I swore I wouldn't be doing this. But I am: I'm heading out to look at Costa Rica property for a buyer. I posted the Big Plan on the Costa Rica Living Group this morning, asking for help:
Good morning, group,
Hal and I are heading to the Dominical area today for several days. We are going to investigate developments for a buyer in the states.
I wanted to ask for two things, please. First, anyone alive down there? I would love to meet you. We will be in Matapalo the first night… then working our way south from there.
Second, if you have lots for sale down there, I'd love to hear about them. The buyer is looking for a lot to hold for a time, then build. I've made contact with several smaller private developers, as well as a few of the big ones. We'll see all we can see.
Ok, three things. I'm open for information, good and bad. I am a real estate broker from Key West, 12 years running my own successful brokerage (of course, if you had a pulse and worked in Key West real estate during 2002-2004, you were successful…) I know that market. I need an education in this one. Rants and raves welcome.
Thank you. Looking forward to seeing this part of the country – we've not been south of Manuel Antonio yet. Pura vida!
What I left out is that I'm a jaded real estate broker and will be going down there with radar crackling, red flags waving. Anyone who reads the message on the board will read all this – I left my blog address.
If you are a Costa Rica real estate salesperson or developer, read on at your own risk. Criticia Voluptua Right-Right (my alter ego who looks something like Cruella) speaking here. I know there are experienced, competent, honest, hard-working agents out there; I've already met and worked with good ones here, as well as in the states. But my overwhelming experience is that we are wildy outnumbered.
I distrust real estate salespeople and developers. Guilty until proven innocent, as far as I'm concerned. ESPECIALLY newly rich developer/real estate agent types spawned in a hot market. These guys (and the really crooked ones are mostly guys)(so sue me) are generally short-sighted, void of all compassion for their earth and their species, and just not that smart. Prove me wrong. Please.
The real estate business is incredibly easy to get into. In Florida, all you need is to be able to read (I would have said "literate" but you just have to be able to read), spend eight days in a mind-numbing excruciatingly boring class, take two tests that anyone with a fairly decent short-term memory can pass, the wherewithal to drum up about $5,000 (for class, books, tests, a computer and business cards) and, voilà, you are in business.
It's even easier in Costa Rica. Here, there are no tiresome licensing laws, no tests, no clubs to join, no literacy requirements. Nada. You just say, "I'm a real estate salesperson." And poof you are one.
No wonder the real estate business attracts the lower element. Name one other profession you can get into so quick and easy and make so much money so fast. Ok, so maybe the oldest profession. But you'd also have to be young to be successful in that one. Fairly young. At least not old. I wonder if I'm too old. Never mind, as I've pointed out before, Hal is so old-fashioned, he won't even let me date.
So what's a nice girl like me doing in a job like this? What can I say, I'm good at it. I'm a people person, a problem-solver, I pay attention. Real estate sales can be very dramatic. That's certainly up my alley. When the pieces fall into place and the agent across the table is not a total ass, it's all very satisfying. Plus, I get paid.
For all of you who got into the business after 2003 in the states, sorry. Tough luck. For all of you who are getting into the business in Costa Rica now, hold onto your day job. This market has some room to grow, but I don't hold any hope for the heat to continue much longer.
First of all, if the U.S. sneezes, the world gets a cold. One day this may not be true, but it is still true today. Most of the investment money in Costa Rica still comes from the U.S. As potential CR buyers can't sell their US property and can't get those lovely 100% loans, you will see an effect here. The markets are related, and trickle down is not just a theory.
Second, there are 40,000 new condos being built in Jaco alone. Everywhere I look, including in Escazú, there are massive condo projects being built. If you can't do that math and extrapolate a tiny bit into the future, I hope you aren't snatching up Costa Rica real estate looking for the home-run.
Third, tourism is down here. Everyone is talking about it except the government which swears we are doing better than ever.
