Investments in Costa Rica?... isn't that an island?...somewhere in the Caribbean?
My wife and I moved to Costa Rica six years ago from the frigid climate of Minnesota where we had owned a printing business for 15 years. For as long as we could remember we had worked 12 hour days and spent most of our time figuring out how to stay even...getting ahead wasn't even in the cards.
Then 9/11 happened. And for us it was an epiphany. Life was too short to spend the balance of our lives on a treadmill that went nowhere. We accelerated our retirement plans by almost ten years.
And over the next year we sold everything we owned and eventually found ourselves in Costa Rica (which, mind you, we had only visited once previously...and on vacation at that !).
Stupid? In retrospect, sure. To move to a foreign country where we knew no one, didn't know the language and our only exposure was the internet? Of course, it was stupid.
But...we loved it, even in spite of the fact that life here was completely different than the books portrayed or the internet showed. We rented a small home about an hour outside of San Jose in a community which was rural, coffee country and yet still large enough to have a hospital and within 45 minutes of the main airport.
And we purchased land...and we built a house. And luckily, Rhonda had the temperament to deal with the local builders, even though we didn't understand much Spanish. I still remained a type A and the manana attitude drove me crazy.
And much of the real estate and construction business was definitely not in any "how to..." book that we ever found. And we definitely made mistakes. But luckily they didn't hurt us TOO much financially. And we asked a lot of questions and we learned, little by little, how the real estate market functioned in Costa Rica.
And we decided that we wanted to let others know the things that we had to learn the hard way. We started a real estate company whose sole aim was to present properties which reflected prices that locals paid...because there is a two tier real estate market in Costa Rica...one for "gringos" and one for Ticos (locals, as Costa Ricans call themselves).
Because there are very few rules or regulations for real estate here, our "exposure" of the market didn't make us very popular with other real estate people. (remember, Costa Rica is a VERY small country...about the size of West Virginia or Houston). So our website didn't exactly endear us to local agents who were used to charging whatever prices and commissions that they thought the traffic would bear.
And slowly we began to get a reputation...admittedly, some was good, some bad...depending upon who you talked to. And we began to get publicity...unsolicited publicity from magazines like Newsweek and Investors Business Daily. And our business grew. And grew some more.
As our business grew we began to meet more people from Costa Rica...some influential, some not... some quality, some not. And we became exposed to many more types of investments that were totally foreign to us. And we learned who really "controls" the country and which people control investment capital and have the influence to make policy. To illustrate how much of our education was "coincidence" (and I personally do not believe in coincidences... I believe that they happen for a reason) our third attorney was introduced to us purely second hand at a local gathering; "coincidentally" his wife was from Minnesota...Rhonda was then invited to a weekly gathering of "gringas", all of which married Ticos 35-40 years ago and who have now ALL become very influential ; e.g., Minister of Finance; Minister of Agriculture and two other former cabinet members.
Because of our real estate organization (see it here: http://www.cr-home.com) we are able to see daily what people are seeking and watch the ebb and flow of interest. And not only are we able to gauge areas of interest but also types of properties or homes that are attracting the most interest...e.g., we know that beach properties or condominiums at present are receiving very little interest and the high end beach properties sales are very slow. We have our own hypotheses as to why this is occurring but we are dealing with "what is", not what we think "should be"...nor do we look for esoteric explanations to explain the status. We are big believers in the KISS philosophy..." keep it simple, stupid."
Over the past three years we have made a number of investments here...none have shown a loss and others have turned a 100% return within a 60 day period. Some have unrealized profits. We have yet to take a loss. Please understand here that we are not professional investors (if there indeed is such an animal)... we have simply taken advantage of situations that we consider to be extremely low risk. WE ARE NOT SIMPLY "HOPPING ON THE COSTA RICAN REAL ESTATE BANDWAGON"...because if we had done that, we would have already lost a significant amount of money.
Let me explain...
