02/04/2011 12:52 PM
Uvita Office Rent & Man or Woman Issues
Guys In The Zone New Real Estate Office in Uvita Costa Rica
So, the Guys have moved, once again. We are now located in the commercial center across from La Corona and Banco de Costa Rica. We’re right next to Sonia’s Uvita Information Center. If you are checking out at La Corona, and you look to your right across the street, you’ll see this image.
So, why’d we move? Well I’ll tell you, and in the process you’ll not only get an idea of what rents are going for in Uvita Costa Rica, you’ll gain some insight into the basic differences between men & women, so read on!
We moved from the second floor spot we had because we found that prospective clients simply didn’t want to go upstairs.So, why’d we move? Well I’ll tell you, and in the process you’ll not only get an idea of what rents are going for in Uvita Costa Rica, you’ll gain some insight into the basic differences between men & women, so read on!
The capper was when I noticed that my gal Natalie would come to the parking area and call me on my cell phone. I asked her why she did this. Why didn’t she just come on in and talk vis a vis? She said because she had a sun dress on and so she didn’t want to go up the stairs. There is a bank of phones just under the stairs and so she felt a little uncomfortable about going up the stairs with what seemed to be a rather high percentage of male phone users there. When I mentioned this to other people of the female persuasion I found this to be a common sentiment. This was an enlightening moment for this man who has never shared this particular concern about stairs: a fundamental difference between men and women. I’ve never read that book Men are from one planet and Women are from another (Mars & Venus?), but I’ll bet this point about stairs is in there.
Ben & Rod in front of their new Uvita office.
There is also the little matter about the rent. The landlords over there at the BM Market (affectionately called the Poop Market) were quite accommodating when the global economy went into the toilet (hmmm, seems there is a trend here). They were agreeable to a comfortable pay reduction and helped us greatly to endure a time that effectively shut down a number of other real estate agencies due to outgo exceeding income.
There seems to be a general feeling around these parts that an economic recovery is happening, and that things are looking up.  I’m not sure what this is based on, but it might be due to a number of land & house sales as of late. Be this as it may, the economy is still in a bad way. Tourism is down, at least according to the economic barometer I use, which is a friend who owns one of the nicer hotels in the area. He keeps meticulous records of occupancy and is down this season so far by about 120 rooms, which is hotel-speak for rooms booked per night. I think that the economic optimism could simply be based on the fact that we’re all just tired of the recession, so it must be getting better.
The problem is, the numbers don’t lie. People are not as mobile now as they used to be when money was more available. Mobile people (commonly known as tourists) are what makes things tick around Costa Rica’s southern pacific zone. So, when our theretofore gracious landlords decided it was time to raise the rent based on the economic recovery, we decided to move.
The BM Landlords did a market analysis and found that a general pricing of $10 per meter was the going rate for commercial rent, and so raised the rent to just a little over that.  We are fine paying the going rate for rent, but not when our prospective female clients, (and as it turns out, some of our not so energetic male clients,) simply don’t choose to go up the stairs, but instead spend their energy looking for a real estate agency on the ground floor.
So we’ve moved to this very central spot in Uvita Costa Rica and are expecting big things from all the walk in business that is sure to come our way.
The Costa Rica real estate business has been dependent on the Internet. When folks first start talking back home about having a visit to Costa Rica, the first thing they do is get on the Internet and start searching. So, the old adage of location location location didn’t apply so much to the real estate business here in Costa Rica. Most of our business was by appointment and these were set up well in advance via e-mail and International phone calls or Skype.
Things are changing in this respect here in The Zone. There is an actual local economy here now. I know of several recent sales of property that have been to local expats that are simply selling one home, and moving to another, just like any other established real estate market place.
There is also the interesting behavior change as of late of not booking lodgings, tours, and real estate viewings in advance. The comment has been made numerous times that people are just “showing up”, or booking online from within the country once they get here. Interesting.
And on it goes. We’ll see not only how the new element of walk in business affects things, but how an increase of female walk in traffic affects things in the new Guys In The Zone office.
01/28/2011 11:11 AM
Mental Meanderings in The Zone
Property Values In The New World
It would seem that life has settled into a routine now in our “new world” setting here in Uvita Costa Rica. What’s it been, 2 years since the global economy went into the stink house? My how time flies. Our real estate company is cooking right along actually doing some business. The business that happened so rarely during the recession was mostly for under $100k lot sales and $300k was the upper edge of house sales. The prices in our market have dropped 40% - 50% across the board. And there are still some highly motivated sellers out there. I’ve started a list of these sellers. Originally I was going to call it the “Desperate Sellers” list, but I have re-thunk it and come up with the “Motivated Sellers” list. Right now I’ve got 5 properties on the list. The top deal there at this writing is the 57 acres farm in Uvita for $250,000. Click here if you’d like to check it out.
The point is that the market has definitely re-defined itself and numerous sellers are adapting. We went through a time here in The Zone when it was pure death, nothing sold and there was no one looking. Some real estate offices closed down and others (like GITZ) tightened their belts and survived. Now we are watching and learning what the new world looks like. Here’s some of what we’re finding out.
Money is tight (duh!). But, there are buyers here, and they aren’t just the $100k lot or $300k house buyer variety. There is a recent sale of a Lagunas house for $750k and an Ojochal house at $850k, so we seem to be breaking out of the old restraints. This isn’t to say that things are hopping again here in the zone, but they are a sight better than they’ve been for a couple of years. The Guys In The Zone are enjoying doing some business, but again, it’s all been for steeply reduced pricing. We had a client come down looking for a $100k ocean view property, of which we have some to show, but these clients morphed their criteria while here, and were enamored with some very fine properties at great prices. End of the story? 2 lots at just a little over $500k. If you’d like to see what the properties were, click here for one, and here for the other.
Conversations about current values abound. Methods for establishing the values in the new world market are varied, but we are seeing a surprising level of consistency in our evaluation efforts among the agencies.A Puzzling Tax Situation for Real Estate Agencies
Explaining the seller's tax.
