Real Estate Overseas

March 30, 2010
Panama City, Panama

Plus:

• Tax Issues Of The American Abroad...
• "Kathleen, How Do We Get Started?"...

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Dear Overseas Opportunity Letter Reader,

"Ninety-nine percent of the guys trying to sell you a piece of property in this part of the world would cheat you given half a chance and without giving it a second thought."

Jeez...was that me talking? When did I get so cynical?

"Do you mean agents or developers?" my new colleague asked.

"I mean everybody. Agents, brokers, developers, land-owners...everybody and anybody with whom you might have a conversation about buying a piece of real estate in the unregulated markets we deal in."

It sounds a bold statement at first...incredible. And, sure, I was exaggerating (maybe...a little) to make a point.

And the point is this: The rules change when you leave the developed world and enter the undeveloped one. No, that's not right. It's not that the rules change. It's that there are no rules.

Right now, I know of a high-profile developer in Nicaragua who, for four years, has been selling land he doesn't own.

I know of a developer here in Panama who, for years, has been selling land he doesn't "own," at least not formally. It's rights of possession land. The developer assures buyers that rights of possession is "as good as title." But it's not. He knows it's not. Now you do, too.

I knew a developer 20 years ago on the Honduran island of Roatan who made a business, for a while, selling land he didn't own. He took $20,000 deposits from buyers for about a year...then he disappeared into the Caribbean. As the guy selling the lots didn't own them...the people buying the lots realized, too late, that they didn't own them either. What were they to do?

I knew a real estate agent in Granada who told me one afternoon, over drinks, that he wished I'd stop banging the Buy Title Insurance drum so loudly. "It interferes with sales," he complained.

These guys are bad news...knowingly swindling unsuspecting buyers. It's not always so diabolical...but the effect is the same.

That is, sometimes, the developer or the agent isn't actively trying to cheat you. He's only failing to deliver what you believe he promised.

I knew of two developers in Nicaragua a couple years ago, for example, who weren't able to ride out the market downturn in that country. They threw their hands up in defeat and walked away. Where does that leave owners?

I tell you these scary tales not to scare you...but to fortify you. The opportunities...for fun...for a better life...for profit...are great in this part of the world. But the pitfalls are many...and, often, wholly unexpected.

In the States, for example, you entertain any conversation about the purchase of a piece of real estate confident of certain things. For example:

You take for granted that the person offering to sell you the piece of real estate owns it.

You assume that he owns it freehold--that is, that he has clear, unencumbered title.

If you're considering buying into a development, you believe that the infrastructure and amenities promised by the developer will be delivered. If his materials indicate that a marina will be built...then a marina will be built.

You don't worry that the price you're being quoted might be dramatically greater than the price being quoted for the same piece of real estate by another agent also representing it for sale. It would never occur to you that the same house, for example, could be listed with three different agents at three maybe dramatically different prices.

You don't question the boundaries indicated by the seller...or the right-of-way...or whether all the required permits for development and construction were obtained...

You take these things for granted, confident not only that you don't have to worry about them, but also that, should something go wrong, you'll have some recourse. There'll be some agency with which you can file your grievance. And, worst case, there'll always be somebody you can sue...right?

There's no Honduran government agency that regulates the sale of real estate to foreign buyers.

And how are you going to sue somebody in Nicaragua?

You aren't. So you need to make sure you don't end up in a situation where that seems your only option.

Here's what I'd like you to take away from these ramblings today:

First, this living and investing overseas stuff is uncertain, unpredictable, and by no means guaranteed. Markets go down as well as up. Administrations turn over. Investment climates cool. Promised infrastructure is sometimes not delivered. People are cavalier in their representations of the facts...optimistic in their visions of what's to come.

And you're operating at a big disadvantage, being not-local. You'll never fully understand the cultural nuances of any business deal you entertain in a country other than the one where you were born and raised.

Second, nobody in the conversation is on your side. Not the seller's agent or attorney, certainly, but not your agent either. Not your agent's attorney. Not the developer you're buying from. And not his attorney either.

Here's the exception, the one guy you should be able to trust to protect your interests: your attorney.

Your attorney is not your agent's attorney or the developer's attorney or the seller's attorney. He is separate, unique, and independent, beholding to nobody sitting around the negotiating table but you.

Finding a good local attorney, one who speaks English and who has had experience with foreign property buyers, should be your number-one priority when you enter a new market, your first order of business, best accomplished before you begin scouting, searching, or viewing.

In the past dozen years, I've invested in real estate in 17 countries. In each of these places, I've been able to find a local attorney I trust. I'd be happy to share his or her contact details with you if you get in touch.

To recap: Step #1: Find a good local attorney.

Step #2: Educate yourself in how to size up a property deal in an unregulated market. Friend and Nicaraguan property developer Mike Cobb, doing business in the region for 16 years and living in Nicaragua for more than eight, details 12 critical questions to ask before investing in a piece of property overseas. See below.

