#1046 – The Expat Files: Real Estate, Antigua, and Lessons from Costa Rica

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now that I wonder Hello there all you ex-pat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started All right. Let's see how many woke people we can piss off today Now doesn't it seem to you the thing woke people hate the most is the truth. Isn't it funny? They've got their own version of the truth. You know, I always thought there was only one version of the truth, but I'm a throwback

[00:46] I'm a dinosaur, right? Anyway, let's start out with something mild today and then get to the irritating stuff Let's talk about real estate first. This email comes from Luke an expat insider seminar alumnus now If I recall Luke, correct me if I'm wrong You were one of the guys was sitting in the lobby at the Barcelona Hotel in Guatemala City During one of our breaks at the seminar and I think after you heard our three Bitcoin experts talk at the seminar Yeah picked up a couple of them right then and there that is I saw you fiddling with your computer You said you got him. I think it was at $1,800 not bad. Look, I think that's only something like a 3,000 percent return Good for you. Congrats. Hmm 3,000 percent return Let me ask you guys and gals out there because I know this audience is way above average

[01:33] Most of you are a lot smarter than I am. Hey, that's one of the keys to success Hang around with people who are smarter than you are and of course smart people do a lot of investing So my question for all you guys and gals out there is this have you ever in your whole life made a 3,000% return on any investment ever Well, maybe you did if you got into Google Amazon Microsoft or Tesla way back When when they were in their infancy and people just laughed at you and you said you're putting some money into some crazy online Company that sold books called Amazon. I know I know Amazon morphed into the enemy But I'm talking about the early days now or crazier yet How about people who put their money into an electric car company when there wasn't even a single public car charging station in the whole USA?

[02:21] Anyway to make 3,000% on your money legally you have to really stick your neck out You know take a chance in the very early days when people look at you and think you're nuts Just saying so Luke starts by saying Johnny. Hope all's well with you at the start of the pandemic I thought the economic harm would depress real estate values Well in the US I was wrong about that the lower interest rate and with the more time people are spending at home have driven Home prices up substantially nearly everywhere except perhaps in certain urban centers where the lockdowns are so severe people are fleeing So Johnny, how's this real estate thing playing out in Central America? I would have thought the negative impact on tourism would have produced some bargains, but what's the reality down there? Thanks again signed Luke

[03:07] Alright, look real estate real estate location location location people asking me a lot of questions about that. You know, Luke I've got lots of current examples of real estate deals going down right now and deals that are in the negotiation phases First let's talk a bit about commercial real estate since so many gringos and expats start businesses And what do you need when you start a business normally unless you're strictly online a commercial space Well, just like in the States commercial real estate is a disaster It's dead every other storefront is closed boarded up or simply dead-looking no activity at all But before any business who's renting their commercial space makes that big decision to close down I mean, that's the end right first thing They do is go to the landlord explain the situation and hope to get some kind of reprieve some kind of good news almost every time

[03:54] The landlord kind of panics and says, okay, you can stay it for a couple of months rent free I've seen that happen over and over again And then of course the businesses hang on for a couple of months with free rent But that doesn't work for very long either Especially if the deal you made includes paying back rent though a lot of people with commercial spaces Especially if they've been there a long time are getting some months of free rent Even so landlords and owners with commercial spaces are panicking the exceptions being fast food joints and grocery stores Big and small on top of that, you know here in Latin America No one got a bailout from the government. There are no too big to fails No such thing as stimmy checks and of course that means and we're talking about landlords with commercial spaces They'll take pretty much any deal that you offer them better to have someone in your space paying low rent and keeping the lights on

[04:43] Then have no income at all and have the place deteriorate for a lack of maintenance So landlords and owners are desperate and some of them so cash poor. They're willing to sell their places Whereas just a year or so ago before the pandemic they wouldn't have thought of such a thing In fact, let me tell you about a deal that's going down right now with an expat gringo couple that came down about three years ago Now now the guy he's got an online internet business So he can work right from his little office at home And his wife has a little custom jewelry and clothing boutique and of course with this plannedemic her business is dead in the water So she's stuck with a small commercial space and a ton of inventory and when her lease came up on January 1st Just what three months ago now, by the way She was paying seven hundred dollars a month to rent a nice little commercial space in Antigua Guatemala