One of the top issues of the day among the agencies is what to do with the 13% property tax that Costa Rica requires. The 13% is based on the amount of commission paid. So, if there is a $10,000 commission, the seller would pay $1,300. The quirky thing about this tax is that Costa Rica has made the real estate agent the one responsible for collecting this tax. In practice, what ends up happening is that agencies that wish to do business legally end up just paying the tax themselves. Why?
Imagine this. You want to sell your property and so you begin listing it with the various agencies. You start with Agency A. You agree to pay their commission, the price is established and arrangements are made to visit the property. Then you go to Agency B, they agree to everything but you also notice in their listing agreement this note about a 13% tax that you are supposed to pay. You feel like there must be something wrong with this particular agency. The last agency didn’t say anything about this tax, maybe Agency C won’t either. So you retract your listing from Agency B and go on about your business.
The problem, dear seller, is that your listing – supposing that it is priced to sell – is vital to the welfare of Agency B’s business. So, instead of losing listings, Agency B decides to just go ahead and pay the commission out of their commission effectively affecting the bottom line for the agency. It ain’t fair, but it’s the way it is - more on this later.
Confused Weather Affects Mangos & Monkeys
Monkeys and mangos affected by dry season rains.
Rainy season is having a hard time going away. We are currently getting some rather heavy rains during the night. After the heavy rains of November, many folks, including yours truly, rang up multi-thousand dollar bills in damages from erosion, roads crumbling, trees falling over and so on. Right now the effect may be to knock the exposed pollen buds off of the mango and coffee plants, rendering this a low harvest year. We’ll see. It seems like the weather patterns are all screwed up. Even the animals seem to be confused by the debacle. We are hearing howler monkeys at all times of the day. And whereas you used to be able to set your watch by the morning and evening arrival of the toucans and aracaris, now they are around at all hours of the day. Global climate change at work, I guess.
Car Seat Covers
My 1998 Turbo Diesel 4Runner was a deluxe model in its day. The aged leather seats look like someone’s great grandmother’s face that spent too much time in the sun. I asked around and found a company up in San Isidro that is made up of 3 gals that sit behind industrial grade sewing machines and sew seat covers out of fabric or – I don’t remember what they called the material that I ended up with – but it made my car look like new – for $100!!! I couldn’t believe it. The business is right on the highway in San Isidro heading out of town towards the Cerro de la Muerte. I’m happy to give you specifics if you’re interested in the service.
Selling My House
One final point, I’m selling my San Isidro home. It’s a 3 bedroom 3.5 bath, plus a 2 bedroom 1 bath guest house. It sits on 2.5 hectares of land, is located just the Dominical side of San Isidro, has a great view over the Rio San Isidro and sprawling sugar cane fields. Plenty of room to build cabinas, a commercial endeavor alongside the highway that runs to Dominical, or cultivate with any number of crops. I’ll post more on this later. You can see it by clicking here.
12/22/2010 02:30 PM
Looking Back Over 2010
I’ve never had a year quite like 2010. Amazing, life altering, wonderful, scary and perplexing would be just a few of the descriptors that would sum this year up for me.
The Weather
At the start of the new year, we here in Costa Rica are still drying out from what has proved to be the rainiest “rainy” season in anyone’s memory. Some say that the rains that accompanied Hurricane Thomas were the “100 Year Rains”. No towns were washed away (that I know of), such as what happened to Portalon in ’07, but there were some deaths and certainly quite a bit of damage. Some lost their homes, and others are having to move lots of dirt & rock that slid down onto their properties and into their homes. Roads were washed out, including the highway, south of Uvita. Trucks were backed up and the country was at a standstill for days.
The Economy
The word “recovery” has been used quite a bit with respect to the economy. I don’t benefit from a daily dose of media news coverage, so I’m never really all that sure of what the prevailing consensus is regarding the actual health of the economy, but from where I sit, it’s difficult to see how there can be a genuine recovery when there exists an un-payable deficit of $13+ trillion dollars in the US alone. This doesn’t bring into account unemployment and the numerous other nations that are either belly up or very nearly so.
Real Estate
Having said that, we are definitely benefitting from ”the recovery” in my Guys In The Zone real estate office in Uvita. Business is brisk and folks are buying land & houses at a rate that can’t be described as a boom, but it’s a sight better than what we’ve seen over the past couple of years.
Explaining the Increase
- Much lower pricing on properties in Costa Rica’s southern pacific zone
- Improved access to the zone. The coastal highway between Quepos & Dominical has certainly opened up the southern pacific zone as a vacation destination to more tourists.
- Reduced quality of life “back home”. This can relate to: insecurity & concerns over the economy, un-payable taxes, health care, the year 2012, etc..
- The desire to live life now, instead of waiting for perfect conditions at some undefined future time.
Whatever the explanation, there is certainly a new “type” of visitor, investor, re-locator to the zone. Point #2 has a lot to do with this. Simply getting to the zone required a certain amount of hardiness and a sort of unique drive in the individuals that felt compelled to make the trek. Now, with the completed Quepos to Dominical link, we are seeing a new flavor of human being here in the zone.
Personal
The year 2010 is going down in the journal of my life as The Year. It was a year of massive change and new experiences for this 51 year old, father of 3 (just when I thought I had seen it all).
I was very nearly killed, and as a direct result, I had an experience that has altered my views on life, God and to a very large degree, my fellow man/woman.
The account of my incident is fairly well documented, so I’ll not go into the details of it again here. Suffice it to say that, I chased a thief, got blindsided by a bat to the head, spent a month in the hospital (CIMA) where they at first didn’t know if I was going to live. Then they didn’t know if I was going to come back sane, or with all of my mental faculties. Then when it appeared that I was going to recover most of my former self, the losses tallied were a blind left eye, an interesting affliction called adrenal fatigue, and a persistent numbness in my face and sinuses affecting my ability to taste & smell. I am now back to work and for the most part, back in the swing of things.