Kathleen Peddicord

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-------------- 12 Critical Questions You Should Ask Before Buying Real Estate Overseas

By Mike Cobb

1. Is there year-round access to the area? And what is the drive time from the nearest airport? Not all roads are accessible year-round in Nicaragua, for example, or in any of the countries in this region. Understand not only how far a piece of property is from the nearest airport, but what road you must travel to get back and forth.
    
2. How is security provided at the property? If you're buying into a private development, you should expect 24/7 security at the entrance with back-up from local and national police.
    
3. Where is the nearest medical care facility? How many minutes to get there by car in both the wet and the dry seasons?
    
4. Can you buy title insurance for the property from a reputable title insurance company? If the answer is no, you should seriously reconsider the purchase. This is a big red flag.
    
5. Is there a building requirement? This may or may not matter to you, but you should understand that if there's no building requirement, you could be buying into a ghost town.
    
6. What construction and design standards are in place? Zoning is almost non-existent in Latin America, and, unless covenants and building restrictions are put in place, you may not like what your neighbors decide to erect next-door.
    
7. What is the current, existing infrastructure? Buy what you see. Do not take for granted that further infrastructure will be installed, and do not believe every infrastructure promise a developer makes. If you see paved roads, then there are paved roads. If you see a clubhouse, then there's a clubhouse. I say again: Buy what you see. And make sure the price reflects that current reality. Don't pay a premium for "planned infrastructure."
    
8. Is there enough water and water pressure? Is there hot water? What's the plan for waste disposal? Either the developer has installed these systems and covered the costs...or he hasn't. But if he hasn't...who's going to? (Here's a hint: The answer is you.)
    
9. What are the plans for a Home Owner's Association? Are the fees realistic given the level of infrastructure and amenities? You should worry about low fees, because they may result in surprise assessments down the road.
    
10. How will you build (if that's your plan) from thousands of miles away? Who will oversee construction for you? And what's included in the cost? You want to see written specifications, and you want to make sure they include 220v water heaters and air conditioners and hot water lines to the sinks and showers. And you want to confirm whether or not they include lights, fans, faucets, fixtures, and appliances. Assume nothing.
     
11. What amenities and green areas exist? Pools, parks, golf, tennis, fitness, clubhouse, etc. Again, buy what you see. And ask about the plan for care and maintenance.
     
12. Is the development company financially sound? Do they have a track record?

"You mentioned recently that for non-Americans, 'Belize offers the opportunity for tax-free living.' So, being an American, they want to tax me in Belize?

"By the way I am really enjoying receiving your information. I have found it very informative and well written! Thanks."

-- Mark G., Panama

No, it's not that Belize will tax you as an American foreign resident. It's that Uncle Sam will tax you as an American no matter where you're resident.

The United States is one of only a few countries in the world that taxes its citizens on their worldwide income no matter where they live. That is to say, as an American abroad, you never lose your obligation to the U.S. Internal Revenue Service. When you take up residence elsewhere, therefore, you have two tax obligations (the one to the IRS that you never lose and a second to the new jurisdiction where you've become resident).

This is not to say that you pay double the taxes. It is possible to organize your financial affairs as an American abroad to reduce your tax burden significantly, even to live tax-free. Belize is one of the best choices if your agenda is tax mitigation.

I've been a fan of Belize since I first visited 25 years ago, but I believe Belize has more to offer right now than ever. That's why we've scheduled a Live & Invest in Belize Conference for June 21-23 in Belize City. Belize, with its barrier reef, Mayan ruins, rivers, and rain forest, is an adventure-traveler's playground. It's also an affordable and user-friendly retirement haven and an increasingly appealing offshore and banking haven.

However, is Belize for you? The only way to answer that question is to come see the country for yourself. Full details of our Live & Invest in Belize Conference program are here. "Kathleen, I am interested in global real estate investing and living overseas, and my wife is interested in travel writing and photography. Are there courses that we could take to educate ourselves? How do we get started?"

-- Sam W., Ottawa, Canada

You've taken the first best step already--by signing on as a reader of these dispatches. Today's "12 Critical Questions You Should Ask Before Buying Real Estate Overseas," from Mike Cobb, for example, is a great How To Become A Global Real Estate Investor 101 lesson. More will follow. Keep reading.

Meantime, yes, there is a course your wife (and you) could take to learn how to make a living from anywhere in the world as a travel writer and/or photographer. It's a program put together by one of the best travel writers and editors I've worked with in nearly 24 years in this business, Jen Stevens. I've known many over the years who have completed Jen's course successfully and who are, today, earning very good livings as professional travel writers and photographers, indulging their wanderlust, and enjoying all the perks, free travel, and other privileges of the travel writer's life. You can read full details of the Ultimate Travel Writer's Program here. Full details of the Ultimate Travel Photgraphy Program here.