16 insider tips to investing in real estate in Central America

Posted by Jane on April 27, 2009 // 4 Comments

1. Understand the link between tourism and real estate

There is a strong relationship between leisure markets and the market for vacation and retirement homes. Across Central America, the areas that attract most tourism numbers also generate the highest levels of real estate activity. Add data on tourism rates into your research and seek out areas that are experiencing growing numbers of tourist visitors. The real estate dollars should follow close behind.

If you dream of a vacation home in the truest sense of the word, a property that you can enjoy right now and not sometime in the distant future, then seek out established tourism destinations. You’ll also find that rental returns are highest in these areas. In fact tourism is one of the criteria we use to determine property hotspots on this site.

2. Read those codes covenants and restrictions (CC&Rs)

If you’re buying in a planned community make sure your vision matches that of the developer. You want a low density eco-development but they’re planning a high rise condo. Something has to give. And as an occupant in a new development you may be disturbed while building work continues on the site.

CC&Rs in some developments can be highly restrictive, down to what you can or can’t grow in your garden, or the color of your roofing tiles for example. For some this means a well managed community, for others a loss of freedom. Just make sure you know what you’re getting into.

3. Visit where you want to buy out of season

Visit the location out of season. For Central America this means visiting in the rainy season. The heaviest rains tend to fall between June-Novemeber. In Belize for example some tourism businesses close down during the months of September and October, the peak hurricane season. It’s important to make sure you still like the location and that you can access the local services that you need. For that matter, also visit at the height of the high season to see if you enjoy the crowds. December to February tend to the big months for North Americans and August for European travelers.

4. Consider making your investment green

We’re reaching a tipping point – where a critical mass of people understand that green investing is the most competitive thing they can do. We’re not talking about green-wash or empty eco-marketing messages but about finding the sweet spot where being environmentally responsible results in smart design, healthy living, reduced energy costs and enhanced asset value.

More developers are designing green properties where you can invest in a way that helps produce a healthy, livable world. In our research, we’ve highlighted developments that incorporate social and environmental best practices, see for example information on real estate in Nicaragua.

5. Become and expert in investing in international real estate …before you invest

You should never make an investment decision on the back of one piece of information whether it be a glossy brochure, your agent’s number-crunching or a friend’s recommendation. Investing is about triangulating between many layers of information, perspective and judgment. Remember to seek legal advice as early as possible and understand the way of buying properties in other countries could be very different from what you are used to at home. Have a look at our country guides on the purchasing process – here’s information on Investing in Belize real estate for example.

In reality, you can do much of the homework without even getting into a plane. This will help keep your feet on the ground when your reach the stage of considering individual properties.

6. Determine what market is right for you and focus there

Good investments can be found in every market but whether a particular market is right for you will depend on your investment goals – do you have a speculator’s stomach? Do you want immediate access to amenities and a sense of community or can you wait?

As a general rule, regions at earlier stages of a property development curve will have a higher potential for rapid capital appreciation than more mature areas but will also have a higher inherent market risk. In more mature markets, the infrastructure will be better quality and the tourism industry and associated amenities more developed providing more potential for rental income. Choose the risk/reward profile you are comfortable with and set your investment goals early. As Garry Keller notes in The Millionaire Real Estate Investor, when researching investment opportunities: ‘Think powered by a big why’.

7. Don’t assume you can finance your purchase

In many Central American countries getting a loan from a local bank as a foreigner is cumbersome and it’s easy to get lost in the bureaucracy. If you stick with the process and succeed, the interest rates are often not as competitive as what you would find in the US, Europe or Canada.

Panama stands out in this regard as competitive financing is relatively easy to obtain. In Costa Rica we seeing more developers structure standard mortgage arrangements with local banks to short cut the process for their clients. You’ll also find an ever increasing number of developers offering seller financing although normally for shorter terms than you can negotiate with a bank.

But remember that you can use your IRA, 401(k), 401k rollover, Roth IRA or other retirement plan to purchase property in Central America. An IRA is designed to be a self-directed retirement plan allowing a great deal of flexibility.

8. Buy only what you see

A solid piece of advice is to buy only what you see. Make up your mind on the inherent value of the property you are considering. Don’t factor in the ‘new coastal road’ the ‘new airport’ the ‘new hotel flag’ into the price. Certainly not if you are investing for the short term.

Don’t buy sight-unseen however good the sales presentation and virtual imagery may be. Remember you’re not just buying a property, you’re buying into an area and a country and it’s important to experience this first hand. By all means put down a refundable deposit to reserve your chosen property, but fly in before the closing.

