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IWP!, flagship product is Chicago's premiere real estate Investment
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INTERNATIONAL INVESTING – PART III
By Crystal Harvey
Despite the negative reports of
the real estate market, professionals like me in the market continue to
find positive things to report and hold on too. In spite of the sub-prime
market disasters and the record foreclosure fears that are prevalent in
the market, there continues to be good things to focus on within the
industry. Buyers are still buying. Sellers are still selling. I believe
that these are exciting times for real estate investors! The
opportunities are virtually endless. This international series is
intended to add to the positive outlook of the industry and help keep the
spark alive. I have no doubt that seasoned veterans of the industry would
agree. It takes perseverance, patience, due diligence, expectancy and
most of all the enjoyment of pressing forward to sustain in the real
estate industry.
Everyday I find something new and
exciting. However, as a twenty year veteran I am definitely biased about
this field. It is in my blood. I have every hope to continue to find
more and more about this industry to keep the fire burning, The idea of
combining my first love, real estate , with my second love, experiencing
different cultures and climates through travel, is as good as it gets!
When I wake up each morning I do not have to figure out how to get
motivated about the day. It is a natural reaction to be excited about
real estate and the various opportunities that are available here in
American and abroad.
The savvy investor will seek out
the less developed areas and proceed with caution. They must formulate a
plan that takes into account the future development of an area; future
infrastructure, market analysis, demographics, and projected future
appreciation for the desired rate of return and cash flow. In preparation
for this third part of this series, I came across a wonderful and exciting
book, "Cashing In on a Second Home In Central America" by authors, Tom
Kelly, Mitch Creekmore, and Jeff Hornberger. This is a wonderful resource
and step-by-step guide to investing and learning more about Central
America. It gives real examples by investors and real estate
professionals that have made international investing the greater part of
their lifestyles, work ethic, and enjoyment. Central America consists of
seven countries: Belize, Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua and Panama. It is reported that according to the Wall Street
Journal, 83 percent of coastal developed property is owned by foreigners.
Central America makes sense from a
geographic, cultural, and economic standpoint. It has become a haven for
U.S. Companies and franchises so much so that some areas are said to
resemble American suburbs. The cost of living in many of the areas is
practically the same as the United States. Because of the Central America
Free Trade Agreement (CAFTA) more American products will become more
available than ever. Within the real estate industry, price continues to
be the main driver. Current property prices are a fraction of the cost
compared to that of the United States, perhaps better than what we have
seen in the last 30 years. It is said that a retiree can live like royalty
in many Central American countries for a fraction of the cost realized in
the United States. Many of the developments have built-in features that
include furnished units, live in maids, cooks, and gardeners in addition
to the luxury style amenities associated with a particular area or
project.
According to "Cashing In on a
Second Home," Central America is "the next frontier" in international real
estate investing. There are excellent appreciation rates. The location
is unique and for some investors, it is an alternative to Mexico. There
are a range of price points that can assist in penetrating the market
depending on the needs and desires of the investor. It also appears that
many real estate brokers have not only found a new aspect of assisting
their clientele, but have also decided themselves to set up shop in
Central America - not only with their brokerage businesses but as
developers and investors. Many of the areas are still considered third
world, which if looked at in the right prospective, could mean a great
opportunity to invest where there is a promising future with evident
growth. Also, the economies of these areas are closely tied to the U.S.
Dollar. Americans are rapidly becoming an essential part of the economic
growth of these areas, as well as Europeans and Canadians.
There are many things that have to
be considered in international real estate investing. Among them are
flexibility, caution, the ability to be adventurous and most of all, to
have fun. Many of the areas that have real estate opportunities are
secluded areas where investors are not only looking to make a profit but,
are also looking to enjoy themselves with the gems that they find.
Incomes earned by nonresidents in Costa Rica are subject to final
withholding tax on the gross amount. The standard rate that is applicable
to rental income is 30 percent. Property taxes are levied on a basis
similar to a county assessment at a flat rate of 0.25 percent. Real estate
taxes must be paid annually, semiannually or quarterly depending on the
municipality and calculated on a calendar-year basis. Capital gains are
not taxed in Costa Rica unless they are known to be habitual.