Personal Changes
I used to think that I wasn’t a judgmental person. For most of my life I have been known as a generally good natured fellow that looked for the good in people. I now feel a little different, thanks to this incident that so profoundly affected my 2010. To be the recipient of an across the board, around the globe concern, and the outpouring of love from all quarters, I came to realize just how judgmental I had actually been. I now aspire to be truly non-judgmental. What this looks like is based on the first hand experience that I have had with men & women both in the inner circle of my life, and extending out to beyond the periphery of my life, acting in ways that I now feel really show what most of us have inside of us. I think that we all want so much to be needed, to live meaningful lives, and to really be of service to each other. Modern life doesn’t offer much opportunity to really feel needed and feel like we can make a difference.
My incident must have provided this sort of an opportunity, because the outpouring of support & love that I received, and the people that I received it from, made me really stop and re-think my viewpoint on humanity in general.
Now, going into 2011, when I have an encounter with someone, anyone, and I do my knee jerk assessment of that person (I think you know what I mean), I now know that what I’m seeing is the thin wrapping that we all bundle ourselves up with as we present ourselves to each other in our day to day lives. It’s simply the way we want to be viewed by others. But this has so very little to do with the core of the person, and how we/they will be when the chips are down. We humans are quirky – and God love us.
As we start 2011, I wish to express to all those that contributed to my current level of health and well being, my profound, inexpressible appreciation and reciprocal love. Your gifts to me have left me a changed man and I hope to be as generous and loving as you all, when I grow up.
Gifts
- Donations that nearly paid $110,000 in medical bills.
- Hours of much needed therapy & consultations for my diagnosed condition of PTSD (Post Traumatic Stress Disorder).
- Massages
- Chiropractic services
- Meals
- Music
- Fund raising benefits in my honor
- Lots of prayers, concern, visits and love
- Invitations to speak of my experience to local groups
- Have had people actually cross the street just to tell me they were concerned and how glad they are to see me up and about.
I have had some non-residents of the zone tell me that I must live in some kind of special community and that I must have some kind of special friends. I am inclined to think so as well. However, I wonder if maybe in reality it really isn’t all so “special” or unusual. Maybe this is what humanity really is. I’m hoping so.
12/13/2010 02:52 PM
Million Dollar Homes in Costa Rica, Part 2
“Few people actually stumble into wealth.”
- Smith Barney (although I couldn't determine if it was Mr. Smith or Mr. Barney?)
* It’s A Buyer’s Market (Prices are down approx. 50% from the peak in 2008.)
* Desirable Area (International Living Magazine rated The Zone as, “one of the top three real estate destinations in 2010.”)
* Stable Prices For Construction Materials And Labor
The three-year Costa Rica real estate trend has reflected a significant drop in value, including property in the luxury home category. Although there are some very nice million dollar homes in the area, this young market enables another popular strategy— Buy-And-Build.
Buy and Build
The majority of buyers who come down to the greater Dominical area with a plan to purchase a house, often end up purchasing raw land instead. The reason is the area has a relatively small inventory of quality homes with floor plans and finishes that appeal to most North American and European home buyers. So, they end up buy raw land or a lot in an established development, design their home with the help of a Costa Rican architect, select a builder, and then start the building process.
Some land buyers start building their dream home right away. Others, like adults with school-aged children and/or couples near retirement age, tend to fall into what we call “the three to seven-year plan” of relocation. Whatever the case, now is a great time to buy and build. In addition to low land prices (up to 50% off from the peak), construction prices are now lower, as well. This is part of the reason Costa Rican construction permits are up 63% from 2009.[1]
The next question we field “How much is it (per square foot) to build a luxury home in Costa Rica?” Assuming pre-fab construction is out of the equation, the current price for custom concrete or hardwood construction (with permits, plans and finishes included) starts at around $120/sq. ft. Build a 3,000 sq. ft. home and you are looking at around $360,000 before furniture and infinity swimming pool.
The View
If you want to build a million dollar home, you probably want to start with a “million dollar view”. This view usually involves the ocean, either with a sweeping vista or intimate setting above waves crashing on the rocky shoreline. If you can hear the ocean, even better. If you can hear the famous wildlife of Costa Rica (e.g., toucans, howler monkeys, etc.), even better.
Costa Verde is a gated community that offers spectacular ocean view properties high up in the mountains of Escaleras. Whale’s Tail Estates is another small development in the mountains of Uvita that offers stunning ocean and valley views plus easy access to waterfalls and pools. There are estate property waiting for a creative owner with a taste for luxury. If you are looking for a larger piece of paradise, there are many affordable fincas (meaning “farm” in Spanish) available at pre-boom prices. Quality properties, like River Runs Through It, are now selling.
A Fraction Of A Million
For those of you who want the luxury lifestyle but do not have a seven-digit budget, fractional ownership might be the perfect option. In fact, it is ideal for luxury-oriented people who love Costa Rica, but cannot or do not want to relocate here. For those of you who are not familiar with fractional ownership it is similar to a time share, except it is a deeded piece of property with the benefits of ownership and appreciation.
Casa La Big Sur, a spectacular 6,150 sq. ft. estate on the front ridge of Escaleras, is one of the best examples of fractional ownership in The Zone. This luxury home is ideal for working-class investors who are still in the two-week-vacation stage of their life. Amazingly, you can own a 1/8th fraction of this $2.4 million dollar estate for only $395,000.
Whether you select one of the existing million dollar estates or buy land and build one yourself, Costa Rica real estate adds diversity to your portfolio and… to your life.
11/27/2010 03:52 PM
State of the Market - The Guys Report
Ben - Living the Life
The Guys are doing quite well, thank you very
much. We are currently made up of 4 official Guys, as well as a
smattering of several honorary "Guys".
My name is Ben Vaughn and I am no longer the oldest Guy, since Chan has
made his business acumen available to the Guys on a consultant basis,
and he is older than I am. Rod & I are the originators of Guys
In The Zone and we have now also been joined by Richard, a very welcome
presence in the Guy’s office as he brings his enthusiasm, energy, and
of course, solid business practices into the fold.
Our office is located in what is now known as the BM Supermercado
(Supermarket) building. We are where the Rainforest Internet Café was
located.
If you go to the south end of Uvita, and look to the left (inland) side of the highway, you’ll see our blue spiral staircase in between two rather garish yellow background Farmacia signs. We stand a good chance of moving to a ground floor location over next to the Marino Ballena restaurant. Stay tuned on this, but if we do, we’ll be just that much easier to find.
