This is the first of a series of posts in which David Steckler shares his experiences of building a vacation home at Hacienda Iguana resort on Nicaragua’s Pacific coast. The goal of this candidly written construction blog is to reduce the anxiety levels of people who have bought Nicaragua real estate or property elsewhere in Central America and plan to build, but are afraid of making mistakes along the way.
It all started 5 years ago
Nearly 5 years ago I got it into my head that we should re-visit a third world country and this time it should be Nicaragua, a country the size of NYS where both of us grew up. Marcia and I had been to Honduras and Guatemala, but that was years before our daughter entered our lives and so this vacation would be to introduce our pre-teen to another side of life where oxcarts share the same roads with motorized vehicles and not every kid has an Ipod.
Prior to our trip we researched Nicaragua on the internet and also consulted the Moon Book series. Back in those days there wasn’t much to pick from in the travel section of the bookstores on Nicaragua so we relied heavily on the internet. In fact I stumbled upon a web-site called Nica Land – “Sweet livin & smart investing” that was started by a surfer dude aka Dale Dagger, who literally came ashore at Playa Gigante back in the late 70’s and never left. I was drawn to his laid-back approach to real estate and his philosophy of giving back to the community, so we started a correspondence.
A drop dead gorgeous beach
We met up with Dale in San Juan del Sur on the first leg of our vacation and before we left for Isla de Ometepe we had purchased property, with far less then the recommended due diligence strongly advocated by this site. I guess part of the reason we moved forward so quickly was that this particular resort was being developed by a Dutch group with a solid track record for developing projects of this kind including the Flamingo Resort on the Pacific side of Costa Rica. It also didn’t hurt that several attractive condos were nearly completed on their beach so we could see and touch them on our first visit to Hacienda Iguana. The Master Plan included a 9-hole golf course, and approved CC&R’s were in place. The primary reason we jumped into this investment, to be quite honest, was the drop dead gorgeous beach with picture perfect surf and sand.
Solidifying our “Nicaragua team” to build our dream home
We chose a collage for this first of many construction blogs that will follow to hopefully capture some of the physical and emotional reasons we were so drawn to this exotic place. It still took us 5 years of planning and more visits to Nicaragua before we could move past just owning property. We’re now comfortably ready to start building our dream home, which will take 11+/- months to complete. We spent a solid year interviewing Architects and later many Contractors before solidifying our “Nicaragua team”.
The key part of this process has to be connecting with the expatriate population living in the area you’ve chosen to invest. These folks will gladly steer you to the right people to glean information from. I did my due diligence here by expanding my network in every conceivable way…either through on-line Investor forums, Lodging web-sites specific to the Tola region, Property Management Services and, most importantly, just meeting the locals who live and work in the area. On one of our visits we stayed at a small surfer resort discovered on the internet and owned by a young couple from Europe. They built the entire complex using local trades people and gladly let us pick their brains for information during our stay.
We found our Architect, Jose Sanchez-Reyes: from one of the local contractors who eventually bid on our project. Jose is bi-lingual and very creative with space and the design process. We started out putting together a wish list of what we wanted in our house and then via email and skype fine tuned the floor plan to best capture light, prevailing wind and the best views from our lot. Once we were completely satisfied with the plans, construction drawings were generated so they’d be detailed enough for the contractors to bid on. As it happened the bids came back over our budget, which is not an uncommon occurrence. We ended up re-negotiating our contract arrangement with Jose so he could move forward and re-configure the plans to reduce the overall cost, keeping as much from our wish list intact.
The next round of bidding came in much closer to our agreed upon budget. We had four builders reviewing our detailed construction plans via jpg attachments sent to their offices. We required a “cost- plus” approach, which means their quotes, should have a breakdown of material and labor costs with the construction profit or management services separated out at the end. This approach I found to be the best way to compare apples to apples when the quotes came back from the contractors.
Hammering out the construction agreement
Once we chose our builder, Horizon Group: we rolled up our sleeves and hammered out the construction agreement with our Architect’s help so there would be no confusion down the road during construction. Since much of the time we’re not going to be at the building site our Architect will need to serve as quality control during critical stages of construction so being familiar with the construction agreement will play an important role here.
So now the Construction Agreement has been signed by both parties, the permit has been filed with the town and the first of 6 payments have been wire transferred to the builder. This first payment will cover Site prep, Material orders, labor wages, Temporary storage-Bodega, Foundation. In December I’ll have more on-site photos peppered with my thoughts so stay tuned!
