Home Finance-How the real estate consortium worksOn June 21, 2019 by Linsey Metivier
Buying a property in sight is an option for a few. To overcome this, it is possible to resort to two alternatives: the financing or the real estate consortium. The first is recommended for those people who do not have the time and need the property on time. But for those who can wait and plan calmly, the real estate consortium is certainly the best option! For those who still have doubts about how the real estate consortium works, we answer below the main questions when it comes to seeking this kind of credit.
How does the real estate consortium work?
The real estate consortium consists of a group of people, physical or legal, who come together to make a savings of a predetermined amount, which is paid divided into a number of monthly installments to an administrator, responsible for managing the money.
At the end of the payment of all installments, all participants receive a letter of credit in the amount determined, which can be used to purchase a new or used property, to renovate a place that already owns or for construction on land owned.
Will the total amount paid be equal to the amount contemplated?
One of the benefits of the consortium is that it does not have interest, but there is an administration fee that varies between 0.15% and 0.2% per month. In the end, the participant will have paid about 18% over the total amount of the letter of credit.
For example: a letter of credit of $ 100,000 could cost about $ 118,000 at the end of the consortium, depending on the rate and number of parcels.
Can it be contemplated before the end of the plots?
Yes. To be considered before, there are two options: by drawing lots – held monthly by the administrator among all participants – or by making a bid. In the second case, you bid on an x value, and whoever has offered the highest amount takes the card.
In the latter case, if your bid is not the one you are contemplating, you can choose to have your money back or use the amount to pay the future tranches of the consortium.
In case of default or withdrawal, what happens?
The delay of the installments is subject to fines and charges, as determined in the contract signed at the time of contracting the consortium. If the participant delays many parcels, he is also subject to the exclusion of the group.
If there is a withdrawal, the participant can use three options: sell the quota to another person, who would be responsible for paying the remaining installments, renegotiate the consortium for another asset that is being offered and that is more in account, or ask, administrator, the exclusion of the group, being susceptible to fines and charges, also as described in the contract.