16 insider tips to investing in real estate in Central America
April 27th, 2009
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 green 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 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.
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.
Have you invested in real estate in Central America? If you have, we’d love to learn from you experience. Leave a comment below or write a review against one of our property hotspots.
Tags: Belize, Costa Rica, Nicaragua, Panama
Posted in Investment Strategies | 5 Comments »
Are real estate prices stickier in Central America?
April 15th, 2009
We’ve just started a new round of data collection for 2009 covering Nicaragua, Belize, Panama and Costa Rica. When we have this collected, we’ll present a trend analysis - showing how prices have changed since 2008.
Kirk Hankla, owner of International City Mortgage, on a recent trip to Nicaragua, put forward the view that we would find property prices in Central America to be stickier on the downside than in the US (or other more mature markets).
The argument for stickier property prices
The argument being that people who buy in Central America are typically making cash purchases and are usually not effected to the point of having to liquidate assets in order to meet demands. This characteristic, of not being highly leveraged, generally speaking, is how they conduct their lives in their home country as well.
Even if they were looking for financing, they would be hard pressed to find the kind of financing products commonly available in the US. This is because Nicaragua, Costa Rica, Belize and, albeit to a lesser extent, Panama do not have capital markets developed for the selling of mortgage backed debt instruments.
So due to the lack of financing, there is no debt load and the fact that property taxes are low across the region, the buyers are not backed up against a wall to meet a monthly debt service which has required that they liquidate. The result being that prices are stickier on the downside.
Regional variances will exist
We’ll see if the numbers bear this out, and we’ll dig into the regional variances. Some real estate areas, such as Panama City for example, have seen significant levels of financed purchases. And some heavily leveraged large scale projects have suspended operations - the St Regis project in Costa Rica in the wake of the Lehman Brothers collapse was a case in point.
But regionally we’re not seeing the waves of foreclosures that have swept across the US. There are of course motivated buyers who are lowering their prices, some of whom are having their hand forced by a debt burden in their home country that must be satisfied. But that may not be enough to add up to the heavy across-the-board price falls we’ve seen in the US.
We’d love to hear your views. Let us know what you think in the comments below.
From Reveal Real Estate - charting overseas property trends in Central America.
The real estate market in Central America: In graphics
March 28th, 2009
Whether you’re in the market for real estate in Central America, or you are selling, market data matters more than ever. Without data how can you determine fair value, track where the market is heading or feel confident that you are making the right investment decision? Trouble is, in Central America market data and comps are not readily available from property institutes, registries or central bank databases.
To try and fill this data gap, we’ve collected data from real estate developments in Panama, Costa Rica, Nicaragua and Belize and put this information online. As part of our research we also collected country-level indicators that shed light on the investment climate. Here are some highlights from what we have found:
Real estate developments targeting the international buyer
Costa Rica has the largest number of real estate developments that target the international investor, with 34% of the total in our database. No surprise really. It’s been on the international real estate map for longest. Panama follows close behind. This is largely due to the explosion in condo projects in recent years in the capital city selling Panama apartments.
The price for an ocean view condo
The order from most expensive to least expensive country to buy an ocean view condo is Costa Rica - Belize - Panama - Nicaragua. The data looks at median price per sq.ft.
The ordering is what you would expect given the different levels of maturity of the markets and level of infrastructure. But did you think the differential between Costa Rica and the other countries would be greater? We did.
The average size for an ocean view condo in Costa Rica tends to be larger than in other countries, which may explain part of this. Click here for a more in depth review of Belize condos. We’ll be publishing more data in later posts to dig into the comparatives further.
Internet searches on Google
There were more searches for ‘Costa Rica real estate’ on Google than for ‘Panama real estate’, ‘Belize real estate’ and ‘Nicaragua real estate’ combined. We predicted the order, but again were surprized by the differential between Costa Rica and the other countries - this time in the other direction.
Cost of living
Nicaragua stands out as offering the lowest cost of living. Using purchasing-power-parity (PPP) data we can determine what US$1,000 ‘adds up’ to in different countries. In the US $1,000 has the purchasing power of $1,000, but in Nicaragua it has a purchasing power equivalent to $2,629. We have to be careful not to draw too much from these averages as they don’t apply to all product categories. But for day-to-day goods and services your dollar will stretch further in all four countries than in the US.
Completed golf courses
There are several golf courses planned or under construction in the region. At least 3 in Nicaragua and 3 in Panama. The data below is for completed golf courses that can be played on. Before seeing the data, would you have guessed that there would be more than 2 completed golf courses in Nicaragua? See more on golf property.
The data is drawn from research done in 2008, see notes to the data for more information. We’ll be updating for 2009 and charting the trends. Dig into our main site, run some searches, and check out the property hotspots and country indicators for Nicaragua, Panama, Costa Rica and Belize.
What’s your reaction to this data. Any surprizes for you?
From Reveal Real Estate - charting overseas property trends in Central America.5 real estate bloggers in Central America you should follow
March 7th, 2009
If you are looking for news and views from the front line of real estate in Central America, here are 5 real estate bloggers you should follow.