Why is it hard to get reliable market comps (and what to do about it)
December 5th, 2009
This post is the fourth in a series that explains how the real estate market works in Central America. Here we look at why it’s hard to get reliable market comps (and what to do about it).
Market comparables (or ‘comps’) are the starting point for a buyer looking to cut a deal in any market. By looking at the price of similar properties, in similar condition, in similar locations a buyer can determine what’s good value and what’s not.
Trouble is, unlike in the US, real estate agents in Central America can’t draw on an industry database - such as the Multiple Listing Service - to bring out comps.
The other obstacle to good comps is how property gets recorded at the Public Registry. In the markets we cover it’s common for the recorded sales price to bear little resemblance to the actual sales price paid to the seller.
There are reasons for this and old precedents, but the upshot for buyers, sellers and agents is that it’s practically impossible to get any base data on sales.
Will “revealing” this feature of the market change the course of the real estate industry in Central America? No, probably not. But it’s important for buyers to understand how things work and to know that they have to rely on old-fashioned legwork and good contacts to get the information they need.
Ferreting out the real estate comps in Central America
We plan to write more on the subject of getting hold of comps in the region. (After all, it’s one of the reasons we set up this site and database of master planned communities.) But here are some steps to start with:
- Begin your research on the Internet. You won’t be able to find out how long properties have been on the market, or actual sales prices, but you will find asking prices. These don’t provide a perfect valuation - they often differ from actual sales prices - but in a world of imperfect data, asking prices are a good place to start.
- Speak with local real estate agents and market experts. The ones with a close ear to the ground will be able to outline actual sales price points for different property categories (e.g beachfront lots in San Juan del Sur or Ocean view condos in Panama City).
- Seek out the best-researched international real estate blogs and news websites for insight into how the market is doing.
- Head on over to Global Property Guide for some great data on global markets.
- Use this site if you’re interested in purchasing in a master planned community. We deliver the asking price comps. Our pages show the price for different property types compared against the country and regional averages for our sample (see example). We’ve also simplified the data into a 2009 PriceRank for international real estate developments in Central America.
The point is to let the data drive your investment strategy. Only then will you be able to ferret out the best value real estate in the region.
What to know more about how real estate works in Central America?
Here are the other posts in the series:
- What you need to know about how real estate works in Central America (and why you should know)
- Why are you left with that niggling feeling: “Have I seen all there is to see”?
- Are brokers really playing hard-to-get with their listings?
From Reveal Real Estate - charting overseas property trends in Central America.
Posted in Buyers tips | 4 Comments »
Are brokers in Central America playing hard-to-get with their listings?
November 25th, 2009
This post is the third in a series that explains how the real estate market works in Central America. Here we look at why buyers in Central America may feel that brokers are playing hard to get with their listings.
Imagine this …
You’re searching online for an ocean view condo in Panama and you come across a listing that takes your fancy. It looks like there’s a nice open floor plan and exactly the kind of kitchen you’re looking for. And maybe that’s a surf break you can see out of the bedroom window. Looking good… So you scan the listing to find out where the property is located.
Now here’s where the information gets scant. In fact, you can’t find any location information whatsoever. “Why?” you wonder in frustration, “Is the broker not giving me this crucial detail?”
Is this a real listing?
Most likely you’re looking at an ‘open listing’ or a ‘pocket listing’. As it is ‘open’ any agency can list the property. But only the agency that introduces the buyer earns the commission.
You can see why it makes sense in this scenario for the real estate broker to keep the listing information vague – they want to reduce the chance of competing brokers finding the owner and taking the listing for themselves. For some properties, brokers and agents may take this one step further and not have any information on the listing on their website.
Open listings and inventory hoarding by brokers is common in the region. It’s a factor of not having an MLS system.
What about exclusive listings?
There are exclusive listings in some markets, (they seem to be more common in Belize for example), But again, in the absence of an MLS, exclusives don’t always work very well.
This is because everyone, with the exception of the listing agency, will view the exclusive listing as one that does not pay a full commission, as the listing agency will expect a commission share.
If you’re a broker, why show an exclusive property for a shared commission when you’ve got open listings on your books that pay a full commission? (In US industry terms a full commission comprises both the “listing” side and the “selling” side of the commission, known as “both sides of the transaction”).