Our website and mission statement is all about value...and it is about education and knowing "the good, bad and ugly" BEFORE buying. Too many people get caught up in the emotion and beauty of Costa Rica and buy on impulse. And these are the people that ultimately run the risk of losing their entire investment. (con men and fraud exist everywhere but are more common here simply because of the lack of comprehensive rules and regulations concerning real estate and construction). That being said...we attract a different type of clientele...one that typically wants to ensure that he gets the most value for his or her money....and definitely not one that is an impulse buyer. We deal primarily with the "baby boomer" who is looking at Costa Rica as a retirement destination AND the buyer who wants to ensure that he or she gets the most value for their investment.
And the above paragraph illustrates the best, most concise reason why our business is almost recession proof and not affected by the "subprime crisis" and will allow us to continue to capitalize of various forms of investment in Costa Rica.
So...now that we have established our background...WHY are we recommending Costa Rica as a basis for specific types of investments?
We are not attempting to "sell" Costa Rica because we expect anyone who is examining Costa Rica as an investment to do their own due diligence. So...
- Costa Rica is home to the longest running democracy in Latin America. Its stability is unquestioned and it is allied closely with the U.S.
- Almost a third of the land mass of Costa Rica is set aside for national parks. Costa Ricans themselves are huge lovers of wildlife, flora and fauna.
- There is virtually no mineral exploration and absolutely no oil drilling in Costa Rica for environmental protection.
- The literacy rate in Costa Rica exceeds that of the States or Canada.
- Medical care is superb and available to everyone...even to those who are unable to pay.
- Costa Rica is more familiar to Americans than nearly any other foreign destination...for vacation. Nearly everyone who has visited Costa Rica wants to return and, in fact, Costa Rica has the highest return rate for vacationers of any other destination in the world.
- While Costa Rica is technically a "second world country", its infrastructure is excellent.
- Costa Rica's economy, while operating at a deficit, is in excellent shape.
- Costa Rica has no standing army, thus expends no funds on a national defense.
- Costa Rica espouses family values and many visitors liken it to the States from the 50s. The pace of living is slower and the Costa Rican people (Ticos) have different values than their counter parts in America and Canada.
- There are literally dozens of microclimates within a two hour drive from anywhere in the country. Where else can you drive for a day and see two oceans, several volcanoes, sandy beaches, mountains, waterfalls, lakes, rain forests, cloud forests, agricultural land, hot springs, wildlife preserves, and much much more...?
- Cost of living estimated at approximately 30% of equivalent lifestyle cost in the States or Canada.
- An estimated 30% of the population speaks or understand some degree of English.
This is only the abbreviated version of the positives of Costa Rica...other countries such as nearby Panama, Nicaragua and Mexico are attempting to woo the "baby boomers" but OUR belief is that the "blue chip" of Latin American investment will almost always win out. Just because land in Nicaragua or Panama maybe 20% cheaper or because the government offers one time incentives to expats....does not necessarily mean that it is worth the risk of your hard earned savings. Weigh the pros and cons. Some say that Costa Rica is overpriced...some say that its time has passed for investment...we say "take a look at the number of people that visit here...and that return...do your homework...then make your decision."
Okay, we have subjectives about Costa Rica and why people visit here and keep returning. Now we need facts.
During the first six months of 2008, more than 125,000 foreigners visited Costa Rica...and this is a 16% increase over last year. And remember, this is in a so called recession which is worldwide. Don't believe that the trend will continue?...try this: ask your friends what their impressions are of Costa Rica or what they have heard ABOUT Costa Rica. I can guarantee that the responses will be overwhelmingly positive. Subjective ? Yes, but still highly convincing and you will not get these types of responses from any other location or destination.