If you go to the south end of Uvita, and look to the left (inland) side of the highway, you’ll see our blue spiral staircase in between two rather garish yellow background Farmacia signs. We stand a good chance of moving to a ground floor location over next to the Marino Ballena restaurant. Stay tuned on this, but if we do, we’ll be just that much easier to find.
Richard - Guy In The Zone
We, like the other agencies in The Zone, are gearing up for what
promises to be a rather busy “busy” season. Our business
barometers are the vacation rentals and hotels, who are all saying that
their bookings are strong for the coming season. We are setting up
property viewing appointments and understand from our competitors that
they are doing the same.
The general feeling is that we have endured the worst of the global economic downturn. It is felt that our world has definitely changed here in Costa Rica, just as it has in other parts of the globe, but that there is a newly defined and emerging system taking shape.
The general feeling is that we have endured the worst of the global economic downturn. It is felt that our world has definitely changed here in Costa Rica, just as it has in other parts of the globe, but that there is a newly defined and emerging system taking shape.
Basis for Optimism
Rod - Happy Living
At the very core of any successful market is the element of human desire. You can analyze a market every which way, but if the product or service lacks a strong appeal, it is likely going to do nothing more than flash (as a result of a marketing effort) and then burn out.
Properties in Costa Rica have always had, and continue to have, a strong desirability. Couple this with a return to much more affordable prices, and you get what we feel we’ve now got, a genuine, non-boom real estate market place.
We aren’t looking for the white-hot action of the early to mid 2000’s. We are looking for buyers and investors who peruse our online listings, e-mail us, come into our offices and shop what is available to initiate what for many, is the achievement of a life-long goal – moving to, and owning a property in, Costa Rica.
It is interesting that we seem to be returning to some of the demographics of years past. We have been working with people that have 3 – 7 years as their projected timeframe for moving to Costa Rica. It may be that retirement is on the horizon or kids will be getting out of school, or there might be an aged parent that needs care, and so on. These folks come down now while the prices are low, and secure their property.
At the risk of repeating what I’ve written before: there are 5 basic reasons why people buy property in Costa Rica:
- Relocation to be a full time resident
- Migration lifestyle. Live part of the year in Costa Rica and part elsewhere.
- Income generating property. Use it as a vacation getaway that rents out when you’re not here.
- Land bank. Buy land at a good price, wait 5 years and sell it at a reasonable rate of return.
- Build a community, retreat or family compound.
This last point (#5) has been enjoying a surge of activity as of late with what I like to refer to as the Escapists. These ones generally are looking for larger parcels of land that can accommodate numerous structures. These folks predict a crashed economy or currency back home. Or an un-payable national deficit promising increasing tax hikes. Or simple uncertainty of what the future holds as society’s former standards and immortal icons topple and go by the wayside. Going off-the-grid is frequently in the mix for #5. Oh, and the year 2012 prophesies helps a bit with this group as well.
What’s Selling
Our message to sellers is always the same. If you want to sell, you have to lead the market in lowering your pricing. There are basically 2 groups of sellers: those that know they have to lower their price in order to get listed with the real estate agencies, and those that REALLY have to lower their price in order to convert their land holdings here in Costa Rica into cash. These are motivated by the need to protect something “back home”. It is this second of the 2 groups who is mostly selling here now.
We are enjoying the re-appearance of under $100,000 ocean view single family lots. These were gone for a number of years as the ocean view category’s bottom pushed up to somewhere around $150,000. Good quality houses in the $300,000 to $400,000 range are selling briskly.
There are some gorgeous luxury homes on the market but activity is soft in this category. One could say it is a great time to buy a luxury home in Costa Rica’s southern pacific zone.
This is an interesting category since there are definitely capable buyers around, but the availability of credit is low. If a buyer is liquid to the tune of $1,000,000 or more, they may be reluctant to spend it in a single acquisition. Consequently, we feel that seller financing is going to play a larger role in the coming season than ever before.
The Guys are enjoying life, and are here to serve. Please let us know if we can help you achieve your goal of making Costa Rica your home.
11/19/2010 09:47 AM
Million Dollar Homes in Costa Rica, Part 1
In Northern California’s Bay Area, million dollar homes are very common. They typically combine elements like— a desirable location, a large floorplan, upscale finishes, and/or estate-sized acreage. My first position in real estate was in a beach area near Santa Cruz, and the power agent I worked for had no less than five million dollar listings when I joined her. I just checked that broker’s website, and they currently have 307 houses listed between $1 million to $10 million. Conversely, the Southern Pacific Zone of Costa Rica has a young real estate market and million dollar houses are less common.
Luxury Estate in Escaleras, Costa Rica.
As recent as 2006, this area was considered the new frontier in Costa Rica. Access was difficult and more exhaustive than it is now. Developments were few and far between. Then, the real estate boom hit. This boom affected all aspects of real estate—raw land, developing, construction, rentals and associated services. All of the key elements for million dollar homes—desirable location, sweeping ocean views, large building sites, and affordable construction—were easily realized for a relatively affordable price.
Let’s start with the land…
Pre-2006, many investors purchased their land for pennies on the dollar. These were what I call "adventure lifestylers", and they had their pick of the best ocean view and waterfall properties. These large farms are called fincas here in Costa Rica, and good development farms are now scarce. Many of these early farm investors were then able to sub-divide and sell off smaller pieces without losing the charm or privacy of their main piece with their luxury home. That brings up the topic of construction.
In addition to the benefits of buying land pre-2006, they also benefited from lower construction prices. There were fewer luxury home builders back then, and referrals were (and still are) key. Inside the house, expensive imports like— European floor-to-ceiling windows, high end kitchen appliances, and exotic imports— were standard. Outside the house, detached casitas (guest houses) and over-sized infinity pools commonly enhanced the luxury lifestyle. To many people around the world, this is “the good life” defined.
What can you get for a million dollars?
