Curtis Leibel 780-438-2500

Last blog on foreign investment we spoke on areas in Croatia and the Phillipines.  This time, I am going to draw your attention to Central America – specifically Nicaragua.

I recently spent a few weeks with realtors on the pacific coast of Nicaragua.  I had done alot of research previously into real estate in Central America before my trip, and IMO Nicaragua has the most growth potential for foreign investment.

First a brief history – after years of war with the US in the 70s Nicaragua has still not fully recovered.  However that being said, their president Daniel Ortega has just been reelected to a second consecutive 5 year term and is big on developing and making Nicaragua a country that can compete with the rest of central america.  Literacy rates have skyrocketed, new roads are being constructed, and tourist taxes have been implemented.  (Although a pain for tourists, the costs are relatively insignificant (ie.10% on a meal – and go along ways towards building infrastructure in their country.)

This new found stability, combined with beautiful beaches, friendly pe0ple, and cheap prices provide a welcoming enviroment for foreign investors.  There are a few areas of interest right now: area around San Juan Del Sur, Cities (Granada, Leon, Chinendega), the corn islands, and the north pacific coast.

San Juan Del Sur is a beautiful area and by far the most touristy area in the country.  Although prices have come down significantly over the last 5 years, they are still slightly overinflated compared to the rest of the country.  If you are looking for a holiday home, this is the spot as there is not many places you can find 1500 square foot houses overlooking beautiful bays and beaches for under 200,000. 

However, if you are looking strictly for investment purposes, the north is where it is at.  Most of the roads have recently been redone, it has the best surf in the country, stretches of miles of miles of uninterrupted, uninhabited beaches and prices couldnt be cheaper.  Beach front lots between 40-80,000 dollars, or ten acre sections by the beach for under 200,000.  Cant beat that.  With labour costs averaging about $5/day per worker, a beautiful home can be built for anywhere between $50000-100000.

I plan to head back in the next few months to gather more information and possibly buy myself a few lots….stay tuned!  Or feel free to email if youd like anymore information about investing in Central America.

When one thinks of a rental property, usually we assume they mean long term investment.  This is not always the case, as short term rentals can make money as well.  However – I do not recommend this as it is a very risky investment.

Generally anytime you NEED to get your cash out or HAVE to liquidate to access you money, you are taking a big gamble as you are leaving yourself without any options.  The only way short term investment properties are a safe risk, is if you are able to switch to long term without any consequences.

Let me explain; again with the $200,000 condo example.  Say your goal is to make a 10% ROI in one year by renting it out for one year and then selling it for $210,000 as you are expecting housing prices to increase by 5% over the next year. 

First off, if you include mortgage fees, lawyers fees, realtor costs and other carrying costs, in fact to make $10,000 you would probably have to sell for around $220,000.  Now that means housing prices have to increase 10% that year in order for that to work, which is making your goal harder to reach.  If now, at the end of the year, housing prices havent went up, yet you are forced to sell because you need access to that down payment money you invested, you are going to have to take a loss to get it back.

The only way this investment strategy makes sense, is if you are not forced to sell and you can instead hold on to the property until it makes it worthwhile to sell.   It is always a good strategy to buy investment properties in areas where you expect to see big increases in property values (ie. increased public transportation, neighborhood revitalization) and this can be a lucrative technique if you are buying in the right areas.  However unless you are able to hold the property until it reaches its growth potential, (which may take longer than expected) you are better off investing in other strategies.

My advice:  Always buy in an area where you anticipate seeing the biggest growth in value, but never expect it to increase at the rate you hope, as that is for the market to determine.  Never leave yourself without options.