Numbers of weekly airline flights are climbing...ranging from American Airlines with 43, to Continental with 25, Delta with 24 down to Spirit and U.S. Airways each with 7. This does obviously not take into account visitors from other parts of the globe. Currently, the States and Canada account for over half of all visitors and tourists to Costa Rica. Europe accounts for nearly 20% and the rest of the world, the balance. This is another good rationale why our business is expanding instead of collapsing like many of the local pundits have predicted...the slowdown in the States is more than counterbalanced by Canada (which is experiencing a VERY strong economy and a very strong currency) and Europeans... who are also experiencing gains with the rise of the euro vs. the dollar and other currencies. The Costa Rican real estate market is simply not dependent upon one country or group of people to experience strong real estate interest. And please also keep in mind that Costa Rican real estate is a microcosm of Economics 101...the areas of interest for the "boomers" and second home buyers are small and it is easy to see that there are more buyers than sellers (which is really what the markets are all about... remember our KISS theory?)
We have established statistically that more and more visitors are arriving in Costa Rica. Now we need to establish a base for our investment philosophies...and it is primarily centered upon the huge number of "baby boomers" which are just beginning their retirement years. We do not need a huge elaboration as to why "boomers" are examining overseas destinations in increasing numbers...but here are a few of the major reasons:
- Cost of living...it is no surprise that costs of almost everything are climbing daily. The equivalent cost of living in Costa Rica is roughly a third as much.
- Medical care is excellent and only at a fraction of the cost.
- There is a tremendous amount of diversity here and an almost unending list of activities and sightseeing which is available daily...you will definitely never be bored!
- Stable government and environment.
- High literacy rate and people are genuinely friendly.
- Only a short plane ride from the States.
- Infrastructure is good and water is drinkable everywhere in the country.
- The banking system is excellent and safe.
- There is a huge amount of flora and fauna here which is literally unequalled anywhere in the world...and over 25% of the country's land is set aside for national parks.
- Land and construction is still extremely affordable by comparison.
- Crime is still relatively low, especially when compared to its counterparts and "competition".
Okay, now that we have established that Costa Rica is a viable, growing and stable marketplace AND that the "boomers" have the potential to have a major influence on the marketplace in Costa Rica...let's pinpoint specifics which will allow us to make significant investment gains:
Most "gringos" say that they would prefer beach living. The reality is that over 50% of all people who buy on the beach sell within five years. We have found over the past five years that most gringos prefer acreage with the following features:
- Views...either the ocean from a distance or the Central Valley
- Access to good medical and professional services
- Not "too remote"
- Good shopping and dining accessibility within a reasonable drive.
- Internet availability...good infrastructure
- More moderate temperatures
- More rural than urban but still amenities available closeby
- Within a "reasonable" drive to an international airport.
- Private, but not too private; i.e., neighbors nearby but not TOO close.
- At least half to an acre of land...river, waterfall or lake if possible.
- Fruit trees and other vegetation a major plus.
With the above in mind, Rhonda and I settled in Grecia which was approximately half an hour from the country's major airport, 45 minutes from a first class hospital (yet only 10 minutes to a municipal hospital, in Grecia). We chose to be in the mountains overlooking the town and the Central Valley. Major shopping was 45 minutes away as was "better dining" and (for me) bookstores. Notice how we fit the above "profile"? BTW, we also had a river on our property. Why do we bring this up here?...because our "property preferences" were (and are) the same as 80% of most gringos that move to Costa Rica to retire (full or part time.)
Next factor: there are very very few rules and regulations when it comes to real estate and construction in this country. There are ways to protect yourself legally but there are no sure methods of ascertaining what is a "fair and honest" price. There is no MLS system and there is not a system of comparables. For the most part, real estate is bought and sold the way it has been for decades...primarily word of mouth. This is specifically why people flock to the real estate industry...because of "net selling" or the simple fact that it is almost impossible to know what is a fair price. (net selling refers to "marking up" a property over and above what the seller wishes to "net...very commonplace here.)
Next: There are very few American style houses for sale here... and Tico houses simply are not satisfactory for 98% of "gringos" that move here (lower ceilings, smaller rooms, not enough land, no 220V power, no views, etc). This obviously brings up the logical conclusion...if there is a market, and it appears that it is highly skewed in favor of the sellers...is there an opportunity here to capitalize on that imbalance? (for those of you who are thinking ahead here...remodeling is difficult because almost all construction here is block and steel and all wiring and plumbing is encased in concrete...remodeling costs actually exceed "STARTING FROM SCRATCH".)