That was going to be my original title to this article, although... "after a major downturn" makes that question more relevant. We have seen a recent up-tick in activity in this market but simply put, there are not as many millionaires investing in Costa Rica real estate (or anywhere else in the world) as before. Luxury estates have taken a severe hit in value, along with every other property category. But, what does this mean?
For sellers, it means selling your house could take time, unless you price your property aggressively. This means leading the market, specifically other luxury homes. This helps with more showings, which always proceeds an offer. In some cases homes (previously considered million dollar homes) are now under the $1,000,000 mark. Villa La Colonia in Uvita is an excellent example. A short time ago, just the land (with that kind of soul-touching ocean view and close proximity to the beach) would run in upwards of $800,000. Seller financing is another way to attract more prospective buyers.
For buyers, there are fantastic opportunities in the luxury home category. Escaleras, famous for its ocean view and verdant jungle, probably has the highest number of million dollar homes in The Zone with Costa Verde Estate serving as a prime example. For million dollar homes without the million dollar price tag, check out Tres Rios Estate. It is a bit further south, but it has all the natural magic of Uvita and Dominical. Some larger parcels like Colinas De Lagunas, have two stylish guest houses, a lovely swimming pool courtyard with ocean views to Manuel Antonio, and an additional building site for a main house.
To some people, a million dollars seems like A LOT of money. To multi-millionaires with a penchant for the jungle and fine amenities, a luxury estate like Can Shekinah is the perfect lifestyle acquisition. In part two of this article, I will share yet another option for the million dollar home buyer… the Buy-And-Build strategy.
10/30/2010 03:22 PM
Price Vs. Worth in Costa Rica Real Estate
Is the price commiserate with the worth?
“I need to sell my property. What should I price it at?” is the common question heard in our real estate office in Uvita, Costa Rica.
"Whatever someone is willing to pay" is the universal response that drives the free market evaluation system the world over. However, is a price that is determined by this method a clear indicator of a property's worth in Costa Rica?
The obvious answer is "of course". However, in this uncertain world we live in, even this un-arguable standard of evaluation is sometimes brought into question and results in what can be described as quirky or illogical scenarios.
To Illustrate:
I have a 3 hectare (7.5 acre) property up in San Isidro that has 2 houses on it and some highway frontage for commercial use. I asked a local realtor to help me appraise it. He said that my property was worth $150,000 per hectare plus the construction value. 3 hectares, and a couple houses puts the property’s worth at around $550,000. Then, I asked him if he had any buyers in that range, to which he replied "no".
So, to my way of thinking, the property can’t be valued or priced at $550,000, even though it is in fact easily worth $550,000. He said that the property would have sold back in '08 for or $800,000. Along with the commercial spots alongside the highway, there are numerous single family building sites in a lovely setting with views, minutes from the centro but still in the country. It’s a great piece of land.
It’s interesting how the recent history of evaluation, and perhaps even the widespread belief that we will return to those prices, affects how we view the “worth” of our own property.
Since there are not many buyers at the “worth” level, it's selling price is indeed what someone will pay for it. There are plenty of capable potential buyers out there that will recognize and not dispute that my property is worth $550,000, they simply will be hard pressed to come up with that level of liquidity to purchase the property.
I know – the suspense is killing you… I decided to market my property at $390,000, effectively one half of its 2008 level.
I share all that to illustrate the sometimes illogical situation we find ourselves in here in Costa Rica as respects the pricing on real estate.
So, to my way of thinking, the property can’t be valued or priced at $550,000, even though it is in fact easily worth $550,000. He said that the property would have sold back in '08 for or $800,000. Along with the commercial spots alongside the highway, there are numerous single family building sites in a lovely setting with views, minutes from the centro but still in the country. It’s a great piece of land.
It’s interesting how the recent history of evaluation, and perhaps even the widespread belief that we will return to those prices, affects how we view the “worth” of our own property.
Since there are not many buyers at the “worth” level, it's selling price is indeed what someone will pay for it. There are plenty of capable potential buyers out there that will recognize and not dispute that my property is worth $550,000, they simply will be hard pressed to come up with that level of liquidity to purchase the property.
I know – the suspense is killing you… I decided to market my property at $390,000, effectively one half of its 2008 level.
I share all that to illustrate the sometimes illogical situation we find ourselves in here in Costa Rica as respects the pricing on real estate.
Fundamentals:
Desirability drives so much of how we evaluate the things of our lives. Savvy marketers specialize in making us feel that we are “missing out”, “behind the times”, “will be unhappy”, if we don’t use their product or service. They fan our desire and we consumers find ourselves frequently at the mercy of said desires.
Costa Rica properties have a built in desirability. The much overused slogans of "Live the Dream", or "Own a Piece of Paradise" and so on, are used ad nauseum in connection with buying land, booking adventure tours, reserving lodgings and so on in Costa Rica. For those people who do come and see what Costa Rica has to offer, they often feel like they are finding the fulfillment of a dream or that they have found an earthly paradise. Costa Rica offers an innate desirability that no publicist can match.
Costa Rica properties have a built in desirability. The much overused slogans of "Live the Dream", or "Own a Piece of Paradise" and so on, are used ad nauseum in connection with buying land, booking adventure tours, reserving lodgings and so on in Costa Rica. For those people who do come and see what Costa Rica has to offer, they often feel like they are finding the fulfillment of a dream or that they have found an earthly paradise. Costa Rica offers an innate desirability that no publicist can match.
Momentous Times:
The world is changing around us. The values of the former world, with its easy credit, home equity loans, and re-financing cash are still clear in our memories. We are challenged to accept the new world's values, but they are, as the saying goes, what they are. The value of a given property is, in fact, what someone is willing and able to pay.
So we find ourselves at an interesting juncture at this point in time. We have some sellers that are comfortable and don't need to sell. Their prices are closer to the old world’s pricing and they are willing to wait for the market to come back up. And we have other sellers that are not only uncomfortable, they are in fact desperate. These will sell at very low prices (by comparison) just to convert their asset into much needed cash. This is the market we live and work in now, here in Costa Rica's southern Pacific zone. The low hanging fruit is quickly picked. One sale that my partner Rod just did was so inexpensive that his contract was quickly followed up by 4 backup offers. There are buyers out there, but they are discriminating.
