#384 – The Expat Files: Navigating Business and Real Estate in Latin America

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

[00:14] Hello there all you expat 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. So today with any luck I'll finish up my blatherings on Ecuador. Now I mentioned a phenomena that happens in Ecuador and with so many Latin countries. When fresh new gringos come down they're kind of dazzled by the whole thing. The landscape, the weather, the palm trees, the exotic vegetation, the wonderful and crazy and sometimes even dangerous wildlife etc. In other words we come down for a couple of weeks or even a month or two with rose colored glasses firmly in place.

[01:01] Now in the last show you might remember that I mentioned how so many of us long term gringos, particularly when we fly so far south to Ecuador, we come down once or twice for a week or a month at a time. We like it so much or I should say they like it so much that they make plans to come down and live permanently and perhaps start a business. However even with so many things going for them many of those gringo businesses don't last two years. Of course we're talking about on the gringo tourist trail here where there's a lot of gringo competition which is what you don't want. So anyway gringos with their grand ideas of restaurants and bed and breakfast and sidewalk cafes etc. The usual wet dreams of a gringo or gringa contemplating retirement up in Seattle. Well let's just say that down in Latin America when gringos have unique and creative ideas

[01:51] like that there's a hell of a lot of turnover. Like I pointed out in the last show so many new businesses start out great guns and after a year or two they're gone. Now specifically I'm talking about places that are or are somewhat on the gringo tourist trail like Ecuador and not to burst your bubble and I'm not talking about the real estate bubble here either. That has a life and death of its own and it'll bust all by itself. Not to worry in some places it's starting already. Anyway you have to come down here and get boots on the ground for a while and not just two weeks or a month before you dive into a business that you just might be married to and in the end might not work out at all. And by the way that is the number one complaint I hear from gringos and gringas who've opened

[02:37] brick and mortar businesses down here in Latin America. They start a business and they're stuck being married to it. As opposed to a strictly internet business where you can do the work yourself on your own time and pick your own hours brick and mortar businesses on the other hand take a hell of a lot of time and you have to be there. Besides the fact like expat Eddie always says you know he's got quite a few restaurants if you're not around much and you don't rotate your schedule from time to time in other words keep your workers on your toes certain employees will have sticky fingers whereas other workers might just act like government employees and sit on their dead asses when you're not there because after all most of them will only be making about 200 to 300 bucks a month. Now that should be no excuse but you know what they say when the cats away.

[03:26] Remember that when you've been down here three weeks or a month and you've got that terrific business idea. So just because you got a gut feeling the vibes feel right and because your gringo and might have heard of the gringo advantage you think you don't have to do much market research you just open an Italian restaurant and the people will come right isn't that how it always works when you're in paradise so bottom line even if you're in paradise and you've got that gringo advantage going for you or not depending how near a fire you are from the gringo tourist trail don't forget your first world demographic and marketing research it'll give you a huge leg up because after all the locals never do it that said what about real estate in Ecuador well just like any place in Latin America where

[04:11] the gringos are flooding in new construction is everywhere and basically out of control seems like no one's doing first world style market research to see if there's any need for it they just think well hell the gringos are coming so let's start building meaning 95% of the construction is aimed at gringos and other foreigners from Europe of course at gringo prices it's like this everyone in the country who owns a business or some land are all excited and scrambling around to sell pieces of land or get in on development projects all the local businessmen as well as the gringos down here think the gringle flood has just begun and all I have to say is wait till the next big financial downturn then tell me how smart it was after you dropped 150 grand on that nice little

[04:59] condo one by the way one more thing about remember that quaint little Ecuadorian town I was talking about on the last show that foreigners and gringos always fall in love with well I'll tell you one thing that most first world gringos who start businesses there fail to recognize is that it's got a rainy season that's about eight months long so that's eight months of mud on your sneakers which means no carpets no rugs and no wooden floors in your business just a lot of rags buckets and squeegees so then what about real estate in the rest of Ecuador let's say in Cuenca gringos are coming by the plane load to that place daily is it a great deal is it even a good deal well you know there's a couple of problems that stand out right away first of all like I said in a past show beware of first world gringos

