Review my deal - need your opinion

[Emile Plas]

Hey Bigger Pockets!

My name is Emile and I'm new on the bigger pockets forum. I live in Europe but I have a Brazilian girlfriend. Since the Brazilian housing market has been doing very badly in recent years and the liquidity in the market is almost non-existent, I would like to invest in a property in Brazil.

I have been analyzing houses through an excel sheet for several weeks now and I can count on the help of my parents-in-law. My mother-in-law is a registered real estate agent.

Now my parents-in-law have found a property where some refurbishment work still needs to be done. The building has not yet been taken into use. The property is located in a reasonably busy seaside area and has a strong influx of tourists.

I would now be able to finance about 60 percent of the purchase price myself. The remaining 40% would be paid off to the buyer himself (without a bank in between). However, the buyer would like to set the monthly repayment amount so high that I would not have a positive cash flow for the first two years. After 2 years, however, the property would be fully paid off and would start to generate a profit. However, the first 2 years are quite a setback for me. Moreover, the interest rate in Brazil is very high (7% or more), which means that borrowing from a bank is not a guarantee of success. The Brazilian market only seems interesting to me if the property can be purchased completely without an additional loan, because the additional loan would negate the undervaluation of the property.

However, the property is currently highly undervalued. If the building is refurbished further, the value of the building could increase by 150,000 R$ while the purchase price would now amount to 200,000 R$ (R$ is the local currency).

What are your thoughts about this negative cash flow and the potentially large increase in the value of the property? The choice for Brazil is not the subject of my question.

Other option would be to buy a less nice place with no money borowed, put in a new floor and do some painting and rent out. Then my cash flow in the first two years would be possitive, but the appreciation of the property will never be very high.

Thanks in advance!