So we find ourselves at an interesting juncture at this point in time. We have some sellers that are comfortable and don't need to sell. Their prices are closer to the old world’s pricing and they are willing to wait for the market to come back up. And we have other sellers that are not only uncomfortable, they are in fact desperate. These will sell at very low prices (by comparison) just to convert their asset into much needed cash. This is the market we live and work in now, here in Costa Rica's southern Pacific zone. The low hanging fruit is quickly picked. One sale that my partner Rod just did was so inexpensive that his contract was quickly followed up by 4 backup offers. There are buyers out there, but they are discriminating.
A Touch of History:
When discussing real estate in Costa Rica, we want to keep in mind where we are with regards to the normal evolution of the industry. It wasn't that long ago that property in Costa Rica was regarded as virtually valueless. Government homesteading programs were designed to get families to take responsibility for a parcel of land. They could have the property for free; they just needed to care for it in a way that the government approved.
Then the mavericks came down from the States and Canada, as well as from Europe. These intrepid pioneers saw the desirability of the property even though there was no infrastructure. In many cases there weren't even any roads, much less electricity and phones. But they could see and hear the ocean. There were toucans, sloths & monkeys in the trees by god! This was some amazing stuff. It was like stepping back in time to a simpler idyllic existence, and so they bought.
Fast forward to where we are now. The large farm parcels of land have been sub-divided and sold off to foreign investors, relocators, migrators and retirees. Most of the real estate bought and sold in the southern zone has been raw land that has gradually gotten smaller in size as it has been subdivided over the last several years.
Now we are seeing more developed properties, that is to say – more houses. Think, dear reader, about where you live, and imagine when your area was at this stage of the cycle. There is just starting to be a selection of houses on the market, most properties are still raw land. We are still early in the cycle, and we are experiencing our first downturn in our previously hotly appreciating market.
Then the mavericks came down from the States and Canada, as well as from Europe. These intrepid pioneers saw the desirability of the property even though there was no infrastructure. In many cases there weren't even any roads, much less electricity and phones. But they could see and hear the ocean. There were toucans, sloths & monkeys in the trees by god! This was some amazing stuff. It was like stepping back in time to a simpler idyllic existence, and so they bought.
Fast forward to where we are now. The large farm parcels of land have been sub-divided and sold off to foreign investors, relocators, migrators and retirees. Most of the real estate bought and sold in the southern zone has been raw land that has gradually gotten smaller in size as it has been subdivided over the last several years.
Now we are seeing more developed properties, that is to say – more houses. Think, dear reader, about where you live, and imagine when your area was at this stage of the cycle. There is just starting to be a selection of houses on the market, most properties are still raw land. We are still early in the cycle, and we are experiencing our first downturn in our previously hotly appreciating market.
In Sum:
What does all this do for us as we discuss the topic of price versus worth in Costa Rica real estate? Well, recognizing that there is an inherent desirability to land here and that there likely will always be is an element that we would want to see in any investment we make. We recognize that there are some interesting factors at work in the evaluation of properties for sale in the zone, (and all of Costa Rica for that matter).
Understanding the lay of the land helps buyers to find the deals. This same understanding will help sellers to sell.
Understanding the lay of the land helps buyers to find the deals. This same understanding will help sellers to sell.
10/12/2010 05:43 PM
"El Diquis" Hydroelectric Dam in Costa Rica
Hydroelectric power is BIG in Costa Rica.
The Costanera Highway, The Caldera-San Jose Highway, The Cortez Hospital, The International Airport and The Diquis Hydroelectric Dam… it is easy to see that Costa Rica is serious about improving its infrastructure and securing a bright future.
Over the past decade, the dramatic increase in tourism and investment has sparked a bit of a power-struggle between proponents of economic growth and socio-environmental protection groups. In this case, the “power” is the proposed billion dollar hydroelectric project called “El Diquis” near Palmar in the Osa Peninsula. This isn’t recent news, but I believe it is worth mentioning as it will affect life in various ways in the southern Pacific zone of Costa Rica.
Over the past decade, the dramatic increase in tourism and investment has sparked a bit of a power-struggle between proponents of economic growth and socio-environmental protection groups. In this case, the “power” is the proposed billion dollar hydroelectric project called “El Diquis” near Palmar in the Osa Peninsula. This isn’t recent news, but I believe it is worth mentioning as it will affect life in various ways in the southern Pacific zone of Costa Rica.
The Zone Is HOT
This large-scale project, facilitated by I.C.E. (Instituto Costarricense de Electricidad), is calling for the construction of a dam on the TĂ©rraba River in the greater Boruca Canyon. The dam will create a lake equaling approximately 25,000 surface hectares (over 6 million acres), the largest of its kind in Central America. By comparison, Lake Arenal is roughly 8,500 hectares.
This station will generate up to 630 megawatt units capable of providing over one million families with electricity! This project is about Power, both electric and economic. According to a Continuum report commissioned by the Costa Rican government, the plant will “increase Costa Rica’s energy production capability by as much as 50%. For ICE, not only will the project satisfy national electrical demand, it will also stimulate economic growth, assist in the development of new technological corridors and new tourism projects, increase employment opportunities, and improve the quality of life for indigenous peoples living in Boruca area.”[1]
This station will generate up to 630 megawatt units capable of providing over one million families with electricity! This project is about Power, both electric and economic. According to a Continuum report commissioned by the Costa Rican government, the plant will “increase Costa Rica’s energy production capability by as much as 50%. For ICE, not only will the project satisfy national electrical demand, it will also stimulate economic growth, assist in the development of new technological corridors and new tourism projects, increase employment opportunities, and improve the quality of life for indigenous peoples living in Boruca area.”[1]
The only problem is… the Boruca Indians aren’t convinced.
The Cons
The fact is large-scale projects often come at a price beyond the colon, the currency used here in Costa Rica. The long-lasting effects on the ecosystems along the Terraba River, namely the hundreds of acres of mangroves and sensitive wildlife ecosystems, will be significant. How can the environment not be affected? Plans for the project include-- a concrete and steel dam measuring 170m tall by 600 meters wide, a 13-km tunnel (500 meters below the surface) from the new lake to turbines in Palmar, a 1-km bridge near the town of El Ceibo, the sub-stations, and many additional structures and buildings.