[05:48] selling real estate that's a sure sign that you missed the ground floor opportunities in real estate by maybe five or even ten years so are there bargains well in any country their bargains and especially now with this real estate bubble throughout Latin America that's just getting ready to pop you'll always be able to find desperate sellers however you'll almost never be able to suss them out unless you can speak Spanish or have a translator that's knowledgeable about the area who does speak Spanish in other words don't ever expect to get a deal from a real estate company gringo operated or otherwise especially gringo operated by the way now let me paraphrase this about real estate from a guy who's been living down there for a decade or so a guy who's seen the ins and outs and the ups and downs of what can happen to

[06:34] gringo is searching out real estate he says and I'm paraphrasing a bit here many real estate agents and organizations will try to convince you that you're a fool not to jump in and buy right away that prices are definitely going up month over month and if you don't get in now there's a line of gringos waiting to jump in on the deal coming in on the next plane that's the kind of talk you'll hear from realtors in Ecuador right now and you know I saw just that very same thing going down in Costa Rica though that ballgame was over a long time ago I can remember 20 or 25 years ago even where pushy realtors were saying the very same thing so the question is when you do come down with your rose colored glasses on can you think objectively about any kind of real estate first of all you're not comparing it to the way Ecuadorians

[07:22] look at real estate you're comparing it in the way gringos look at real estate up in your area in Cleveland or Boston or wherever so what you think is a bargain down here is only a bargain because properties and spectacular views like that aren't even available up in Cleveland at any price simply because Cleveland and Milwaukee are not in the tropics now let this sink in when you're on the gringo tourist trail whether it's a brand new tourist trail like Ecuador or an already burnt out one like Panama Cancun or Costa Rica real estate agents here especially gringo ones are hoping you will compare the real estate here to that of your own place up in the states in fact they're counting on it and you know what one gringo real estate agent told me and I believe he's right he says

[08:10] that every gringo that comes down thinks their property up in the states is worth a lot more than it really is the average homeowner in the states is never realistic about the price or value of his own home which by the way plays right into the hands of gringo real estate people down here so when you come down here you're comparing prices to your own neighborhood and not to the normal and average prices that the locals would pay in the very location you're trying to buy in that's why you always and I mean always have to rent for at least six months to a year so beware if some real estate jerk and believe me most everyone that works for a big agency is a jerk you know remax century 21 the usual suspects and they're all down here now you know if

[08:56] they try to tell you that there's some unbelievably fantastic deal that you just can't pass up just ask them this one question if it's such a once in a lifetime deal how come they didn't buy it then just sit back and see what kind of BS answer they conjure up and watch him squirm in reality there's always gonna be another deal like that right around the corner so here's what you need to know there are right now three major groups moving into Ecuador from abroad primarily first world gringo is over 50 who've been lured to the place by retirement rags and websites and international living of course secondly first world Europeans from Spain who could speak the language who also mostly have first world pensions and incomes and thirdly you got now a huge

[09:42] group of Ecuadorians that are returning from Spain and the US after having lived there a long time and realizing themselves that the first world is just way too expensive and they can live in their home country for less than half of that so then I'm sure you're thinking if they can live on half or less of what it takes to live like that in the first world why can't you too well I'll tell you man it's because they can speak Spanish and they've got relatives in Ecuador and some uncles and cousins and such who know exactly where the deals are and how to scout them out as a local they know what the prices should be and the cheapest places to buy everything many places by the way where gringos fear to tread not to mention in the survey of Ecuadorians moving back to their homeland after spending most of if not all of their lives up in a

[10:31] first-world country somewhere the fact is that nearly all of them have been sending remiss us back home back to the family for a long long time and guess what they've been using that money for of course to help some of the poor relatives back home but mostly to buy land and build a house for the day that they come back as the prodigal son returning to the homeland in fact that seems to be the retirement plan these days of the vast majority of illegals up in the west from Mexico and Central America they plan on returning to their home country to live like retired almost first-world people and that's something they'll never be able to do up in Chicago or Cleveland since the average illegal up in the states doesn't make any more than ten or twelve bucks an

[11:18] hour hardly a middle-class salary up in the states but down in Latin America different story altogether so anyway as far as Ecuadorians after years and years of sending remiss us back to the homeland they're starting to trickle back home to live the good life because well they can so the fact is native Ecuadorians living up in the first world are not returning with rose-colored glasses on at all they're returning to a piece of land property or even a house that was constructed little by little long before the gringos came in and started jacking up the prices so the fact is if you visit Ecuador and you see all that glut of high-rises in certain areas and row after row of apartments and condos