[05:34] Now I don't know if you've been there or not But it's a UNESCO World Heritage Site and pretty much as touristy as tourism ever gets in Guatemala Which it ain't saying much and that you know is a very good thing So there is tourism in little Antigua, Guatemala, which only has around 40,000 people But it's loaded with all kinds of little shops restaurants boutiques coffee bars The works because you know it is a UNESCO World Heritage Site and why is that? Well, there's more than a hundred buildings dating back two three four even five hundred years and many of my restored It's at the base of a huge inactive volcano. There's almost no crime to speak of It's a short drive away from a city with Mayan pyramids It's smack dab in the Altiplano. So you don't need heating or air conditioning They've got a fabulous outdoor vegetable and produce market every day. You don't need a car. Everything's within walking distance

[06:24] It's just a fabulous little city that's got everything going for it Oh and no ghettos in bad areas nearby either So eventually when things start to come back, that'll be the first place in Guatemala that picks up The tourists will return and it's a special kind of tourism in Antigua Guatemala I'm talking about echo tourism echo tourism is the best kind of tourism for one thing echo tourists Don't bring their kids because there's really nothing for kids to do They don't visit colonial ruins or pyramids or climb volcanoes visit coffee plantations Take Spanish immersion courses or go hiking kids today's kids. Anyway, I'm bored with that kind of stuff They'd rather go to Costa Rica or Cancun. Thank God for that So practically a hundred percent of the tourists in Antigua, Guatemala are careful calm and thoughtful kind of tourists

[07:12] highly educated mostly European by the way almost all of them nature and history lovers a lot of American upscale echo tourists too, you know With designer Lands End and Banana Republic and Timber Ridge hiking does if you know what I mean Hey, you gotta look smart for those photo ops when you're climbing a volcano, huh? anyway, most all the tourists in Antigua, Guatemala are curious types who like things off the beaten trail and Just want to get educated go retro explore a few things and have fun now I didn't intend for this to be a plug for Antigua, Guatemala. The fact is I probably shouldn't have said that much I hope you don't come maybe I'll shit can that part in the edit anyway about that gringo couple with the real estate Dilemma I was talking about as mentioned the ladies boutique bit the dust But forward thinkers that they are instead of throwing in the towel or closing up shop completely

[08:02] They had a meeting with the landlord who they could tell was pretty much desperate to keep them there And they knew they had the landlord over a barrel. They figured anything they asked for they probably would get at least temporarily Oh, and what I forgot to tell you is upstairs It was a really nice apartment about a thousand square feet and a beautiful terrace with a fantastic view of the volcano So they asked the landlord how much to buy the commercial space and the apartment right above a total of about 2,000 square feet. Well, the landlord wasn't expecting that he came back later with a price of 375,000 bucks and a couple waited a week and they countered him at 175 cash they settled on 200 now here's the thing that landlord owns a couple of other commercial spaces and apartments in the area and he's lost more than half of

[08:50] His commercial clients and a few of his long-term apartment rental clients They moved out and some of his other renters had just stopped paying so he was having a big-time cash flow Prop being that he was supporting his lazy ass entitled kid who was living up in the States and going to university obtaining one of those oh so valuable business admin degrees a prerequisite for a waiter's job at Starbucks Don't you know so now that gringle couple owns the building they're living upstairs his online business doing fine And she tells me there's just enough traffic to keep her little shop open and because they own the building now She pays no rent and now it's not a losing proposition anymore besides It's absolutely what she loves to do. Isn't that the point? Oh, and I forgot to tell you about the property taxes now

[09:37] You longtime listeners have heard me tell you that property taxes are ridiculously low here in Latin America You know properties are registered at such a tiny fraction of their real worth That means the only time you pay real estate taxes that are based on the real Evaluation is if you buy a brand new property That's just been built because when the contractor or architect draws up the plans He has to go down to the local municipality Register them and put an estimated construction price on the building that means for example if you buy an older apartment or older home Let's say built 20 30 years ago. It could be registered in the local municipality at 25,000 bucks Meanwhile the real value is 200 grand Here's the trick sit down with your lawyer or his lawyer or both and write two contracts that is one contract for the municipality And write a side deal up for the rest

[10:24] So in that case you write up a contract for the municipality only for 75 grand The thing is it was registered all along at 25k and the municipality and when it gets resold today You can't put 25,000 down the municipality would never go for that. It's too low So to please the municipality you make the sale price 75k so from then on your property tax basis is 75,000 bucks anyway at closing you've got a contract that says you're paying 75 grand for it But the real deals for a hundred and fifty K right and the other 75,000 you hand to the owner by checker wire transfer when you close the deal now I don't recommend you do this sleight of hand without a lawyer you have to have a Latin attorney with you So that everything's on the up and up or I should say the scam is on the up and up

