Last week, we talked about the need to rebalance our investments in the U.S. markets by diversifying abroad. And the logical follow-on to that discussion is a word on how to get started.
I’ve bought a number of overseas properties—both for personal use and as investments—and I find that evaluation of a potential property always comes back to a few simple basics. It’s a safe and secure process when you follow the rules, and use the same good sense that you’d use in your home country.
For Any Property You’re Considering, First Look At These General Items
As anyone in the real estate business will tell you, location is paramount. You can fix almost anything else with enough time and money, but you can’t fix the location. Make sure it’s either good… or that you have a strong reason to believe it’s on its way to becoming good.
In addition to the neighborhood, also consider the distance to the airport and to good medical facilities.
2) Walkability And Public Transit
Where this applies, it’s crucial when it comes to resale or renting your property for income. The ability to walk to stores, restaurants, and administrative services will make your own life convenient—if you’re using the property—as well as that of your tenants. If your property is not walkable, you may be requiring your buyer/renter to have a car… which is a big factor in a foreign country.
If a city property is not completely walkable, being near convenient public transit is the next best alternative. Of course walkability doesn’t apply in remote properties that are intended to “get away from it all.”
3) See Wat’s Going On Next Door
In Santa Marta, Colombia, I looked at a beautiful new high-rise apartment, three blocks from the beach, with an impressive view of the Caribbean. When I looked out the window, I happened to notice that the adjacent “never-to-be-developed” property was filled with construction equipment. As it turned out, this neighboring building (undisclosed by the realtor) was going to block most of the view I would have been paying for.
And just south of João Pessoa, Brazil, I looked at a planned community of beautiful town homes a couple of blocks in from the beach. But while driving to the property, I happened to notice a billboard announcing the construction of a massive, low-income housing project on the adjacent property… again, undisclosed.
In Mazatlán, Mexico, a luxury high-rise tower in the Golden Zone was finished and mostly sold-out. Soon after, the apartments for resale—with their magnificent ocean/coastal views—were going for over US$500,000… that is, until the second tower was erected, blocking the views on one side of the building. Immediately, the tower one prices dropped to around $250k.
You can’t see into the future, and you can’t know everything that will happen. But do keep your eyes open to what’s going on in the area around you. I’ve passed up many condos after seeing a prime building lot next door (or an underdeveloped lot) that could potentially host a view-blocking building.
4) Find (Or Avoid) The Path Of Progress
Take a big-picture look at any major infrastructure upgrades in the works. If you’re a Path-of-Progress investor, you’ll benefit from construction of that new highway or airport… and if you’re looking for continued peace and solitude, you’ll want to avoid them. But either way, you should consider them.
In An Existing Building, Also Look For These Attributes
5) Verify A Good Property Condition
Look at paint, general appearance, the pool, grounds, elevators, and facilities. A quality, well-run building is never in a rundown condition. I’ve heard plenty of excuses about how the Homeowners’ Association (HOA) was going to fix things up during the coming year… but a well-run property would never become rundown in the first place.
6) Make Sure You Have A Strong Homeowners’ Association
We all know that HOAs are an annoyance. But there’s no doubt that they preserve the value of your investment. Make sure the rules for appearance and maintenance are being followed, and that the HOA is well-funded by reviewing their financial statement (your realtor can get this). Compare the HOA fees to other facilities in the area, to make sure they’re not exorbitant… but are sufficient.
I looked at several properties in Montevideo, Uruguay, where the realtor proudly told me that the HOA had been disbanded to save money… and that future assessments would be made to take care of any building needs. I called these “dying buildings”… because they were rapidly turning into poorly maintained, shabby properties. Taking up a successful maintenance collection without an HOA is almost impossible.
7) See If They Allow—Or Prohibit—Short-Term Rentals
If you want to rent your property short-term to take advantage of high returns, make sure it’s allowed… many municipalities place restrictions on short-term rentals.
But if the property will be your residence, I’d make sure they prohibit short-term rentals, if possible. At resale time, it’s easy to sell in a short-term building to another short-term landlord… but hard to sell to a local family. I believe that a building of owner-occupants sells to the widest spectrum of buyers.
8) Look At How Many Units Are For Sale
If a mature building has a seemingly large number of units for sale, it could be a sign of trouble… things like a big tax increase, HOA fee increase, or something unpleasant going on in the neighborhood, like a shopping center being built next door. Ask around to find out why there are so many sales, including the building’s doormen.
9) Check Out The Parking Lot
This may sound strange… but a building with well-off owners who care about the property will likely have a garage full of nice, well-kept cars. The more expensive they are, the better. If you see old junkers in the parking garage, take it as a warning.
In New Construction And Planned Communities, You’ll Want To Verify These
10) Check The Number Of Unsold Units
I was looking into a property here in Mazatlán and found a large, brand-new apartment for sale—with an almost-180-degree ocean view—at a good price. But then I noticed that there was another just like it… and then found two more. After checking the building’s completion date, I found it was completed and occupied almost four years earlier, yet still had quite a few prime, developer-owned units remaining unsold.
Something’s wrong here, and I’m not sure what it is. But I do know this: Whatever is causing sluggish developer sales will likely cause a sluggish sale when you try to sell.