[12:04] etc you can be sure of one thing transplanted first-world Ecuadorians are not returning to buy those things they know good deals when they see them and they won't fall for gringle prices like that so the fact is it's the gringos and the Europeans that have to buy those things and that's why if you noticed so many of them are sitting empty yet in every medium or large-sized city or town you'll see dozens and dozens more breaking ground and in various stages of construction as we speak so who's gonna buy that stuff well I'll tell you if you rent for six months or a year or so you can buy that stuff because when the bottom falls out of the real estate market you could be the one to pick up the pieces at 50 cents on the dollar so again let me paraphrase what this gringo in Ecuador says he says there are indications that

[12:52] prices have peaked in Cuenco already and may be dropping soon but still property sellers and real estate folks are still saying the same old thing that the spaces are failing fast and that available apartments and houses and condos are few and need to be grabbed up as quick as possible all that first-world prices now of course what fresh and newly arrived gringos don't seem to understand is that what might seem a very good buy in the US or Canada or Europe is not necessarily a good buy down here in fact buyers now are very likely buying at the very top of the market but of course when there is a bubble no one believes that now listen to this and I'll paraphrase Ecuadorians who are returning from abroad not North American gringos

[13:40] currently make up a very large group of buyers and they are much savvier about the true value of real estate here they're not subject to the so-called gringo attacks that is often added when the buyer is a foreigner which is especially easy to get away with when a gringo doesn't speak Spanish though for one thing desperate sellers and landlords are usually willing to negotiate if you can find them but again deals like that rarely show up within the English speaking communities meanwhile as you'll see if you ever come down here even with so many vacant units construction continues unabated and there are outstanding permits for buildings yet to even be started and unfortunately what was once the so-called charm of certain areas in favor by the gringos is now

[14:29] being swallowed up in a forest of multi-story ugly buildings now understandably the local Ecuadorians are pissed off at the higher prices for real estate too and who do you think they blame it on of course the gringos but they also blame their own countrymen for bidding up the prices and why not locals will try to squeeze whatever they can out of a deal and gringos of course are courted left and right they're the favored clients by far so why do gringos pay thousands more than they have to because they're simply not into haggling which means they often pay the asking price which is normally inflated quite a bit the fact is from fruit markets to furniture to souvenirs to real estate no Ecuadorian for that matter a local in any other Latin

[15:17] country will ever pay the original asking price to the locals that's just a starting point even when it comes to individual items like for example an orange or an apple the price dickering can go on for quite a while however with gringos that's just not our culture in fact you know as an aside I noticed that a lot of the people that come down to my Latin American seminars are guilty of the same thing but at least they try so often when they come back from some touring on their own they show me what they bought you know the items they're gonna take back to Cincinnati or Cleveland to grace the coffee table or keep the Jesus magnet company on the refrigerator and of course they tell me what they paid for them and sometimes I have to bite my tongue I can't think of a single instance where they couldn't have got a better price if

[16:04] they'd have tried but then again these folks are on vacation who am I to rain on someone's parade you know now of course in the past there were times when I said to a gringo or gringo wait a minute you're paying twice as much as you really have to and the stock answer I'd always get is well the people here are so poor and we have a lot more money than they'll ever have so why not now that would always put me in my place so that's why I don't bring it up anymore you know but does that mean because we're gringos we should pay an extra 10 or 15 grand on a real estate deal I think not you really should pick your own charities I think don't let them pick you so anyway down here in Latin America in Ecuador especially fresh new gringos nearly always pay more than they have

[16:52] to in real estate deals yet they nearly always walk away thinking about what a great deal they just made which funny enough is a generally true statement compared to first world prices where they came from but again that doesn't meet my local standards they got a good deal at all in fact I can remember myself outside of Lima Peru where I was trying to buy a genuine alpaca throw rug to use not as a rug but a very nice wall hanging now the price wrangling started out at around 200 bucks and I told him you know I don't want to insult you but I can only offer 50 that's all I have on me which may or may not have been a load of BS but that's how you do your wrangling down here maybe that's all I had in my right front pocket at the time who knows