[11:09] That's what I like about latino lawyers. They're up for the scam. They know every trick in the book They don't want to pay taxes either They know their government's completely corrupt and they'll do everything to help you out You know you'd never be able to get away with that up in the states And if you did and got caught you'd be looking at jail time and huge fines down here I've never ever heard of a single instance of anyone getting caught doing that or doing jail time or getting fines or Any kind of slap on the hand whatsoever the worst that could happen is that they'll scold you at the municipality and tell you to come In with a higher price. They don't believe it sold that low Anyway, that little maneuver goes on all the time when properties are transferred here in Latin America That's how it works for used properties, but brand-new properties It's much more difficult the sale price will have to be close or very close anyway to the cost

[11:56] Registered in the municipality when they took out the building permit then again property taxes are extremely cheap here in Latin America For example, I know of a guy who just bought a two-bedroom condo in a newly constructed building in Guatemala City and the cost was around 90,000 bucks. It's in a residential complex where all the apartments are pretty much the same and he bought it from a big well-known Construction and property management firm so you can't fiddle with him or make backroom deals like you can with an individual Landlord or seller so the property was registered in the local municipality at 90,000 and his property taxes turned out to be around 900 bucks a year and to its gringos that sounds like a tremendous deal right because hey We all know people in the states are paying thousands upon thousands of dollars a year for their property taxes

[12:41] Hey, my mom in Chicago has a house worth maybe 175 K and she's paying six thousand bucks a year for her property taxes In fact what she pays a month for her property taxes is a nice monthly house or apartment payment here in Latin America But I digress. Where were we? Oh, yeah I was gonna tell you about another little back-door real estate play you can make and this is the first time I've ever heard Or seen of this one It just goes to show you learn something new every day even when you've been down 30 plus years like I have You can never close the book and say you've seen it all. No way anyway Get this that couple I was telling you about that bought the storefront and the apartment upstairs in Antigua, Guatemala They wanted to do a backroom deal with the guy the same on taxes, too That is register the place with the municipality for a hundred K and then pay the other hundred K to the landlord under the table

[13:27] So their property taxes would be based only on the hundred grant Well when they got together with him and the lawyers he said no thing is he wanted to do it But he wouldn't because he'd been in some previous trouble with the municipality because he started a few projects from scratch without building permits So the municipality had him under a microscope, but between the two lawyers they figured another angle They listed the property at 200 grand in the municipality But also finagled away to only pay taxes on a hundred grand or half of that in the end Everyone was happy though. The question was how did it get done legally? Well, here's the part that was totally new to me and probably you too They wrote the contract up for 200 K But in the contract it said a hundred K for the property and a hundred K for the furnishings

[14:14] In other words, he was selling it a mo blado a mo blado means furnished in Spanish now according to tax law You don't pay taxes on furnishings only what they call bienes rieces, you know real estate not on stuff That's movable or can't be nailed down So though it was registered at 200 K their future property taxes were only based on a hundred K in that case something like 700 bucks a year who'd a thunk, huh? And of course the municipality didn't give a damn They'd never send anyone out to do an inspection though. You have to wonder what kind of household furnishings could be worth a hundred K Who knows maybe a Tiffany lamb a Picasso printer war hall painting Perhaps an exact copy of the desk in the retired in Chiefs Oval Office who knows but in any event

[15:03] It's all about the way Latino lawyers work the angles now You won't find that stuff printed or written anywhere though someone ought to write a book about it But then there goes the plausible denial, huh? So anyway, the moral of that story is this since this Plandemic no matter what kind of real estate situation you've got up in the States down here in Latin America No one's been bailed out. There's no government support or stimmy checks and no one's got any cash So I'd say more than any other place It's a buyer's and renters market, especially if you're looking to buy a condo apartment or a commercial space But you'll have to come down here get boots on the ground hook up with someone in the know who speaks Spanish You'll need someone to take you by the hand to do the inquiries and make the offers for you Oh and you'll probably never get a good deal

[15:48] If you're trying to find things sitting up there in Cleveland and checking out real estate on the internet Especially if the ads and the postings are in English, then it's gringo prices all the way But you knew that already right though going online is a good place to start if you're starting with olex.com That's you know, the local Craigslist in Spanish, of course But that's a good thing though as usual people think their things are worth a lot more than they really are Hey, we're all guilty of that right? So your best bet just to get started that is just to go on all x.com Check out the real estate section keeping an eye out for the listings that keep showing up over and over again for weeks and months Even years at a time. Those are your desperate sellers Think about it any person who's got his place listed over six months on any of those sites except English language sites

