Dear Real Estate Investor,
The man walked towards us, tipped his hat and wished us good morning before carrying on through the forest along the little trail. I turned to my companion and asked if this forest was open to the public. No, he assured me, it’s all private. So, I asked, who was that man just now? My companion didn’t know. And he didn’t know how he got there, what he was doing, or where he was going.
And that sent out warning signals for me. My companion, you see, owns the forest and the farmland around it. I’m checking it out for a prospective buyer. And the friendly stranger could pose a legal problem or two.
If our friendly stranger uses this path through the forest regularly, and if he does so for long enough, he may acquire permanent rights to do so. In other words, that little trail in the woods becomes a right of way for him, and anyone else that joins him.
That leads to another thorny issue. Suppose our friendly stranger isn’t simply passing through the forest – suppose he’s living on the land? It won’t matter if he’s only in a rough shack pulled together from pieces of wood and plastic or if he lives somewhere else but uses the land to grow crops. The point is, if he lives on the land or uses it for long enough without anyone challenging him he can probably continue to do so. He may even have a legal claim over that part of the property.
This is something you need to investigate when you’re buying a property overseas. We’ll go through five steps you should cover in a moment.
But first, the friendly stranger isn’t the only person you should ask about. In many locations, if you buy a building with tenants you’ll likely need to buy them out. And you’ll need to do that in some cases even if those tenants don’t pay the owner rent or have permission to live there. The cost, especially when you’re dealing with long-term tenants, can add a huge sum to the purchase price of the building.
I’ve seen one naïve buyer pay off the tenants in his building, only to see them move back in within weeks. He didn’t live locally and he didn’t want to pay for a caretaker. Paying the going rate for a decent caretaker was way cheaper, of course, than the cost of removing the tenants for a second time.
Always check the legal rights of any tenants with your attorney. Sometimes it’s possible to file for eviction rather than pay them to leave.
Finally, you need to look at the caretaker and any other employees. If you’re going to keep the seller’s caretaker, make sure the seller pays him any salary that’s pending, plus vacation pay, termination pay, and any other pay or compensation he’s entitled to. Then start afresh with a new contract. Get your attorney to draw the contract up. If you want the caretaker to live on the property, make sure the contract is clear so you’re not giving him rights to your property.
What else can you do?
5 Tips For Smart Investing in Latin America
Step #1: You can make it a condition of sale in your sale contract or purchase agreement that the seller will transfer the property to you without any squatters, employees or tenants. Your attorney will help with this.
Step #2: You should check the property yourself before closing to see if it’s occupied or not. Chat with the neighbors and local businesses too, to see if they know of anyone using the property in any way.
Step #3: Hire a caretaker. If you’re buying a property that isn’t in a gated community or condo tower with a secured entrance, you need a caretaker if you’re not going to live in your home full-time. Even if you’re only planning to leave your overseas home for a few weeks at a time, hire a caretaker for the weeks that you’re away or get a friend to house-sit.
Step #4: If you buy land, ask your attorney if you need to post notices on the boundaries stating that you are the legal owner.
Step #5: Buy title insurance. It won’t help if you buy a property and you know it already has squatters or someone claiming a right of way. But it will help with problems you face after you buy the property. It’s well worth buying. Tuey Murdock is my go-to person for title insurance in Latin America.
Our friendly stranger, by the way, vanished. He wasn’t a squatter, but we have no idea who he was. The owner checked his fences and found a broken one. He got it fixed and hasn’t seen the friendly stranger since.