1. Determine what market is right for you and focus there
Good investments can be found in every market but whether a particular market is right for you will depend on your investment goals – do you have a speculator’s stomach? Do you want immediate access to amenities and a sense of community?
As a general rule, regions at earlier stages of a property development curve will have a higher potential for rapid capital appreciation than more mature areas but investments here will also have a higher inherent market risk. In more mature markets, the infrastructure will be better quality and the tourism industry and associated amenities more developed providing more potential for rental income.
Choose the risk/reward profile you are comfortable with and set your investment goals early. As Garry Keller notes in The Millionaire Real Estate Investor, when researching investment opportunities: “Think powered by a big why”.
2. Don’t believe the hype
In Central America there is no overarching multiple listing service (MLS) for real estate and no centralized tracking of the price properties have sold for in the past. There is no local equivalent of http://www.zillow.com for the regional real estate market. This means that the market is particularly prone to exaggeration and hype, sometimes in both directions.
Build a good network that will allow you to triangulate and contextualize information that you receive, learn from professionals and be skeptical about claims that you can flip your property for 100% more “when the next real estate tour come into town in a few weeks.” A solid piece of advice is to buy only what you see. Make up your mind on the inherent value of the property you are looking at. Don’t factor in the “new coastal road” the “new airport” the “new Marriott” into the price.
3. Understand the link between tourism and real estate
Across Central America, the areas that attract most tourism numbers also generate the highest levels of real estate activity. Add data on tourism rates into your research and seek out areas that are experiencing growing numbers of tourist visitors. It is a safe bet that real estate dollars will follow close behind.
If you dream of a vacation home in the truest sense of the word, a property that you can enjoy right now and not sometime in the distant future, then seek out established tourism destinations. You will also find that rental returns are highest here.
4. Choose a good attorney
The general level of credibility and professionalism that attorneys exhibit can vary considerably between different countries. Attorneys in Belize, for example, have a high professional standing while in other countries real estate investors have experienced shady practice from attorneys they have chosen. It makes sense to find an attorney who speaks English (unless of course you are fluent in Spanish) and who commits to keep regular communications with you throughout the due diligence and closing process. Remember that you may be out of the country over this period and communication via email may be crucial.
In some countries it is possible to get a good list of attorneys approved by major title insurance companies. You are free to choose from the list whether or not you decide to take out title insurance. (For more on title insurance see below). Real estate developers have been known to try and persuade buyers to use their own legal team for property purchasing. Our advice is to employ independent legal advise at least to review (if not draw up) the purchase contract you are signing and check the title history on the property.
5. Make title insurance a non-negotiable
We recommend taking out title insurance for all your purchases in Central America. Though the process can at times be bureaucratic and cumbersome (and realtors like to remind you of this) it can unearth potential problems with your title before it is too late. Seeking title insurance will force your attorney to delve deeply into the title history of your property and follow a set of criteria in their reporting. Seek out well established title insurance companies that have a track record of offering polices in Central America, such as Stuart Title or First American. With both of these companies your insurance policy will be paid for in the US and any claims are made to the company in the US.
6. Don’t assume you can finance your purchase
In many Central American countries it can be very hard to obtain a loan from a local bank and, where it is possible, the interest rates are not competitive to the US and terms can be unfavorable. Panama stands out in this regard as competitive financing is relatively easy to obtain. In most countries you can normally find private lenders offering loans based on refinancing US assets and an ever increasing number of developers are offering owner/developer financing although this number is still small in absolute terms.
7. Give something back
The strap line of Las Fincas a development project in Nicaragua designed using sustainable development principles is “invest with confidence…develop with a conscience.” Investing responsibly makes a great deal of sense both for the country as a whole and for your individual investment. Central America is a warmhearted region welcoming to international visitors. In order for this warm feeling to endure into the future, local communities need to benefit from the real estate and tourism activity that is going on in the country. As the community grows and develops so the foundation for real estate becomes more solid and sustainable.