Fourth, sales are down. Other agents tell me so. I get emails from Costa Rican sellers and agents offering discounts and price reductions. Even the developers are saying "Prices are negotiable." In a hot market, prices are not negotiable. In a hot market, sellers don't use the word "motivated" in their sales sheets. In fact, in a really hot market, sellers are not even nice. Costa Rica's gringo sellers today are bending over backwards to accommodate.
Fifth, the market is flooded with properties. EVERYTHING is for sale. The first words you learn in Costa Rica are se vende [say VHEN-day, for sale]. You learn it because you see these words on signs EVERYWHERE: in the city, in the villages, on the coast, in the jungle. Everywhere. And over the next three or four years, there will be many, many, many more properties for sale. I hope all those baby boomers are indeed moving to Costa Rica. Otherwise, we are bulldozing the jungle for nothing.
Sixth, and this is the most dangerous aspect of all, Costa Rica real estate is now being driven by speculators: someone who buys a property looking to make a relatively quick buck in the property's short-term appreciation, the middle-man between the developer and the end-user. End-users, those who will keep the property and enjoy it, are not really in the market yet. They need to retire first.
And investors, someone who buys and holds a property that already produces positive cash-flow, are gone. There are no investors in this market: prices are too high for them. Positive cash-flow is history. Most newbie agents don't even know what positive cash-flow is or how to figure out there isn't any. [See point Seven.]
Most of today's sales are to speculators who intend to sell to the end-user (one of the 77 million baby boomers every market in the world is banking on. Don't get me started.)(Ooops. Too late.) A low number of professional speculators in a market is good, the sign of a healthy market. Like 10%. As that percentage climbs, a market is less and less stable. I'd say this market is well over 50%. That's a wild guess but I'll bet you a dollar it's a conservative one. Make that $2. I'd also be willing to bet experienced speculators are out of this market. They've made their money, this market is too close to the peak and they've moved on. You've heard the old saw Buy Low, Sell High? You can't Buy Low any more.
Point Seven: this market is also flooded with newbie agents/developers/speculators who were trained by Carleton Sheets and Robert Kiyosaki who, along with the Donald, just wants you to be rich. Forgive me. I'm chuckling. These trainers are smart and savvy, I've read their books, played their games. All good info, some of it brilliant. But, like Rich Jerk, they make their millions selling you their secrets, which mostly consists of Buy Low, Sell High using Other People's Money. They are not buying and selling real estate. Not lately, anyway. They know better.
The scariest thing about these newbies with their websites and their cell phones is that they don't know they don't know anything. They don't know markets are cyclical. If they are reading this, they are now googling cyclical. They have said these words: "Costa Rica real estate values will never go down." They never heard of Fibonacci. Don't understand central banking. Can't pronounce Bernanke. Have never seen Predatory Lending in action and have no idea why the death of the sub-prime lending market is cause for alarm. Don't know the difference between a speculator and an investor (they will think they are one and the same.) Never give a thought to who the end-user will be past what they've been told ("77 million baby boomers") and wonder why I would mention it. The whole baby boomer thing is common knowledge. Accepted wisdom. You can take that to the bank. Right?
You might be wondering if I'm so down on the market, why am I jumping in? Because it's fun. I need a job and I'm good at this one. As long as my customer is an informed customer, eyes wide open, I can work with that. He's buying because he wants a property here, not for a flip. He can afford it and he wants it. He will have it for many many years and can ride out a market correction.
And I get five days away from two teens (poor mommy), in a new part of the country with monkeys and macaws, at the beach. Two of the nights in a developer's fabulous guest house overlooking the ocean, all food and drink included. Heck. Who wouldn't want this job?
If you get to Playa Matapalo, stop at Jungle House and say hola to Charlie. Right after a little bridge, immediate right, then another right, I think.
Some of your comments are correct (where did you get the tourism down numbers?) but you’d be surprised how many non-US buyers we have, my Recommended Realtor in Santa Ana sold $3.7 million worth of real estate to Venezuelan buyers last month. The USA (where 90% of the speculators and the scam artists are from) likes to think it’s at the center of everything but is quickly becoming less important.
