Everyone buying property outside of North America needs to remember the famous words of Dorothy to Toto after being dropped into Oz: “I don’t think we are in Kansas anymore.”
When going overseas, especially to places that feel familiar, we must be very, very careful. In fact, the more familiar it seems, the more caution we should apply. But how do we do that?
Take a look at a favorite saying of mine, “I don’t know what I don’t know.”
Please stop and reread that………
Really! But how can we know what we don’t know? We can’t obviously, but we can be open to new possibilities and realities that vary greatly from our assumptions. The analogy that makes sense here is one of a radar screen. A small radar screen is easy to manage. In the world of “North American normal,” we can get away with that. But overseas, a larger radar screen serves us well. It makes sense to expand it greatly so that anomalies are picked up way out, not close in. Give yourself time and space to examine this data, process it, and then understand it.
There are numerous wonderful properties out there and some of them are right for you. But you are in a different country, with different rules. There is no big brother looking out for you (hooray), so be sure you are looking out for yourself.
An educated buyer is a happy owner. The answers to the questions below should be an important part of your property-selection process. There are no “right” or “wrong” answers, but we’ve found that the things people take for granted or assume are standards in North America, may not be in Latin America. Be sure you know the answers to the following questions and make conscious decisions about what levels of creature comforts are mandatory and which may be optional.
The 15 critical “must ask” questions when buying real estate overseas are broken into three main areas:
- Buy what you see
- Own community
- Know the developer.
1. Buy What You See
Is there year-round access to the property? What is the drive time from shopping, dining, and the airport? Not all roads are accessible all year in the tropics. Steams that barely flow or don’t at all, can be raging torrents half the year. Know the road condition in rainy season. Proximity to services is very important. The key factor is the time to reach the destination, not the miles. Ten miles on a rough dirt road in rainy season can easily take an hour or more.
What road and public infrastructure exists? Does the current infrastructure include underground utilities, paved streets and sidewalks? Do not take for granted paved roads, street lights or state-of-the-art telecommunications. If these are not in place when you buy your property, they might never be. Rarely, if ever does, the government or utility company provides these services to a developer. If the sales agent says, “it’s coming,” verify y that the developer has the funds to meet his promises. Ask to see a copy of his most recent bank statement showing the millions of dollars it will take to build the infrastructure. Bottom line: Buy what you see! Be sure that the price you pay is indicative of existing reality.
Is there enough fresh water and water pressure? Sometimes it’s the smallest of things that adds greatly to the quality of life. Water pressure is one of them and it must be planned for and paid for. Either the developer has planned and paid for this part of the infrastructure or the lot owner will bear this cost with the addition of storage tanks and pressurizing systems. If you are considering an existing home or condominium, turn on all the faucets, inside and out, the showers, and then flush the toilets. Is there sufficient pressure?
Is the house or condominium plumbed with hot water? Not a silly question. Look under the sinks to see if there is hot and cold service. In many cases, a splitter is used from the cold service to provide water to both faucets. The cost to retrofit a concrete home for hot water to the bathrooms can be high. If you are having a home built, be sure to triple check the plans for a hot and cold service to all bathrooms and fixtures. Architects and builders may design “local” and unless you catch this upfront, change orders become prohibitively expensive.
How far is it to major medical care? How long in dry season, how long in rainy season? Major medical care is critical. Most major Latin American cities have state-of-the-art hospitals. In fact, in many cases these facilities can eclipse regional US hospitals with newer more modern equipment approved for use by the Europeans but not yet passed by the FDA. Be sure to visit the medical facilities as part of your due diligence process. Remember too, it is not how many miles to a major medical facility, but how many minutes by car in both the wet and dry seasons that really counts.
2. Owning Community
What kind of construction and design standards are in place and enforceable? Is there building requirement of any kind? Zoning is almost inexistent in Latin America. Unless the developer has written and implemented CC&R’s, your neighbor can do whatever they want. Read the CC&R’s and make sure you agree with what is allowed and what is not. Know what deed restrictions are in place or you may be unpleasantly surprised by a neighbor whose tastes are radically different than yours. Empty lots on the beach are great for a picnic, but don’t create much of a living environment. Community means homes around you. If you want to have neighbors around, be sure that there is a requirement that property owners build a home in order to avoid living in a “ghost town”.
Are there amenities for use by owners and visitors? “Buy what you see” should be the basis for 90% of your due diligence evaluation. Is there a golf course, restaurant, bar, tennis court, fitness center, dock, dive shop, in place and serving clients. Or are they just promised. Promises can be alright, but your due diligence should include the verification of hard funds needed to complete the promised infrastructure, amenities, and services. Without the money, you are buying a dream.