Costa Rica has a “Political
Constitution” or property ownership rights which is meant to be a fair
legal structure. There are favorable tax laws and anonymous protection
for banking transactions. There are equal rights for foreigners under
the Political Constitution. It is advised that anyone interested in
investing abroad should first invest the time to visit the desired
destination several times before they make their final decision. Similar
to the United States, investors are encouraged to make sure that they
fully understand the rental market within the area they are considering.
For example, to attract the biggest percentage of the rental pool,
investors go toward the properties that are closest to the beach and are
in close proximity to an international airport. When consulting real
estate professionals and developers within the region, the rule of thumb
is that the prospective buyers or renters are in direct proportion to the
number of flights to a nearby accessible airport.
Fee simple ownership is available
and as in the United States, provides the most rights. However, with fee
simple ownership there is an additional advantage that includes making the
investor ”whole” if for some reason, they are obstructed from the full
enjoyment of their investment. There is also ownership that would be
within the Maritime Zone called concessions. Here the property is within
an area that is encompassed by beachfront and is governed by the Maritime
Zone Law. Condominium ownerships is somewhat different in Central America
whereas it does not only include an undivided interest to a unit with
common areas, it may be a part of a planned development that includes
single family homes, residences, finished lots, condominiums, etc. There
are specific laws attached and an additional emphasis on developer
restrictions.
There are two basic ways of
purchasing property in Costa Rica. One is acquiring the property through
direct transfer where one or more buyers purchase the property in their
individual names. The other is acquiring the property through a
corporation, new or existing. After making a definite decision to
purchase a specific piece of property, the process is very similar to what
we have here in the United States. After the closing, the new owner is
registered with the Public Registry and they will receive an official
Title Guaranty. The fee structure for the transaction is also very similar
to the U.S. However, if setting up the corporation is a part of the
transaction, additional fees to do so can range from $500 to $1000.
When financing an international
real estate property, the interest rate may be higher than in the United
States. Not all banks offer financing to non-residents. Among the banks
that will are Scotiabank (www.scotiabank.com) and Banco Banex (www.banex.com).
There is usually a 25% down payment required and no penalty for
prepayment. As mentioned previously, it is strongly advised that the
investor work with an experienced international real estate agent,
preferably one that is affiliated with the U.S. based National Association
of Realtors (NAR). The Costa Rica Global Association of Realtors® has a
bilateral agreement with NAR.
FEATURED DEVELOPMENT: Hyatt
Regency Azulera
Hyatt Regency Azulera Resort
Village is a $300 million dollar project located in one of the most
popular regions in Costa Rica, Guanacaste on the Pacific coast. The
climate is hot year-round which is ideal for the second-home
buyer/investor and offers everything one would expect of an exclusive
world-class resort. Designed by Michael Graves, the project is schedule
to be delivered later this year and will consist of 185 guestrooms and 64
fee simple ownership high-end condominiums. The project will also
encompass townhouses, villas, and private luxury homes. In addition, the
project will include a commercial village to offer residents access to the
finest goods and services in a convenient and secure setting. It sits on
a 47-acre tropical forest. Guests will enjoy a Greg Norman designed
18-hole golf course, luxury spa, gourmet restaurants, pools, meeting rooms
and ballroom.
These are indeed exciting times
for the real estate industry. Upcoming sections of this series will
include the emphases on the National Association of Realtors and the
specific international designation for their members. I will explore the
pros and cons of international financing, taxes, possible Tenant In Common
(TIC) opportunities, selecting the right location, and much more! Until
then, happy investing!
******************************************************
Crystal Harvey is a Real Estate
Consultant/Broker for American Invsco Realty, Inc. She can be contacted
at (312) 595-4838 direct or Crystal.Harvey@AmericanInvsco.net. For
additional information on the featured development in this series, please
contact Saleen Graham directly at (312) 595-4868. |
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