1. Panama Investor Blog, written by Sam Taliaferro, is packed full of insight into the real estate market in Panama. Sam has a long experience in real estate development and knows the business backwards. He’s also got a knack at weaving global trends into a local analysis of the marketplace. A must read for investors looking at Panama.
2. Destination Panama is an information packed guide to living in Panama written in a down to earth, engaging style. You’ll find posts on medical care, pets, travel and life on Taboga Island. The blog roll is full of links to additional sources of information.
3. Guys in the Zone - I found this blog via their recent post on yodeling naked in Costa Rica. In case your wondering it’s an indicator they’ve coined to measure privacy. If you can - yodel naked that is - then you’ve found yourself a private spot. A great source of local insight into the Uvita and Dominical property markets in Costa Rica.
4. Costa Rica Travel News - This is much more than a resource for hotels and travel information, the blog brings regular news on Costa Rica culture, tourism, real estate, jobs and retirement. There’s also a directory for local businesses on the site.
5. Discovering Serenity - A well-written blog covering Nicaragua real estate. We particularly enjoyed a post where they analyze the Index of Economic Freedom and per capita income of a country to determine whether a market is overvalued or undervalued. The blog follows latest trends in Nicaragua like the discussions on a proposed Coastal Law currently taking place in the National Assembly.
These blogs are well worth following. We’re planning on building a map of real estate bloggers (and Web 2.0 sites) covering Central America, so we’ll be adding to this list.
We would love to hear from you if you have any suggestions for blogs that are worth a closer look and we’ll add them to our list.
Tags: Belize, Costa Rica, Nicaragua, Panama
Posted in Property news | 9 Comments »
Costa Rica tops our list coming in first and second. In fact, 3 of the 7 regions fall within Guanacaste, Costa Rica’s northern state. The data is based on our database of real estate developments in Costa Rica, Panama, Belize and Nicaragua. Nicaragua, being a cheaper destination than the other countries, did not make the list.
1. The stunning coastline of Coco, Hermosa and Papagayo in Costa Rica’s Guanacaste region tops our list. Here the median price for an ocean view condo is $340 per sqft. The region is packed with amenities from tennis clubs and marinas to championship golf courses and luxury spas. It has some epic surf breaks, good infrastructure and is very accessible from Liberia’s international airport. Celebrity purchases, major hospitality brands and top class attractions abound in the region so it’s not surprising that it tops our list.
2. Just next door, also in Guanacaste, lies Flamingo where the median price for an ocean view condo will set you back $305 per sqft. Tourists are attracted to the spectacular beaches, the world-class sport fishing (there’s an international tournament every year) and the numerous dive spots.
3. Ambergris Caye comes in third. It’s the most visited part of Belize and offers the picture postcard Caribbean experience - sparkling white sand, azure waters, swaying palm trees and a great barrier reef just off shore. Belize condos are the main draw on the island. And for a median price of $290 per sqft, you’ll be on your way to owning an ocean view condo in this important tourism area. The added bonus for many international real estate investors: you won’t have to learn another language as Ambergris Caye is English speaking.
4. Fourth on the list is Tamarindo located, wait for it, in Guanacaste Costa Rica. Long recognized by surfers for its great waves, Tamarindo now offers something for backpackers, luxury travelers and everyone in between. You can take advantage of lovely local beaches - some with turtle nesting areas, dive spots, golfing, numerous night-spots, restaurants and, of course, plenty of sunshine year round. An ocean view condo clocks in at $285 per sqft.
5. Jaco lies on a wide, grey-sand bay on Costa Rica’s Central Coast in Puntanrenas. Well known hospitality brands such as Sonesta, Ramanda and Wyndham have set up store along the beach front and you’ll lose count of the internet cafes, curio stores, tour agencies, souvenir stands, bars, restaurants and nightclubs that jostle for position on the main road. You’ll find ocean view condos here for around $280 per sqft.
6. Our second Caribbean region, Bocas del Toro, in Panama comes in 6th. If you want an ocean view condo here you’ll be looking around $275 per sqft. The cluster of islands that make up the archipelago have become a key tourist destination for visitors to Panama. Unusually for the Caribbean, you’ll not only find great local dive spots but also some good surfing waves.
7. Cosmopolitan Panama City with it’s soaring skyline of glass and steel comes in 7th. The town is a world class financial center and business hub that offers a range of exciting experiences to visitors. You’ll find a vibrancy here that is rare in Central America. Investors looking for US style infrastructure, excellent health care and a benefit-laden retirement program tend to look no further. You’ll need to lay out around $265 per sqft. for an ocean view condo. Click for a 2010 update on the Panama apartment market.
The data was collected during 2008. We’ll be updating for 2009 and tracking the trends.
So tell us, would you buy in one one of these property hotspots?
Tags: Belize, Belize condos, Costa Rica, Panama, Panama apartment
Posted in Comparison shopping, Market statistics and data | 1 Comment »