The VIP Members of http://www.WeLoveCostaRica.com have bought nearly $20,000,000 of real estate in the last twelve months. The developers that I write about, who are “financially strong, experienced developers with a proven track record of delivering quality real estate” are selling very well. They are not lowering prices.
And why on earth would you want to sell real estate in Dominical when you live near San Jose? Isn’t that like living in the Florida Keys and selling real estate in Georgia?
Scott Oliver,
WeLoveCostaRica.com – Home of stunning scenery, sunshine & smiles.
Apartado 1360-1250
Escazu, Costa Rica
011 (506) 396-3924
http://www.welovecostarica.com
Email: admin@welovecostarica.com
Author of:
How To Buy Costa Rica Real Estate Without Losing Your Camisa and …
Costa Rica’s Guide To Making Money Offshore in Bull & Bear Markets
WOW, what a post! Hope you and Hal are using this time together to honeymoon a little too!
Thank you so much for stopping by to visit and bringing supplies for the kids at Hermosa School.
I am on my way there now to show them their goodies and set up the English teaching program you donated.
I did the math, and it’s way over $40. Silly girl.
It is much appreciated and I’ll let you know how it goes helping the kids learn English.
I so envious of your trip to Dominical. Soak up as much as possible so you can tell me all about it!
Good luck beating the bush for the best deals.
Teri
Spot on analysis of the market and basically how economic cycles work. Bubbles always tend to go longer than expected, but the end result is always the same – pop. With the stock market, you can value a company by its earnings and book value, with real estate you can value it using cash flow.
Scott’s comment is the typical rant of an agent. Yes, you can always cite a few exceptions like a property selling for a million dollars, but that does not dictate the whole market. Cash flow is the best gauge for value in real estate, not the mania. Why would you invest in an asset that would only give you income that is less than the bank’s interest rate? With all the hassle, tax, maintenance, risk.
Hi Scott,
Thank you for your response. I’m in an internet cafe in Dominical right now, spent the whole day looking at property and talking to a several interesting and knowledgeable agents and developers. One in particular – stumbled onto him thru sheer good luck, turns out we have several good friends in common. His name is Ben Vaughn – do you know him? I have four days to go…
So after this day, I am mostly confused about this market. Of course, I do not have a crystal ball – WISH I DID! My perspective is colored by having lived thru the declining U.S. market. I have friends there who are losing everything. But while this is not Key West and I must defer to the experts in this market, the parallels between the two markets are unnerving. The Key West market looked just like this near the end of 2004.
I am asking hard questions, but I am looking for answers. I would love this market to stay healthy and the properties here are incredible. Expensive, though, and the middle class is priced out here in the southern zone.
The agents and developers I’ve talked to here confirm that most buyers are U.S. The fact that there are buyers from other places in the world is comforting… But how long will that last? Venezuelans escaped, those that could. Now the bulk of them are out… how many more will follow? Can Costa Rica’s market count on a steady influx of Venezuelans?
And speculation in the U.S. has been extremely profitable in the last couple of years… those U.S. speculators want to continue milking the golden cow, so when that market went south, they looked for other horizons.
Yes, selling in Dominical while living in San Jose is like selling GA while living in Key West… but I have to start my investigation somewhere and this buyer called me, wanted information, I hadn’t been here. Seemed like a good excuse for a trip south! I will probably refer this buyer on, but I couldn’t do that without coming here, getting the lay of the land, meeting people, gathering evidence. I’m a tangible person: I need to see it, touch it, talk to it. I will not represent myself as an expert on Costa Rica real estate… fear not!
I will go to your site and do some reading. It’s a good source of information and I didn’t think of it before I got here. More is being revealed and I’m trying to keep an open mind. The contents of which I will empty onto the blog! Pura vida.
Hi Kim – Nice to e-meet you! Yes, I can see the bubble phenom at work here. It’s hard to get a handle on it because there is no comparable data available. It’s very wild west… But we watched it happen in Key West, clear as day. There are parallels here, no question. Still investigating… We both love the real estate business (Hal and I), we’d like the energy to keep flowing.