9. Give something back

Investing responsibly makes a great deal of sense both for the country as a whole and for your individual investment. Central America is a warmhearted region welcoming to international visitors. In order for this sense of welcome to endure into the future, local communities need to benefit from the real estate and tourism activity that is going on in the country. As the community grows and develops so the foundation for real estate becomes more solid and sustainable.

Don’t lock yourself away from the community – be a part of it. Support charities, work with local business, provide employment and take part in everything that you can. Your life will be richer for it.

10. Make title insurance a non-negotiable

We recommend taking out title insurance for all your purchases in Central America. Though the process can at times be bureaucratic and cumbersome (and some realtors like to remind you of this) it can unearth potential problems with your title before it is too late. Seeking title insurance will force your attorney to delve deeply into the title history of your property and follow a set of criteria in their reporting.

Seek out well established title insurance companies that have a track record of offering polices in Central America, such as First American or Stuart Title. With both of these companies your insurance policy will be paid for in the US and any claims are made to the company in the US.

11. Choose a good attorney

The general level of credibility and professionalism that attorneys exhibit can vary considerably between different countries. When purchasing in a Spanish speaking country like Nicaragua, Panama or Costa Rica, it makes sense to find an attorney who speaks English (unless of course you are fluent in legal Spanish) and who commits to keep regular communications with you throughout the due diligence and closing process. Remember that you may be out of the country over this period and communication via email will be important. Always ask for a written title opinion. It’s surprising how many closings take place without one.

You can often get a list of good attorneys approved by major title insurance companies. Sellers have been known to try and persuade buyers to use their own legal team for property purchasing. Our advice is to employ independent legal advise at least to review (if not draw up) the purchase contract you are signing and check the title history on the property.

12. Don’t leave your brain at home

There never seems to be a shortage of people willing to sell you overseas property in Central America – from your taxi driver to the helpful person on reception. But remember there is very little regulation of their activities. Having said this, most of the problems we hear stem from a lack of care on the part of buyers rather than because of an unregulated market-place. When abroad, investors can forget all the things they would do if purchasing property at home. They get caught up with it all – ignore the basic steps like taking independent legal advice – and end up signing things they do not understand.

13. Don’t believe the hype

There’s no overarching multiple listing service (MLS) for real estate in Central America and little centralized tracking of the price properties have sold for in the past. There is no local equivalent of www.zillow.com for the regional real estate market. This means that the market is particularly prone to exaggeration and hype, sometimes in both directions. This lack of reliable market data is a key driver as to why we set up this site.

Research sites like this one before you leave home and set about building a good network that will allow you to contextualize information that you receive. Learn from professionals and be skeptical about claims that you can flip your property for 100% more “when the next real estate tour comes into town in a few weeks”.

14. Understand the pros and cons of buying off-plan

If you’re prepared to buy before you see the finished product, you can get as much as 30% off the asking price of a new property. Not only is it cheaper to buy off-plan, but you could find that your new property is worth more by the time you move in. Expect to pay in installments against key construction milestones.

You’re going to have to trust your imagination. Even with virtual tours and full presentations, it can sometimes be difficult to visualize all aspects of your new home and its relationship to neighboring properties. And when it comes to timing, remember that you may have to wait longer than you anticipated to move in. Progress can be delayed and you’ll rarely be given a fixed date in the contract for completion.

15. When buying for rental income think hard about the end-user

If you plan to let your property for profit, think hard about what kind of person is likely to sign the lease. If you’re buying in a golf community for example, will your property appeal to golfers if it’s not directly on the course? Do your guests get a break on the green fees? What kind of properties do surfers look for and what months are the best for surfing. Can you tap into the local rental market or is your property only going to appeal to a foreign vacationer? Find out whether the developer is set up to manage and market the property on your behalf or if you need to hire a local property manager.

16. Check traveling time to the nearest international airport

Our directory includes an estimate of travel time to the nearest international airport for all developments in our database. Remember it’s rare to find major hospitality brands further than 90 minutes from an international airport and their presence practically always has a positive impact on property prices. In fact most major chains like to be within 60 minutes and with fully-paved access. Also, the closer you are to the international airport, the more likely you’ll be motivated to visit, even when you’ve only got a short amount of time available.

Do these tips make sense to you?  Are we missing any?  Sound off in the comments section below.

Category : Blog &Buying