View Excerpt
(Excerpt from Chapter 4, Real Estate)
BUYING REAL ESTATE
Whether you are buying land, a turnkey house, a house that needs renovation, or building your dream house, it is advisable to rent for at least 4 months, better 6, to get the feel of living in the new place. A Canadian friend of mine who had lived in Europe for a couple years came to a Central American colonial city, found it enchanting, was charmed by both the people and the expat community, and during a 2-week initial visit bought his house. Within 6 months he had moved lock, stock and barrel to Central America and began renovations. The house turned out great. But he had never even traveled in a developing country before much less lived in one, spoke no Spanish, and couldn’t make enough money in the business he started. Moreover, all of the challenges of life in the third world – noise, dirt, poverty, suffering animals in the street, beggars, illiteracy, etc. – drove him stark raving mad after about 8 months and he moved away, after he had driven everyone else stark raving mad with all his complaining. The good part is that he did make a hefty profit on the property flip. But the point is, know what you’re getting into. Rent for 6 months, get to know the place, study the language and see if you like it even after the “honeymoon” is over. Everyone is different. Paradise to one person can be hell for another. Living on a beach might be your ultimate retirement dream, but after you do it for 6 months you might be bored to distraction.
OK, so you’ve rented for your 6 months and now you’ve really decided that you want to buy something. You will already have a pretty good idea of what is out there, how much things cost, and who the reputable real estate agents (or “runners” – more on that later) are. Before you start seriously looking at property, you will have to get yourself educated on the following points:
1. Property ownership in the country: are non-resident foreigners allowed to own property and do they have the same rights as citizens? See Checklist 1 in this chapter, for all the country-specific factors you will want to research before buying property. Some of these you will probably already have learned about, just by virtue of your living there and talking to other foreigners who have already bought property.
2. What is the real estate purchasing procedure, from first offer to final registration? Get this down in writing. See the Real Estate Process checklist at the end of the chapter, for a sample procedure in Nicaragua. Remember that every country is different, and sometimes there are regional differences within the same country.
3. The next step is to make a list of your own criteria for the “perfect place” for you, that takes into account your budget and personal tastes. Do this step with your partner so that you’ve done some of the compromising and negotiating on conflicting opinions and needs beforehand. Be as detailed as possible. The more detailed your criteria, the less time you’ll waste looking at completely unsuitable properties.
Your list of criteria should take into account:
Budget, size of property, neighborhood and environment, noise and pollution levels, road access, type of property (land, condo, turnkey house, renovation, etc), light, construction standards, access to, and costs of, utilities, water feature (i.e. do you want something on a body of water, or close to swimming, fishing, etc.), distance to the nearest town or shopping, distance to the nearest airport, hospital, schools, restaurants, town center (whatever is applicable in your case). Other factors could include type of building material, number of windows, amount of renovation needed, yard or patio, verandas, number of floors, access to Internet, cable TV, phone lines, sewage system, and other factors relating to personal taste.
At the end of this chapter is a copy of a criteria checklist that some friends and I used when we were searching for property in Panama. We took it everywhere we went and reviewed it with real estate agents as well. Many of the points regarding the land and the construction will have to be checked by professional engineers. Unless you are a professional, you will not be able to ascertain the condition of plumbing systems, materials, electric systems, water quality, etc.
Using a Real Estate Agent vs. Doing it Yourself
In some countries, real estate agents and agencies are not licensed. Anyone can put up a sign, open an office and call himself or herself a real estate agent. Other countries license real estate agents and there is a variation between countries as to what this entails. In Panama, for example, there is a real licensing procedure that includes a test. In Ecuador, it seems that some agents are licensed and others are not. In Nicaragua, everybody and their mother is a real estate agent. Don’t assume that because a seemingly reputable, nice gringo is part of a recognized real estate franchise that this means they have some sort of license. Find out what the laws are. In the U.S., the real estate agent represents the buyer and has your interests in mind. S/he cannot, for example, legally mark up the seller’s price by 50% to increase the commission. Also, the customs and laws regarding how properties are listed, and who pays the commission (buyer or seller) vary from country to country. Make sure you know what these customs or laws are.