[16:35] Well, let me tell you a guy like that will be wide open for offers For example, another friend of mine a retired corrupt Boston cop. Hey, don't laugh That's how he introduced himself to me as a corrupt Boston cop. Hey, you gotta admire his honesty, huh? He kept seeing a certain penthouse over and over again on olex.com Starting price 300 grand in the end. He got it for a hundred and ninety fully furnished So the desperate sellers are out there problem is you better have cash now You can get a mortgage at a bank down here with 30% down But if you don't have your permanent residency You might as well forget about because the banks are looking to see if you've got close ties to the country and having residency You definitely will own don't forget about the rent to own option

[17:21] Many gringos and expats are living in really nice places They'd like to buy if they had a chance but the owners the landlords don't want to sell because that's their income stream Well, that's all changing too And before the pandemic thing there was almost no chance to be able to do that because rentals were putting out Consistent cash flow for the owner But now that there's so many renters in default and in arrears Certain smart gringos and expats who really like their rental unit when their rental contracts come up They're renegotiating and putting into the new contract a rent to buy option And most landlords are very willing to do that just to keep you in the unit and to keep the cash flow rolling Oh and one last thing when talking about a place like Antigua Guatemala or Granada Nicaragua the little towns around Lake Atitlan, Guatemala or Cuenca Ecuador any place where there's been a steady flow of tourism

[18:10] But now of course in the crapper because tourism is dead Well, if you got a brick-and-mortar business idea or you want to be a landlord It's not a bad idea at all to keep your eye open for storefronts. By the way, they're called locales down here locales L-o-c-a-l-e-s look for those for rent and for sale signs They're popping up everywhere that is as long as they've got a nice second floor apartment, too Like I said, some of those second floor apartments have fantastic views and terraces and stuff Now if you couldn't get one of those apartments with a first floor Commercial space as long as you're in a tourist area eventually the tourists will come back who knows if it's gonna be in a year Two or five doesn't matter as long as you've got a nice apartment upstairs for yourself You'll have a commercial space in a nice area ready to go when tourism picks up again

[18:57] Just remember even before this pandemic thing most all Latino landlords and property owners were land and property rich But cash poor so now I'd say 80 to 90 percent of them are really struggling Great news where gringles and expats were looking to buy some property or land and have got cash. All right now Let's discuss something that we don't talk about much That is reasons to go back to the states or get the hell out of Latin America because you know Some gringles and expats do not have the staying power You have to realize when gringles and expats land they go through phases There's always a honeymoon period when you first land and have those rose-colored glasses Everything looks fantastic for the first couple months and then we have doubts We all get to feeling various levels of uncertainty and wonder if it was the right thing to do

[19:45] Hey, it happened to me for me. That period lasted about maybe half a year But I'd say after I was down here, maybe a full year total Got my bearings started meeting people even with my almost non-existent Spanish Then it was pretty much smooth sailing from there I got over that hump and realized I made the right move Latin America was the place to be the thing is and this Also happened to me. I came down to a tourist area, Costa Rica Yep And I have to admit the gringos that got over that first year hump and ended up pretty much down here in Latin America for life I noticed there were mostly gringles and expats who made it through that first year without getting scammed and The ones that were victims of petty scams or robberies in that first year They're the ones that generally left and again You're much much more likely to get ripped off if you're on the gringo tours trail and usually by gringos to gringos

[20:33] You trust because hey, they speak English and your Spanish sucks, right? So you bond with them Oh, and of course, there are always those scamming lawyers, especially on the tourist trail They know how to gouge a gringle left and right and that brings us to this email written by George of the jungle Actually George formerly of the jungle of Costa Rica. He says Johnny I lived in Costa Rica in 1992 I loved it while I was there pre-internet pre iPhone pre what's up pre Amazon Facebook pre Walmart pre Costco pre flat-screen TVs even and Pre automatic transmission cars. Yes, that was one of the early shocks for me Being a big city flat terrain boy. My car is up in the States were all automatic transmission I didn't know how to drive a car with a clutch who drives manual transmission up in the States

[21:20] So that was a big revelation to me I came down and all the cars were manual transmission though If you bought a new car, you could get an automatic But what 25 year old kid first landing in Costa Rica is gonna buy a new car Just because he can't drive stick though many mistakes later. I did learn eventually though regrettable I left Costa Rica back to the States after about a year. I didn't leave because I didn't like it I left Costa Rica, which I saw as a great place to just lax out and retire into the sunset But at 25, you don't retire You don't fade into the sunset at 25 and all I cared about back then was sports and girls Partying and surfing though. I do admit I come from a family with a little bit of money So I wasn't in dire need of having a career or a job not right away