Towards better location information
Things are slowly getting better as the online marketplace evolves. On this site for example we plot each master planned community on a Google Map. We also provide an estimate of driving time to the nearest international airport and the nearest town with a decent sized grocery store. (Here’s an example). It’s our Central American version of the DriveScore.
Of course we’re still a long way away from arming consumers with the kind of data they have in the US. But the data supply is increasing and transparency is starting to improve.
What to know more about how real estate works in Central America?
Here are other posts in the series:
- What you need to know about how real estate works in Central America (and why you should know)
- Why are you left with that niggling feeling: “Have I seen all there is to see”?
- Why is it hard to get reliable market comps (and what to do about it)
From Reveal Real Estate - charting overseas property trends in Central America.
Posted in Buyers tips | 3 Comments »
Why do you have that niggling feeling: “Have I seen all there is to see?”
November 22nd, 2009
This post is the second in a series that explains how the real estate market works in Central America. Here we look at why buyers in Central America are often left wondering if they have seen all the real estate there is to see.
As a buyer in any market, it’s natural that you want to choose between all properties that fit your criteria. Because only then can you make an informed decision.
In the US, this process is relatively simple:
Let’s say you’re looking for a three bedroom house in Phoenix, for under $325,000 with a garage that’s located close to a good school and has a DriveScore of 70 or better. Well, with a few clicks, your agent pulls together a list of properties that fit these criteria. You review the list, maybe check out the Street View for a few of them, whittle the numbers down and go on a viewing.
While you’re out on the property tour you whip out your iPhone, compare the Zestimate against the asking price and organize your viewing experience with the Better Homes and Garden app.
That’s the beauty of the Multiple Listing System and all the IDX websites, apps and widgets that have been built around it.
The MLS is basically a central database of properties. When a seller lists their property with an agency it gets added to this database that in turn gives buyers the most comprehensive set of listings in their area of focus.
You’ve probably guessed where we’re going with this …
Welcome to a world without an MLS
Despite some valiant attempts over the years to start up local MLS-type systems, there’s still no MLS in Costa Rica, Panama, Nicaragua or Belize.
This means that when a seller lists a property with an agency, it doesn’t get added to a central database that other agencies can access, and buyers can’t sift through a full list of property for sale. (Oh and forget comparables, but that’s a topic for another post.)
So if a buyer really wants to see all that is available, they have to go on a property tour with every agent in the area they are interested in. There may be some local market experts or buyers agents who can short cut this process a little, but for the most part it’s a pretty daunting endeavor.
Making things simple
Our aim at Reveal Real Estate is to help simplify things. Of course we can’t claim to be a fully-fledged MLS. But we’re trying to build the next best thing by providing one place where buyers and sellers can access information on real estate developments, master planned communities and condo projects.
Our goal is transparency – to find every real estate development in the region and put this information online.
What to know more about how real estate works in Central America?
Here are the other posts in the series:
- What you need to know about how real estate works in Central America (and why you need to know)
- Are brokers really playing hard-to-get with their listings?
- Why is it hard to get reliable market comps (and what to do about it)
From Reveal Real Estate - charting overseas property trends in Central America.
Posted in Buyers tips | 3 Comments »
How real estate works in Central America (and why you need to know)
November 22nd, 2009
The best investors in Central America know exactly how the real estate market works. They know how property is listed and how local real estate agents operate. They stay on top of the online real estate marketplace and get hold of as much market data as possible.
Some of this is Real Estate 101, applicable to any real estate market. But when you look closely at how the market operates in Central America, you’ll notice important differences compared with the US.
We’re speaking from experience
When I was first researching the real estate market on Nicaragua’s Pacific coast in 2002, I went on property viewing after property viewing with a host of different real estate agents. We covered an enormous amount of ground, spending long days touring up and down the coastline. But despite this effort I was still left with that niggling feeling: “Have I seen all there is?“.
I spent hours on the Internet trying to figure out whether there were properties that fitted my criteria that I hadn’t seen. Instead of finding re-assurance online, this process confused me even more.
Many of the listings I stumbled across online had vague descriptions and almost no location information. It was almost as if brokers didn’t want me to see what they had on offer.
Fast forward to today and I know why brokers seem to play hard to get with their listings in Central America and why it’s difficult to get a comprehensive picture of the market.
