Never a Better Time to Buy Land in Latin America

09-Apr-2015

I like this.

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By Ronan McMahon, International Living,
For more than 11 years I’ve traveled all over Latin America. From the U.S.-Mexican border all the way to Argentina, I see firsthand the opportunities this vast land has to offer. I’ve never seen a better time to invest in development land in Latin America than right now.
The biggest returns in development come to the earliest speculators who take positions. You don’t need deep pockets to invest in development land—if you know how to do it.
Nicaragua, for example, is a country of stunning natural beauty and abundant resources. It has a young population and its economy is catching up from a very low base. It has great potential as a retirement and vacation locale for North Americans. In the early 2000s, money and people raced in. Many didn’t have the skills or the experience to develop real estate.
Things unraveled with the crisis. Now almost everyone is afraid. I’m not; now is the buying moment on Nicaragua’s coast. Next door, Costa Rica is more developed. But the buying moment is the same. Capital is scarce and expensive for local developers. A good way to play all this is at the early-in investment level.
One way you can play big real estate trends is to invest in the development company that owns the land. That way you could enjoy the market upside (as prices rise, the value of the developer’s inventory rises) and also get a piece of a profitable business. I’m talking about a developer selling you shares in his company. For a regulatory compliant developer, doing this used to bring so many compliance hurdles it was pretty much impossible.
But rules have been dramatically relaxed in relation to deals like this being offered to accredited investors. Laws are under review as to how these relate to non-accredited investors. Right now I’m looking into how this is changing the investing landscape.
Every development business has a cost of capital. In Latin America, that can be high—if a bank will lend, the interest rates can be well into double digits. I’ve watched friends invest with developers and rack up annualized returns of 17% over several years with little risk. You can do that if you understand the developer’s business, trust him, and make sure you structure your arrangement so you are protected on the downside.
Some landowners are under financial pressure. They got in trouble during the crisis, and buyers are thin on the ground. Retail sales in markets dependent on North American buyers fell off a cliff during the crisis and are only slowly recovering. (The Riviera Maya is an exception to this.) This helps keep land prices artificially low, and means that many developers need to tap alternative sources of finance.
Junk will never sell. The slowdown in retail demand is temporary and product specific.
For the good stuff—the market has already turned. The best homes, lots, and condos now sell fast. The medium-term North American demographic drivers are just too strong. According to some reports, more than 4.5 million North Americans (mostly baby boomers) are now considering living or owning property in Latin America. Weather, cost of living, adventure, and the challenges of our changing world are driving this. Retirees want to try something new. More and more folks are no longer tied to an office with their work. We need to pay attention to boomer activity.
Baby boomer retirement will largely drive the market for overseas real estate in parts of Central and South America over the next 20 years. This trend is in its infancy. It will happen in bad times, like when Americans are financially stretched. Many retirees simply can’t afford to live in the U.S. on their retirement savings. Boomers will look to the tropics for new, affordable lifestyle opportunities.
It will also happen in the good times when home and stock market values soar—Americans are squeezed out of real estate markets or simply want to take their nest egg elsewhere. There are three ways that I recommend you use to take an early position on development land at an “armchair investment” level.
I reveal those three plays in detail in the current issue of International Living magazine.

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