[22:08] Anyway, so why did I leave back in 92? Because I wanted first-world services. I wanted that the customer is king just like in the US I wanted people and workers to show up when they said they were gonna show up I wanted courteous thoughtful behavior from the owners and workers at stores I went to I wanted to go into bathrooms that had towels running water and didn't perpetually stink I wanted to live in a place where you called up a bank or a business and someone actually answered the phone a place where home and business owners fixed broken windows and changed burnt-out light bulbs a place without Volkswagen-sized potholes as harsh as his sounds I wanted to be with a higher class of people a place where bank tellers were not clueless

[22:54] Where cars and motorcycles didn't go the wrong way down one-way streets But looking back and I'm in my 50s now the main reasons why I left boiled down to the fact that I Wasn't a patient person at 25. I didn't have the patience for dealing with such rampant What I thought was stupidity. I never considered the thing you often call the gringo advantage, Johnny I was just looking at things from the wrong angle altogether My downfall was that I was looking for faults and defects everywhere Instead of concentrating on all the good and great things that were right in front of my face But I couldn't see because I was only 25 years old I didn't realize that because of the way Costa Rican society was Latinos in general. I really did have a huge leg up I could be the king of the jungle, but I was too impatient too young to think along those lines

[23:44] I remember certain little frustrations almost every day like a thousand paper cuts Here's a typical example for a while I lived in the suburb of San Jose called her area and back then before phones took good pictures You had to have a camera by film and get it developed a hassle that Millennials and Gen Xers will never understand Man was it a pain to get my film developed at a so-called 24-hour developing service I had to walk a mile take a bus transfer to another bus and then walk another half a mile Waste a half a day time and time again only to find my film at a 24-hour film shop Was never ready in 24 hours even after 48 even 72 hours sometimes But that big sign in the window said 24 hours guaranteed and the people working at that film store

[24:33] Even the owner had no remorse whatsoever. No apology. Nothing. Just a shrug and los siento I'm sorry come back tomorrow one time. I went and got my film It was developed and when I got home, I found out they didn't develop the last five pictures I went back another half-day wasted and when I pointed that out the owner wasn't apologetic He acted put out and annoyed that I called him out on it. He told me to come back the next day That's four trips to pick up those final five or six photos Then he tried to charge me extra even though I tried to explain it was his mistake and how I had to travel all The way back to their store again. He didn't budge even after that big explanation in front of all of his workers He said that'll be 800 colonias or I'm not giving you the film So Johnny after having similar types of experiences again and again and again

[25:21] That's why I moved back to California Which as you know is a pit of a hellhole now and now I'm thinking practically every day too now that I'm in my 50s I would sure love to be in Costa Rica. I learned my lesson I've been slapped and spit out of the system here in California for so many years now I've learned the virtue of patience I could really love living in Costa Rica again or give me any place else in Latin America Even Mexico. So what now here I am dreaming every day I dream of having a little weekend place in Playa Flamingo and during the week have an off-the-grid Self-sufficient farm slash ranch in Palmyra. So then why don't I just do it? Well, I've got kids and debts and grandkids too many responsibilities and obligations

[26:08] I wish I was 25 again When all I really had to worry about was my backpack or surfboard getting stolen and now after having listened to your Show for so many years It hurts me in a twisted way to realize that I should have stuck it out because technology and the internet have changed Latin America immensely I understand that even customer service has arrived in Latin America if only in baby steps and as stupidity Rises in the US. It's falling in Latin America and with the internationalization of Walmart Costco and Amazon US citizens in Latin America are no longer at a loss for creature comforts I know that fresh green gringos when they arrive are still low-hanging fruit with wallets ripe for the picking I've already been through that stage. So I know better. It's just too bad

[26:55] I had no patience when I was 25 because even though I had those bad memories of Costa Rica way back when Looking back. I have to say that was the best most interesting year of my life. What a sad conclusion Hey, Johnny signed George formerly of the jungle. Oh George, you know you hit a nerve with that one I've known so many gringos and expats who've been through exactly the same thing seems like they came down Maybe a bit too young a bit too impatient and a bit too critical. But George living in, California I wonder what the suicide rates are there. I'm thinking woke people don't want those stats published You've been listening to the expat files living in Latin America If you need some help with your own plan B, we can schedule a one-on-one phone or Skype consult

[27:41] Just send me an email the expat files at gmail.com And if you want to get on the waiting list for my next week-long expat insider seminar in Central America Where you're guaranteed to get a two to five year head start on your plan B Send me an email the expat files at gmail.com