Because there is a two tier market here...one for locals and one for "everyone else" it is important to ensure that pricing received is comparable to others of comparison (as much as possible in a country where "comparables" are simply conversation over coffee.) A "gringo" certainly can look for his or her own property but it is almost a guarantee that prices will be at least 50% higher as locals share the common perception that "gringos" have money trees "back home" and that we will pay almost "any asking price" because we don't know the culture or the area.
And remember we know the markets...who is buying, what they are seeking and what they will pay. And then obviously the determination has to be made if it is possible to make a profit.
The last item to take into account is the simple fact of Costa Rican land itself...without the "gringo factor". Ticos (Costa Ricans) are accustomed to an inflation rate of around 12% annually and many compensate by buying additional land and simply holding hard assets. And when selling, Ticos know that if they do not get their price today...they will in six months or in a year. The trick then becomes to truly know the markets and to be able to take advantage of buyers that MUST sell and that need money.
On to "brass tacks" and specifics...
1. The void of, and lack of, American style houses in many areas is crying to be filled. The following is a quick "down and dirty" summary of approximate profits to be made from such an investment: Land cost: (one acre...view property in Grecia or environs) $50,000; American style house of 3 BR, 1500-1600 sq. meters: $75,000...misc costs including architect, utilities and landscaping: $10,000. Selling price: $190-195,000, possibly more. Estimated gross ROI (before payout to limited partner or construction supervisor)...50%.
2. Smaller developments can be even more profitable...we prefer to stick with a much smaller number of homes as it is more manageable and you fly under the municipality's radar...nothing illegal, just avoiding the possibility of locals swarming around with their hands out. Typically, we raise money in smaller increments (shares) as the amounts normally exceed $250,000.
Profit estimates here are extraordinary.
3. Oftentimes, at least bimonthly, we see a property at an extraordinary price...one that we know is substantially below market value. Sometimes these properties can be resold almost immediately...other times they involve buying a larger piece and reselling smaller units of land. A good example is a block of four quarter acre beach front parcels which are titled and located only 1 ½ hours from San Jose on the Central Pacific coast. The owner is in the States and is admittedly desperate. The units can be picked up as a whole and resold for at least a 50% profit (our opinion). They are RARE and gorgeous.
4. Recently, we were contacted by the owner of a small house in Grecia. We had previously listed it at a decent price...but no takers. It has a gorgeous view and the house needs probably $5000 worthy of work. In our opinion, the owner is now willing to sell for close to land value only. Not a huge winner, but percentage wise, probably a 50% profit is available. Estimated ROI to the investor...50%+
5. Occasionally we are shown properties which have a "glitch" in their titles...not major problems but simple filings to correct them. "informacion processoria" properties are normally those which have passed down from family member to family member over the years without doing proper registration or filings. It is a simple matter for a competent attorney to correct the oversight (and, in many cases, it was simply not done for lack of funds). These properties can oftentimes be had at substantial discounts. A good example is a property currently being offered of nearly two acres just on the outskirts of San Jose...a suburb called Aserri. The property HAD to be sold (family financial emergency)...asking price was actually less than 20% of what comparable properties were currently selling for ADJACENT to this property. Estimated "fix" time is six months...properties like this do not often surface and, most of the time they are "no brainers".
Now, we are the first to admit that 99.9% of people that read about these investments are not able to do them themselves. This is why we have typically set up "arrangements" or agreements to handle the everyday details and carry the project from start to finish. Obviously, investments such as the Aserri property, or others that are shorter term investments that can be resold quickly, do not need "special handling".
Hopefully, this investment overview has sparked your interest. We have met nearly all of our investors...some before the physical and actual investment, other afterward. We have an annual pigroast in January and typically nearly all of our investors along with friends and neighbors from Costa Rica get together for fun and an overview of each investment status. In the past it has been a huge hit...plus of course, it is a great excuse to come to Costa Rica.