The impact on indigenous and non-indigenous residents will be significant, as well. (For those of you who enjoy comprehensive reports, there are multiple documents online, including-- this 11-page memo to AIDA and this 19-page United Nations document.) Being displaced from your home isn’t a trival matter, and the 2,000-3,000 non-indigenous and indigenous people (Boruca Indians famous for the colorful wood-carved masks and handicrafts) have raised their collective voice thanks in large part to organizations, both inside and outside of Costa Rica. If these indigenous and non-indigenous people are displaced from their land, how will their lives be affected? How will they be compensated?
Interestingly, La Nacion just reported that the compensation package just hit a snag in 2010 which looks to temporarily push back the construction of the project[2]. I write “temporarily” because this project has the support of the Inter-American Development Bank (IDB), and the deep pockets of these financial institutions often inspire governments focus on large-$cale projects that support “social and economic development”. The La Nacion article explains, ICE “must expropriate 1,500 lots to build the hydroelectric power plant El Diquis in the south of the country. ICE will have to disburse $60 million to purchase lots and relocate nearby populations. This accounts for 3% of the entire cost of the project, estimated at ($2 billion).” Even if the government writes all of those owners large checks for their land, it will take an extended period of time.
El Diquis will also contribute power to SIEPAC (Sistema de InterconexiĂłn ElĂ©ctrica de los PaĂses de AmĂ©rica Central) on the Central American electricity grid. Once again, we see the fundamental struggle between economic progress and environmental protection in full effect.
Efficiency of Hydro Power
Before you flood ICE’s main office in La Sabana with a fire-storm of email, I wanted to share a few things I discovered about hydroelectric power. Did you know that hydroelectric power is one of the cleanest renewable energy sources produced? It is considered renewable, because rainfall is consistent (The Hoover Dam in Nevada, notwithstanding). Yes, there have been years when hydro-electric production was down due to limited rainfall, but drought years (e.g., 2008) are rare in Costa Rica. According to the CIA Factbook, Costa Rica is producing over 81% of its electricity from 17 hydroelectric plants[3]. The country already exports 77.16 million kWh to neighboring Central American countries, and that number will jump dramatically if El Diquis comes online.
The Terraba River near Palmar.
The Opportunity
Generally speaking, there is opportunity in advancement. Yes, there is a financial opportunity for the Costa Rica government and the IDB. Perhaps the most interesting aspects to this whole topic is how one of the primary expressed goals of the Costa Rican government and the IDB is to help the country out of its third world status. They believe this is the way to help more of its people realize a higher standard of living. Similarly, supporters of the indigenous people in the area, believe they are helping to preserve their quality of life.
As for the investment opportunity for residents and those interesting in buying property in the southern Pacific zone, a portion of the valley east of Palmar all the way to Buenos Aires will eventually be transformed into a giant lake. Although I haven’t heard of any specific developments planned for the new region, I’m sure there are business-minded people who understand the lakeside experience is indeed appealing. There are still a lot of large pieces of real estate, ideal for community developments, in that region.
As for the investment opportunity for residents and those interesting in buying property in the southern Pacific zone, a portion of the valley east of Palmar all the way to Buenos Aires will eventually be transformed into a giant lake. Although I haven’t heard of any specific developments planned for the new region, I’m sure there are business-minded people who understand the lakeside experience is indeed appealing. There are still a lot of large pieces of real estate, ideal for community developments, in that region.
Many of us moved to Costa Rica to get away from the hyper-growth model that destroyed large and beautiful tracks of land in our home countries. Some people protest, and some people profit. Either way, projects like El Diquis Hydroelectric Dam and SIEPAC are proof that Costa Rica has set its course, moving forward.
10/05/2010 02:43 PM
Costa Rica, A Hurricane-Free Zone
While browsing the storefronts of Quepos the other day, I saw this Hurricane History Map in an office window. What caught my attention was how Costa Rica was completely free of any direct hurricane/tropical storm trajectories. People ask us if we get hit by hurricanes, and now it’s nice to have a chart showing just how ideally located Costa Rica is, especially on the Pacific side. Clearly, the vast majority of tropical storms and hurricanes are born in the oceans to the west and especially the east of Costa Rica, and then almost always track north. In recent years, only Hurricane Cesar and Hurricane Mitch (1996 and 1998, respectively) traveled all the way across the Central America landmass.
Even though Costa Rica is Hurricane-free Zone, it still feels the effects of heavy rainfall from time to time.
During the hurricane season, June 1st – Nov. 30th, Costa Rica will occasionally feel the effects of these major hydro-meteorological events. Tropical storms are more common than hurricanes in Costa Rica, and it is important to note that heavy rain isn’t the same as heavy rain AND 100+ mph winds!
According to this NASA webpage, “Tropical cyclones are like giant engines that use warm, moist air as fuel. That is why they form only over warm ocean waters near the equator.” The small towns in our area (e.g., Dominical, Uvita and Ojochal) are located at approximately nine degrees north of the equator. The benefit of being at this latitude, and on the Pacific side of Costa Rica, is the wind is significantly lighter than along the Caribbean storm corridor where hurricane winds can rip off your roof. I suppose that’s why the famous Portuguese explorer Ferdinand Magellan called the Pacific Ocean, Tepre Pacificum or "Peaceful Sea".
What Does This Mean For Pacific Zone Residents and Investors?
Light winds aside, we do experience heavy rain and flooding from time to time in Costa Rica. In some cases, the spiraling arms of a hurricane can reach over 300 miles from the eye of the storm. When there's a storm over Nicaragua, we feel the effects of it. We know a few clients and residents who have lost portions of their property to landslides and flooding. The question is are there precautions property owners can take to ensure their piece of Costa Rica real estate doesn’t flood or slide down the hill? The answer is most likely, and here's a brief summary--
- EROSION- Lots should not have large cuts (red dirt) exposed above the building site. During my first year here, I rented a house with a hill eroding behind it. Needless to say, landslides are not fun and VERY dangerous.