Are there state-of-the-art telecommunications or fiber optics for fast and reliable worldwide communications? This question could fit in either “Buy what you see,” or “Own community.” But in a time where we take internet and phone service for granted, and community is being more and more defined on the web, this vital component must be in place, and in place well. Understand the reality of telecommunications infrastructure. How is the phone service provided? Can you get the bandwidth of internet you need? Is the service flexible and expandable to grow with the future needs?
What about the Home Owner’s Association? Are the fees high enough to cover maintenance of existing and planned infrastructure? Yes, high enough. You should worry about low fees because they are usually a sales tool to show how cheap the cost of ownership is. Let’s be honest, nobody likes to pay monthly fees. However, please realize that fees set too low equate to unexpected surprise assessments in the future and/or a drastic rise in HOA fees when the developer is gone and the true costs of maintenance are carried by property owners.
What about green belts, common areas, and the future of the development? True community requires 3rd spaces and places for people to meet and enjoy each other’s company. Club houses, parks, sidewalks, and maintained open space are critical to foster a spirit of enjoyment for residents. If public spaces are important to you, be sure they exist and are protected in the master plan. Remember too that there needs to sufficient resources for the care and maintenance of these areas. Knowing and agreeing with the vision of a project is important too. Be sure that the developer’s long term plans align with your goals and desires as a homeowner in that project. Ask to see a copy of the developer’s business plan if they have one and make sure it makes sense over the long run for you.
3. Know the Developer
How will you build your home from thousands of miles away? Who can oversee the construction of the home, and what is included? Look for projects that show homes as examples of what you will actually receive. What are the written specifications? What do the Architectural CC&R’s dictate? Are you in agreement with them? Have they planned property for 220v water heaters and air-conditioners, are there hot water lines to all the sinks and showers? Are lights, fans, faucets and fixtures included in the price? Are appliances and AC units included? Is there a dryer vent or a water line to the fridge? How about the telephone and cable TV wires? Are they included in the price? Really! What are the engineering guidelines? Who is going to validate these specifications as the home is constructed? All of these things and more we assume as North Americans. Verify and assume nothing. Remember, you get what you inspect, not what you expect.
Is the Development Company financially solid and do they have a record of success? Is financing available for Property Ownership? Remember buying a property in a foreign country is like getting married. You should know very well who you are marrying. Hopefully the developer will be around for many years and, if so, you want to be sure you are comfortable with the long term association. Ask to see a copy of a business plan. Do they have a business plan? Ask to see financials. You are the buyer and you have every right to ask to see financials, especially if they’ve promised something like future amenities. You need to know who they are and if they will be around for a long time. Remember, you are going to send them your hard earned money. There are no bonding agencies holding their feet to fire to complete anything they promise. You are counting on the people and company involved to make good now and for the next 20 years.
If they’ve promised an ROI on rental return, ask to see cancelled checks to owners. If they’ve returned 8%, 10% or 12% to owners, they’ll be proud to show you the cancelled checks. In addition because financing is rare in the region, the developer should provide a form of financing as a buyer’s option. This shows financial stability. It also will indicate that they are not using your money to build promised infrastructure and amenities. Build outs based on sales flow can stall in down markets leaving buyers with half built projects to complete and fund as a HOA.
Is there a central sewer system? This may seem like an odd question to put under the heading of “Know the Developer,” but here’s the logic. When a developer doesn’t plan a central sewer system, what they are in fact doing is pushing the cost of the waste disposal off to the property buyer. Depending on soil type, this may or may not be a big issue. But either way, property owners will be responsible for paying for and installing septic systems. If septic is the provided solution, request to see a copy of a “perk test.” Many soils of Latin America are heavy clay. Lot owners may be forced to install expensive systems to meet environmental codes. Worse, without proper zoning and environmental inspections from big brother, many property buyers may not install what is hygienically required leading to a nasty situation, especially in rainy season.
What about safety and security access? 24/7 security should be provided at any public entrance with cooperating backup from local and national police. Generally the municipalities will not have the funding or staff to provide the kind of security North Americans are used to. Prevention and deterrence is the key here, and a strong visible presence prevents the kind of petty theft so often happening in the region. Be sure it exists and works. Were you let through the gate no problem? Hmmmm. Who else can get through? A tough time getting in through the gate yourself, means others will face it as well.
What kind of title guarantee can be provided? If you can’t get title insurance, you should seriously reconsider the purchase. There are no legitimate reasons you should not be able to get this protection from a major company like First American or Stewart. This is a black and white issue. Either the seller has title and you can get a policy, or you should walk away. There will always be a story. Believe it at your own peril.
Mike Cobb is CEO and Chairman of ECI Development. His blog on expat life in Nicaragua can be read at http://www.mikesgringolife.com. Mike will be co-hosting The Central American Advantage Conference, focusing on expat life in Nicaragua, on May 15-19 in Managua. For information on the conference, click here.