So, your job is to really talk to a lot of other people in the area who have bought real estate. Find someone who is reputable and honest. Believe me, if you start asking around you will soon hear the horror stories and problems that people have had so you can easily weed out who is reputable and who isn’t.
Using a real estate agent has its benefits, especially for first time buyers who don’t speak the language well. A reputable agency will have good lawyers, connections to title insurance companies, experience and connections with government officials/offices, contacts with engineers and inspectors, numerous listings, and knowledge about building permits and good builders. They are also accustomed to dealing with absentee buyers and can carry out the process without your having to necessarily be physically present.
Sometimes you can work with more than one agent, depending on the customs and/or laws of the country. In North America people typically work with one agent, but in Nicaragua, Panama and Ecuador, I can go to every agency in town. As a seller, I can also list with every agency in town. But that’s not true everywhere. Ask around and find out.
Do it Yourself: Using “Runners” to find properties
If you feel comfortable not using a real estate agent, you should be prepared to knock on a lot of doors, and hire some reputable local(s) who will run around and find properties for you for a finder’s fee. In this case, you will have to assume many of the usual responsibilities of a real estate agent. For example, you may have to determine if the seller is trying to sell the property to two people at once. Or if the seller is the actual owner on the deed, or if s/he is one of 10 family members who must all sign off in order to legally sell the property. You will have to really know the real estate purchasing process from top to bottom, and have a great lawyer who knows how to do a property search and is actually doing a comprehensive search. You will have to independently hire an engineer or maybe two, to inspect the property. Make sure you agree beforehand on finder’s fees, engineering/surveying fees and lawyer’s fees, for the entire process. You will have to arrange for your own title insurance.
Again, talk to as many people as possible who have bought properties on their own, for advice and to understand and avoid the pitfalls of this process. And, never hire the same lawyer that the seller is using. A friend of mine did this and ended up in a heap of hot water: the property, despite being registered (apparently by bribing one of the officials), ended up having multiple liens which all had to be sorted out years later, at great expense.
Whether or not you use a real estate agent, you have the ultimate responsibility of ensuring that you have a clear title, that all taxes and utilities have been paid, that the property is legally registered and deeded to you according to the laws of the country, and that you are legally getting exactly what you paid for – and that all of this is in writing. You are responsible for insuring the property. Don’t just leave everything to your real estate agent and assume that all of this is being done for you. Be pro-active, ask questions, demand the proper documents and ensure you understand what these documents say, as they will probably not be in English! Real estate is the biggest purchase most people make so do your homework and protect your asset.
RENTING
As I said earlier, it’s best to rent before you buy. You will understand what it’s like to really live in the place and many of the regional challenges (bad plumbing, electric cuts, shared walls, etc) will come to light before you “own” them. Also, you may dream of living on the beach in paradise, but once you actually do it, end up bored to death. You may think a colonial city is the most charming town you’ve ever seen and not realize that at midnight the discos blast music, making it impossible to sleep anywhere near the center of town. If you discover these things while renting, you really haven’t lost anything, and you’ve gained a lot of information that will help should you decide to buy in the future.
Many real estate agents also rent properties so you can use a reputable agent to help you find a place. Some areas have separate property management companies. In others, you just have to ask around, look for signs on bulletin boards and find a place through friends. Again, make sure you have a list for your specific criteria, and a price range in mind. And once you’ve decided on a place, before you sign the dotted line, go there late at night and on the weekend to assess the noise level and the street activity, especially if peace and quiet and security are important factors for you. Ask around the area if there have been any problems with burglaries, muggings or other crimes in that particular neighborhood.
Get a contract that stipulates your rights and obligations as well as the landlord’s rights and obligations. Get your lawyer to look at it. Ensure any major repairs will be done at the owner’s expense. Ensure the house is inspected for any existing damages or problems so that you are not blamed for these at the end of the lease term. Make sure the house or apartment is in reasonably good condition. If the owner doesn’t care enough to maintain the property, that’s a big red flag. If you can, talk to any other tenants renting from this owner. Make sure the place is priced reasonably based on the rental market of the area for similar properties.