- RAINWATER MANAGEMENT- Check out the rainwater management on and around the property. Make sure the water is being channeled properly, specifically away from the building area. This may require the installation of canals and culverts in some cases.
- SOIL TEST- Get a soil test before purchasing property on a steep hill or with creeks or rivers running through the property. It usually costs the buyer $200-$300, but it could save you thousands.
- RETAINING WALLS- Add gaviones (aka- secured rock baskets) or a retaining wall to exposed hillsides to hold the land before the rainy season. Another very common preventative measure is securing green mesh or netting (known as, cerran in Costa Rica) to hillside and planting deep rooting plants in regular intervals across the face of it.
As one couple in the Uvita area found out, there are specific things you DO NOT want to do when constructing your dream home. They purchased an ocean view property that wasn’t quite large enough to fit the building footprint, so… they hired a backhoe and cut into an already steep hillside directly behind their home. Construction was nearing completion, and then the heavy rains came. The water saturated the hillside, and BAM!... the landslide brought 3 feet of mud through the house, an event both heart-breaking and expensive. It is my understanding that poor water management above the property also played a role in the event.
In summary, be careful. If buying of a second home in the Caribbean is on your radar, keep the above Hurricane History Map in mind. If you have already been to Costa Rica and love the 'pura vida' lifestyle and investment opportunities, choose your property wisely. Selecting a property based solely on price can be a mistake that ends up costing you a lot more in the end.
09/28/2010 01:04 PM
Seller Financing Opens Door for Home Buyers in Costa Rica
Seller Financing Open The Door in Costa Rica
The Downturn… (cue ominous music)
It would be easy to label the decline of the Costa Rica real estate market (since the peak in 2007) in a negative light. In truth, there is no such thing as “negative light” only the opportunity for change, and if our market has seen anything over the past three years, it is change. The shift from bank loans to seller financing is one of the primary changes that has (pardon the pun) opened the door to prospective home buyers, as well as, land and commercial buyers.
Before defining the effects, basic models, and legal structure of seller financing, let me back up just a bit to clarify why we now find it present in about half of the Costa Rica real estate deals we facilitate. Like most lending institutions around the world, Costa Rican banks are better described as “institutional holders”. Banks are not lending for a few reasons— falling real property values, the recession, and they are not lending to each other (e.g., no credit to leverage). In Costa Rica, the debt-to-income ratio required to obtain a loan is as ridiculous as the double-digit interest rates being charged (often twice the rates in the United States). The banks’ parsimonious response has opened the door to seller financing, and Costa Rican property owners have embraced the new paradigm.
Before defining the effects, basic models, and legal structure of seller financing, let me back up just a bit to clarify why we now find it present in about half of the Costa Rica real estate deals we facilitate. Like most lending institutions around the world, Costa Rican banks are better described as “institutional holders”. Banks are not lending for a few reasons— falling real property values, the recession, and they are not lending to each other (e.g., no credit to leverage). In Costa Rica, the debt-to-income ratio required to obtain a loan is as ridiculous as the double-digit interest rates being charged (often twice the rates in the United States). The banks’ parsimonious response has opened the door to seller financing, and Costa Rican property owners have embraced the new paradigm.
Sellers Get Creative
“What do I need to do to sell my property?” We received this common question too many times to count over the past few years. Our answer typically included these answers—
- list your property with an aggressive price
- keep the property or house clean and presentable
- offer seller financing
We have had a couple of recent sales with seller financing that fit the basic model—
- Price, parties agree to a sale price.
- Down Payment, buyer agrees to make initial payment, out of which, the seller pays commissions and closing costs.
- Financing Term, the number of years the mortgage or trust runs, with or without a pre-payment penalty, and with or without a ballon payment.
- Interest Rate, the % added to the balance due.
“To Mortgage or To Trust… THAT is the Question”
As Eduardo Abarca Vargas, a reputable lawyer here in Uvita, explains, “Once the terms of the financing are agreed, there are two ways to set up the legal documents… in the form of a trust or a mortgage.”
About a year ago, he helped us clarify the basic differences between trusts and mortgages—
- Mortgage— The Borrower agrees to an encumbrance against a real property to the Lender, (e.g., first degree mortgage). A mortgage is filed to the Registry by the Notary Public in Costa Rica. Once it is processed by the Registry Officer, it is registered on the property and shown as a lien. In the event that the Borrower defaults, the Lender is entitled to enforce foreclosure. Then, the property goes to auction and the Lender is the first lien holder to be paid. If no person bids for the property, it is then returned to the Lender. This is the most popular financing tool used in Costa Rica. As Eduardo explains, “The most important reason to choose a mortgage as a guarantee is that, in November of 2007, the Costa Rican Congress approved a specific Law (Ley de Cobro Judicial # 8624) to enforce the mortgages before the Courts. This brought many advantages that the former law did not offer.”
- Trust— The secured Trust concept is as safe as a mortgage contract, but more complex in terms of documentation and set up. It can be more versatile and more economical than setting up a mortgage and with a simpler enforcement. The Trust Agreement identifies the parties and terms— schedule for payments, interests, penalties and a default provision— and issues an irrevocable stock power of attorney to the Trustee. The enforcement procedure of an eventual default scenario implies the simple sale of the property to a third buyer and the distribution of the proceeds. As Eduardo points out, “There is not an specific law to regulate the foreclosing process based on a Trust, therefore there is neither a Judge involved on the process nor any specific rules to foreclose.” This is the main reason most lenders are encouraged to set up mortgages instead of trusts.
Mortgages, a safe option in Costa Rica real estate.
As recently as 2007, the majority of land and house deals completed in the southern Pacific zone of Costa Rica were done with cash. Since that time, we have seen a global recession. Most investors are not as liquid as they once were, and most banks are still not lending. The good news is… Costa Rica property values appear to be at the bottom, and seller financing has opened the door for home and land buyers.
To contact Eduardo Abarca Vargas-- please call 2743-8345 or email him at edabarca@racsa.co.cr