11) Has The Project Met Its Milestones/Kept Its Promises So Far?
It pays to look back to see what the original plan was, and how closely the developer has kept to that plan and its promises.
Is the infrastructure where it was projected to be? The facilities?
I visited a development in Nicaragua three years in a row, and each year, the promised Phase I amenities were “about to start.” And each year, they had a new set of flimsy excuses for why the work hadn’t begun. Finally, the developers just pocketed the money and walked off, fulfilling almost nothing.
And I recently checked up on a luxury project in Belize. I looked back at their launch materials and saw that they were scheduled to break ground in February, 2016… but as of September 2017, 19 months later, work had not started. This does not exactly inspire confidence in the project.
12) Beware Of Hand-To-Mouth Infrastructure
Many planned communities depend on property sales to fund the promised infrastructure and community amenities. I’ve seen a few communities that were 100% backed without property sales, but not that many.
And I’ve also seen a number of projects where the infrastructure and amenities never got finished because of insufficient sales, leaving the early buyers holding the bag with unfulfilled sales promises on unimproved land. Some developers went under altogether… others were just crooks and spent the money on other endeavors.
I won’t tell you to always avoid sales-funded developments. But if the developer needs sales to fulfill his promises, then it’s definitely an item that should be in your “risk” column.
The golden rule here is to “buy what you see.” This is an oversimplified way of verifying this: If the project were to stop today—leaving the remaining sales promises unfulfilled—you’d still own something that you believe to be of value.
13) Take A Look At The Competition In The Area
I once looked at a project in Uruguay that was 2.5 miles from the beach, requiring its residents to have a car… let’s call it Project A. The houses were expensive by local standards, partly because it was targeting North Americans. Project B, in the same town, was located right on the water, offering brand-new apartments for US$75,000… with plenty of unsold units.
The town became quite popular with expats—partly due to Project A’s promotional efforts—but almost everyone opted for the cheaper and more convenient properties in Project B or elsewhere in town. Local competition wasn’t the only reason Project A failed… but it was certainly an important factor.
14) Verify The Developer Can Do The Job
I won’t cover this here, but I do have an essay that deals with it. Follow the link to read up on 10 Questions To Ask Before Investing With A Developer Overseas.
Buying property abroad can be safe, rewarding, and profitable. It’s a smart way to diversify your portfolio. Just be sure to follow the rules, and apply the same commonsense behavior you would back home.
Editor, Overseas Property Alert
Judi and I met you a long time ago in Panama. We are moving after living six years in Chacras de Coria, Argentina, where we produced wine and sold it internationally.
We are in our mid 70s and are going to Medellín. I have lived in Indonesia and Iran, (decades ago, during the time of the Shah) and have traveled much in my life. I think Colombia is my next “stop.”
We’re especially interested in researching Envigado, Laureles, and Sabaneta for long-term living. I would like to meet with some expats around our age, over the web, and “talk” about their findings, input, advice, etc., before we go there in December.
What is the best way to find and contact expats our age there?
Can you contact me with advice, as you did once long ago, in an exchange that led us to Argentina.
Gracias y Saludos,
First of all, you’ve identified some excellent choices in the Medellín valley. Envigado, Laureles, and Sabaneta all have their staunch fans, and all with good reason. (Follow the hyperlinks to see my original reports.) I’m sure one will stand out above the others when you visit, based on your own preference.
One of my favorite sources of comprehensive, impartial information is Medellín Guru, operated by Jeff Paschke, who sometimes writes for this newsletter. Another good, impartial source is Medellín Living, a longtime and popular site. They both have lots of practical info, including information on events and expat meet-ups… an excellent way to meet people to help get your feet on the ground.
Also, my friend Rich Holman of First American is our preferred agent in the area. Rich not only has hundreds of listings and bilingual agents, but he’s also a 70-something expat and entrepreneur who can give you some firsthand information when you meet him.
Thank you for the clarity and crispness of your writing! I have a question that I have not seen any references to, regarding apartments. I have fibromyalgia, and a concurrent sensitivity to noise. Most of the apartments I’ve seen described sound lovely, but make no mention of noise levels. Could you kindly comment on what can be expected?
I fully realize that we will most likely require a single residence of some kind, but I don’t want to rule out apartments so early in my research.
I don’t think I’d rule out apartment living because of noise… at least not categorically. Both of my apartments in Medellín are surprisingly quiet; one because it’s in a quiet neighborhood, and the other because it’s on a high floor.
So depending on your level of noise sensitivity, you may be OK. Just tell your agent, wherever you go, that you’re looking for a quiet environment, and let them find you a few candidates.
That said, you’ll find city living in Latin America to be noisier, generally, than city living in the States. When looking at properties, be sure to stop by at night to see how it is… sometimes it’s the only way of knowing that the empty-looking building on your block is actually a nightclub. Also take the time to identify bus routes that may be in the area.
Would you be able to send me more information on the Gran Pacifica development in Nicaragua?
The Nicaraguan coast is littered with failed developments, along with their unhappy buyers and investors.
But Gran Pacifica Beach and Golf is a success story. It’s a beachfront community with plenty of homes built and people in residence. If you like coastal living—without the fear that the developer will disappear—then Gran Pacifica is a good option.
Have a question? You can write to Lee here.