You said “Cash flow is the best gauge for value in real estate.” Cash flow left the Key West real estate vocabulary years ago… no one talks about it here either. That weighs heavily to me and indicates an unhealthy level of speculation. I’ll be writing more on this, to be sure. You’d like Hal’s site: http://www.the-extremist.com.
Bubbles are easy to spot, first and foremost the fundamentals does not support the underlying asset. Say for example, when a public company is valued at $100B and it earns about $1B/year – simple math would show that it would take you 100 years to get your money back, if you decide to say buy the company outright. This is obviously an oversimplification. HOWEVER, one thing important to note: investment/financial bubbles LASTS much longer than most expect.
Now for the CR real estate, its has to correct because it already is past two critical benchmarks: 1) cash flow – investment standpoint 2) supporting income – affordability. This is why Key West – well FL as a whole, San Diego, Sacramento, HI, is correcting more than Boston or San Francisco. There is no underlying industry supporting CR housing and there never was, it was purely reason (1) that moved it where it is now.
Its quite obvious now that a correction is already underway, no matter what the “experts” are saying.
i am glad you are going back in the game
Sally, welcome back to cyber print! Another very intelligent post formed by personal observation. Keep them coming!
I hope you will begin to post DOMs, inventory, etc., on your other blog for Key West as you have in the past.
By the way, Cayo Dave tells me Bascom Groom was on radio last week saying although prices have come down about 20% in Key West, inventory is shrinking.
I’d like to see whether sales are picking up, and I’d like to see if prices are holding on the ask. I don’t think so.
I’m seeing more topline condos being put back on the market. A notable was one of the Steam Plant condos . . . which are not yet completed and which were sold out . . . is back on the market.
Also, rents are coming down all over the place. I’m thinking of jumping to a better deal in the next few months as my landlord has just put this entire property of 3 cottage style houses back on the market. (I feel he needs to drop another $1.25 million off the asking price before I’d consider buying . . . and I know that ain’t going to happen.)
I’ve got questions for you concerning Costa Rican Real Estate: how are taxes and insurance? Is insurance mandatory down there? Just curious. Also, do most Americans use American or Costa Rican lenders? And what are the rates for Costa Rican lenders?
By the way, I posted your Costa Rican blog on Motley Fool’s “Macro Economic Risk and Trends” board. One poster even wrote me via email about Key West real estate. I told her you are the one I’d trust as a buyer’s agent when and if the market bottoms.
Meanwhile, mortgage fraud is being prosecuted all over Florida. I am reading about Realtors, developers, appraisers, builders, lenders and especially mortgage brokers all being handed prison sentences for their parts in fradulent scams.
They crash, they burn, they never learn.
Okay, got to go. It’s great to have you back as one of the Key West bloggers. We’ve sorely missed your firepower of data.
DJ Rock
p.s. My obit for David Lereah and my detective work which shows how he tried to cover his tracks of boneheaded exuberant claims that Real Estate will boom throughout this decade by sneaking title changes onto a cover for the same book. Get out your magnifying glass so you can see his tombstone at the end of my post:
http://rocktrueblood.blogspot.com/2007/06/david-lareah-rip.html
Thanks for welcoming me back to the game, Ron. I don’t mean to be sarcastic, but today, 6/28, I don’t know that it’s a game I can stomach. Or a job I can do to make any money. I’m too down on the market… we’ll see.
Hey, Rock, to answer your questions about cr real estate, “I’ve got questions for you concerning Costa Rican Real Estate: how are taxes and insurance? Is insurance mandatory down there? Just curious. Also, do most Americans use American or Costa Rican lenders? And what are the rates for Costa Rican lenders?”
Insurance is not mandatory that I know of. We have earthquakes here, but don’t think earthquake insurance is mandatory. Because there are no lenders, or very few. Interest rates are very high here (starting around 9%) and you have to put so much down. Most people take out home equity loans on their primary residence to buy for cash in cr.