the forum for topics here.

Anyway, green apartments and houses can be a good deal, if your eyes are wide open. Would not sink an entire nest egg in to just one in particular.

So far, the only major builder I have any respect for is socovesa. Their houses stood up to the earthquake, and the parts that did not they stood up and fixed even when outside the warranty. Also, just overall they seem to be run well. Even just regular warranty calls on the house we use to live in, they were there in a day or so to check the problem and schedule contractors to fix it (including 3 days rewiring the entire kitchen because they could not locate a short).
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Re: Buying apartments en verde

Post by RuneTheChookcha » Tue Jun 14, 2011 10:46 pm

The first place that I stayed in Chile short-term, just upon arrival, in June 2008 -- it was a rental property (on the 23rd floor of a newly build high-rise) at Santiago Centro. As it looked pretty nice, had a good view, and there was even a kind of "user-guide" for the apartment -- I looked it up on the Internet, and similar ones in the same building (on the same floor) were priced close to 1000 UF (one bedroom). When I rented the same one 6 months later -- the owner told me that he already bought that second apartment (on the same floor) -- for himself -- so this kind of a rental business (I mean, short-term for tourists, so that was "fully equipped" one-bedroom) seems to be going pretty well. Just FYI.

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Re: Buying apartments en verde

Post by zer0nz » Tue Jun 14, 2011 11:15 pm

RuneTheChookcha wrote:The first place that I stayed in Chile short-term, just upon arrival, in June 2008 -- it was a rental property (on the 23rd floor of a newly build high-rise) at Santiago Centro. As it looked pretty nice, had a good view, and there was even a kind of "user-guide" for the apartment -- I looked it up on the Internet, and similar ones in the same building (on the same floor) were priced close to 1000 UF (one bedroom). When I rented the same one 6 months later -- the owner told me that he already bought that second apartment (on the same floor) -- for himself -- so this kind of a rental business (I mean, short-term for tourists, so that was "fully equipped" one-bedroom) seems to be going pretty well. Just FYI.
i think half the buildings between 2008 and the start of 2010 were brought up by only a handfull of people, im kicking my self for not buying when i arrived in 2009,

every building that was completed within that time is full of short term apartments for rent, and people are making a killing $400 - 600k per month and they brought them so cheap, now you cant find an apartment for less than 1700 UF that is half decent and thats in the wrong location! the ones i want are starting at 3000 uf :/ good news is second hand apartments in 10 year old building are very well priced and twice the size thats what i think im going to end up buying and renovating i.e removing the cocina chilena and making funcional bathrooms and bedrooms ... and look very close at providencia, there are no new buildings at the moment available..... so those very well priced second hand ones are only going to stay very well pricced for a small amount of time

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Re: Buying apartments en verde

Post by otravers » Wed Jun 15, 2011 9:37 am

We have friends who bought en verde from Bezanilla and didn't have any problem, but this builder is not active in Santiago. So I know you can get decent deals this way, but obviously there are some builders to be avoided. In a new building we visited, they screwed up the calculations and the space where a washing machine is supposed to fit is too narrow by a couple of centimeters. If I had bought that one en verde I'd be pretty mad!

There's definitely no new construction in Providencia, the next best bet is eastern Recoleta since Bellavista is overlapping both municipalities. We're mostly looking at places where students and young professionals are likely to want to rent in neighborhoods that are getting better than they used to be. At least for the first couple of apartments we're thinking of long term rentals because they're easier to manage from the coast. We might buy one cash and another on credit, still doing the math on that. The idea with credit is to get tenants to pretty much pay it for us, which would translate into building up long-term capital with a tiny cashflow footprint. If the apartments appreciate in the long run, fine, but the math needs to work even in the absence of appreciation.

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Re: Buying apartments en verde

Post by JHyre » Wed Jun 15, 2011 1:33 pm

I think Olivier means "pre-built" as opposed to "green" when he uses the term "en verde".

Olivier and others: This is a topic of great interest to me. I would be most appreciative for any posts involving numbers, even pro-forma. I am very interested to see what sort of return one gets for x CLP.

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Re: Buying apartments en verde

Post by otravers » Wed Jun 15, 2011 1:36 pm

Just to be clear in case there was ambiguity, from the Congress Library:
http://www.bcn.cl/guias/compra-en-verde-de-una-vivienda
¿Qué significa comprar un bien raíz en verde?
Comprar una vivienda que se está construyendo o se proyecta construir.

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Re: Buying apartments en verde

Post by admin » Wed Jun 15, 2011 9:10 pm

Generally, I have not been greatly impressed with the rental returns on properties overall in Chile. Of course depends on what you are talking about, and where. Unless you can get in to the 500,000 pesos a month and up range, I don't see the hassle being worth it. It needs to at least be higher than the mortgage payment, if you should have access to such an animal.

P.S. sure is nice not to feel the need to go 150 posts in to explaining why new gringos can not get a mortgages in Chile, and just continue on with the original topic.
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Re: Buying apartments en verde

Post by admin » Wed Jun 15, 2011 9:32 pm

We should run the numbers on some hypothetical houses. Hell, if someone wants to go over to http://www.portalinmobiliario.com/ and find us some real examples of houses for sale, we can collectively kick the numbers and tires on them to see what sort of returns are possible.