(As it turns out, I’m happy with the investments that I made. But had I known more about how the market for real estate in Nicaragua works, the process would have been less fraught and I would have felt more confident about the decisions I was making.)
So how do things work?
We’re writing a series of posts explaining the intricacies of the real estate market in Panama, Costa Rica, Belize and Nicaragua.
We want to go beyond the usual insider tips for international real estate in Central America or the questions to ask the real estate developer. The posts focus on the process of real estate, the mechanisms of the market, the detail of how things work in practice, and what this means to buyers interested in these markets.
It’s the kind of information we wish we’d had when we were researching the market.
We’ll also present how Reveal Real Estate fits into the picture; how we fill some of the information gaps and help buyers make more informed decisions. We’re part of the market and have a passion for making things work better.
Here are the first posts in the series:
- Why are you left with that niggling feeling: “Have I seen all there is to see”?
- Are brokers really playing hard-to-get with their listings?
- Why is it hard to get reliable market comps (and what to do about it)
From Reveal Real Estate - charting overseas property trends in Central America.
Tags: Nicaragua
Posted in Buyers tips | 5 Comments »
5 tips for the overseas property investor - relevant for Nicaragua, Costa Rica, Panama and Belize
November 1st, 2009
Take your time when buying international real estate is the advice from the Association of International Property Professionals. AAIP is the independent industry body for international property. They’ve put together 5 tips to help investors buy overseas property safely.
We’ve added them below as a complement to the insider tips to real estate investing in Central America we published in April.
The advice from the AAIP is solid and you should certainly keep the tips front of mind when considering investing in real estate in Costa Rica, Panama, Belize or Nicaragua - the markets we cover on this site.
Here are the 5 tips from AAIP:
1. Independent lawyer
- No matter what anybody tells you, no matter how easy it all seems and no matter how lovely the agent seems, ALWAYS use an independent lawyer to represent you throughout the purchase of your property overseas.
- It is the lawyer’s job to protect you and inform you.
- You will need to pay the lawyer a fee – accept that as part of your purchase costs. This is not an area in which to keep costs down.
- The definition of ‘independent’ is that the lawyer represents you and only you.
2. Do the numbers
- Make sure you know your budget before you start looking at properties – this should include at least a provisional mortgage offer if you’re borrowing money.
- Don’t then be tempted to buy more properties than you can afford (particularly on off-plan properties) hoping to sell the extra properties before completion unless you fully understand the risks as well as the rewards (see point 5).
- If borrowing money, your repayments will stretch over several years, years in which lending criteria and borrowing costs may change. Discuss the long term repayment with a financial specialist before proceeding.
3. Beware exchange rate movements
- The rates do not need to move substantially to affect the value of your purchase. When you start looking, £100,000 may buy you a certain property – a 10% drop in the value of the £ against the Euro, for example, may then put that property out of your budget. If you’ve already signed contracts to buy, this could cause you a problem. Speak to specialists in this area and secure your rate of exchange early.
- The rate fluctuations will also affect the costs of mortgages (if you raise the mortgage overseas and earn your income at home). Again, speak to a foreign exchange specialist to highlight the risks and to take appropriate action.
4. Use professional agents and developers
- There are few, if any, guarantees when buying property, at home or overseas. Using an independent lawyer (see point 1) significantly reduces the risks you take on an overseas property purchase and employing a professional agent or buying from a professional developer will also help you.
- Ask lots of questions. 3 year old children are known for asking lots of questions (why? why? why?) and you should follow their lead when talking to agents about a purchase. Initially, focus questions on the company itself, not the properties for sale. Dig around for details on the founders of the company and the track record of the company. Ask for client testimonials (real ones) and make sure you find out in detail exactly what service they offer. Don’t just take their word for it – ask for details on their service in writing, preferably in the form of some type of ‘Terms of Business’.
5. Remember the reward : risk ratio
- If you are buying property overseas as an investment (as many people have done in recent years), you need to bear in mind that big returns may come with significant risks. Be careful to assess the possible downsides to an investment property as well as the enticing investment numbers that could be achieved if all goes to plan.
Take your time and follow these tips and there is no reason why you’ll be taking any more risk buying overseas than you do at home.
The 5 tips have been reposted from AAIP. You can view the article on AAIPs website here.
Posted in Buyers tips | 2 Comments »