I used to live in the United States and bought a condo no money down in 1998. I sold it in 2003 and moved to Peru. Accordingly I am neither a neophyte nor an expert.
I’m interested in buying a SFR here in Peru. The law here is not the same as in the United States. My main problem is a lack of documentable income. My secondary problem has been a lack of knowledge of Spanish and the Peruvian system.
After living here for 8 years, I’ve hatched a plan to buy a place for my family to live in. The details are as follows:
- Locate a motivated seller whose job has transfered him out of Lima and is trying to sell his house.
- Propose that the house be transfered into an SAC (a kind of corporation similar to an LLC. See http://www.expatperu.com/incorporating-a-business.php for all the gory details). There would be 600 shares all of them belonging to the seller.
- Purchase 60 of those shares for cash (10 percent down).
- Sign a 5-year lease with the right to sublease.
- Sign an agreement under which I have the right (and responsibility) to purchase one or more shares per month for a previously agreed upon price for the next 60 months (5 years).
Advantages:
- Immediate possession of the house.
- No interest to be paid.
- No need for financing.
- Any appreciation during the period would accrue to me.
- The possibility of subletting the property to generate cash flow.
Disadvantages:
- The seller might consider the deal confusing, worry about being defrauded, and say no.
- Possible tax disadvantages to the seller as capital gains would have to be paid on the shares based on his original purchase price vs. his tax situation for selling all cash on a place he’s lived in.
- Possible tax disadvantages in the sense that I’ll be paying rent to the SAC, they’ll pay income tax, and then return some of that money to me.
- Extra costs associated with the SAC (accounting, board meetings, paperwork, etc.).
- Possible legal problems if all the agreements and paperwork are not up to snuff.
- The owner could die, go bankrupt, suffer a tax lien, get arrested for drug-related crimes, become mentally incompetent, or some other unforseeen event that might result in me dealing with new people (heirs, trustees, the state, etc.).
Am I missing anything? What could go wrong on this deal? Give me your thoughts.