Let's say 60 million peso house or apartment (perhaps this needs to be increased a bit, but is starting ballpark to get in the game anywhere in Chile), in an area that demands a 600,000 a month rent. Sufficiently upscale to have cultural drift protection (i.e. chileans are not going to just up an leave in 5 years for more fashionable pasture). My brother just shelled out 150 million for an apartment overlooking a golf course in Los Condes. Neither of those prices are discounted green apartments yet to be built.

Let's say housing appreciation in Chile is running on average in such desirable locations 10% ( I have seen 20%+ in recent years in some locations down south ).

Is it worth it? Could you do better else where?

I am definitely planning to buy and build a few houses to rent in Frutillar. At the moment there is nothing on the high end to rent. Lots of dumpy little cabins, but even the half decent houses (very relative) are getting 400,000+ a month on the low end, and ranging to 600,000+ in the off season per month (12 month contract). High season is kind of name your price to the point that you really don't have to rent in the off season, and most people don't because they have money. Still, we don't have the price appreciation here yet like we do over in Puerto Varas, where houses are running 300 million pesos, even little cabins are starting around 50 million pesos. Land values aside, they are running 10 million to 25 million in prime locations for 5,000 meters, but those are limited for a bunch of reasons in frutillar, and saturated in Puerto Varas for a bunch of other reasons.

As I have said before, the cost of building, if you have the stomach for it, is completely disproportionate to the resell values. Houses that cost max 40 million pesos to build (more like 20 million), are reselling north of 80 million. In what other product market do you get a 50% markup or better?

So, with rent, and instance appreciation the numbers are there in the south, as long as you pick your location carefully. I did notice that socavesa in Puerto Montt was advertising pre-lived in homes starting at around 25 million to 35 million. Seems they were liquidating their stock of repossessed homes, as they did some direct owner financing at the start of the financial crisis.
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Re: Buying apartments en verde

Post by john » Wed Jun 15, 2011 9:45 pm

I can also vouch for Bezanilla. I bought my apartment in Vina from Bezanilla solely from an artist's rendition and a review of the building specifications (they had just broken ground on the construction site at that time). I am very pleased with the overall outcome and also got it at a pre-production price. :D
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Re: Buying apartments en verde

Post by otravers » Wed Jun 15, 2011 10:31 pm

I was hoping we'd run into builders offering direct owner financing but so far the ones we talked to pointed us to banks. Not because we're foreigners mind you since we're doing this with buena onda Chilean friends in a financial situation pretty similar to ours (roughly same age, nice house fully paid for, time to diversify and put discretionary income to work). I just thought that builders would offer cheaper credit than banks to help move product.

My ballpark back-of-envelope figures right now are about 1.1K UF for ~30-35 square meters, fetching ~180-220 lukas/mo gross rental income. When you buy new, presumably maintenance expenses should be minimal over the first 10 years of the property. So we're talking roughly a gross 2.2M pesos per year for a 1BR apartment costing 24 palos. Mah o menoh poh weon. Hopefully we can either get a little more apartment for the money, or lower the price to 1,000 UFs. Assuming property sees general inflation rates or a little better in years ahead, then I see this as building inflation-protected capital mostly paid for by tenants. Of course if said apartments end up empty half of the year or seriously damaged because we chose tenants poorly, or we get deadbeats than we can't evict, then the math fails. I am not going to include above-baseline inflation expectations in my calculations because that's speculative. The only leap of faith is that we'll find reasonably reliable tenants at a decent price over the lifetime of the credit. And by the time our 10-year old compañera daughters are ready for university in the big city, we'd have paid-for apartments there. Makes sense?

It cracks us up with our friends to visit apartments smaller than our living rooms, but hey, we were young once too!

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Re: Buying apartments en verde

Post by admin » Wed Jun 15, 2011 11:18 pm

No worries. This is Chile. Land lords don't do anything unless it is by court order. Even then, they will take 6 months to do it; by which time the tenant has either learned to live with it or fixed themselves (although they do seem to be o.k. with taking things off rent, as long as they don't have to do anything).

I have just learned to not even bother the land lord. I calculate that over the last 6 years in southern chile, I have done somewhere in the neighborhood of 20 million+ pesos in just materials in to other peoples houses and the offices we have rented (likely half of it I forgot I paid for). That is not including the gringo maestro labor bill, and not just mine. I have a nack for convincing our gringo builder friends that live in Chile to lend a hand for free (I was really good at construction management in my day back in the States). So, more than a few full paint jobs, new floors, wiring, bathroom remodels, cat and phone line runs, and so on have been left behind as I have traveled Chile. Typically after the first few weeks, most landlords in Chile never bother me again about anything once they see I have some gringo on his hands and knees putting a new floor in their house or fixing their deck (guys that are actually licensed somewhere none the less). They are just happy I am not steeling the bathroom fixtures (well, I still do, but I leave better ones in their place).
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