[17:38] anyway after about five minutes I eventually did get him down to around 100 bucks I mean really a 50 discount but I still held firm at 50 bucks and the seller a local indigenous guy wasn't having none of that so I just slowly walked out and said I'll think about it then the next day when walking back to my hotel room I stuck my head in the door little place and said 50 bucks last chance and guess what he took it and of course I was off the gringo tourist trail so it was all in Spanish if that made a difference anyway I'm asking you truthfully how many fresh white-eyed gringos with a rose-colored glasses wouldn't have paid a hundred for that thinking they were getting a tremendous deal I mean come on 50% discount from the original price and remember this

[18:26] thing was custom-made in fact every rug in that store was custom-made you just don't see things like that up in the States for under 500 bucks that is if you can locate something like that at all so at a hundred bucks a great deal for a gringo but actually it was a crap deal by local standards and 50 bucks was really the going rate then wasn't it so again just by renting for six months or a year in a place you think you're gonna want to live that's your chance to pay attention how the locals dither and dicker now of course you're not gonna be able to dicker when you go into Costco or Walmart or Sears or any first world franchises but you know when you go into those places what to expect first world prices of course oh and by the way I often do get

[19:13] emails from people asking me if the cost of Kentucky Fried or McDonald's or Pizza Hut's the same as it is up in the first world or can you expect third world pricing well if you're at a first world franchise it'll always be first world prices which is why by the way first world franchises really kick ass down here I mean down here you're paying less than two bucks an hour with benefits whereas up in the States you're probably paying your help anywhere from 12 to 15 bucks an hour with benefits bottom line making a franchise work down here is a no-brainer but I know I covered that well enough in previous shows so where was I oh yeah just know that there are thousands and thousands of unscrupulous realtors who had thousands of bucks to a seller's asking price especially on the gringo tourist trail like an Ecuador then they keep the

[20:03] difference of course the fact is almost any day of the week you can find the very same properties that's of course when you're on the gringo tourist trail listed for different prices at different real estate agencies and sometimes you're talking tens of thousands of dollars difference so how's that happen well they get away with it because they always have even though they have real estate laws and guidelines there's really no real estate board or commission to enforce them and for example if you're selling a property as far as it being exclusively listed with one agency well you can sign an exclusivity contract there too but those things are rarely enforced either in fact it seems like when you're on the gringo tourist trail anywhere in Latin America real estate

[20:49] brokers will go behind the back of anyone to get a deal again it happens all the time because regulations are vague and rarely enforced so while real estate brokers in Latin America stab themselves in the backs repeatedly they're not the ones that bleed you do at the closing it's always gringos who pay the higher prices because for one thing so few of us speak Spanish well and for another when it's a hot market or even a bubble like there is now we seem to want to deal so badly we almost never play hardball and I'm not making this up I've heard this from plenty of realtors down here again I'm talking about when you're on the gringo tourist trail and when you're off the gringo tourist trail things are much more slow and relaxed and about avoiding

[21:35] gringo real estate brokers like the plague well in Ecuador an expat recently heard an American real estate broker in a restaurant boasting to the guy on the other end of his cell phone that he expected to be a millionaire by the end of the year buying condos at X dollars per square foot and selling them to clueless gringos for more than double now just one thing in today's show I'm not trying to talk you out of living investing or hanging out in Ecuador it's still a very cool beautiful country but it's slipping little by little into Costa Rica territory Ecuador is just loaded with clueless gringos and they're coming in by the plain load daily and because the rumors are that prices are gonna go up even farther they're in a hurry to buy and they do stupid things

[22:23] which in the end raises prices for everyone in the country and that's on everything including the basics and here's another thing you have to look out for regarding buying or renting any land property or business in Latin America don't I repeat don't buy any property online now that doesn't mean you shouldn't check out what's available online to give you an idea what the housing in the neighborhoods look like but believe me you can expect to pay at least 30 percent more than if you were sitting right down here looking at it yourself and poking around with the actual owner not to mention you'll never know what the neighborhoods really like day or night if you're checking out the real estate or rental blurbs online now let me ask you this do you think the

[23:10] owner is gonna tell you that it's an exquisitely beautiful neighborhood with views of two volcanoes however taxi drivers refuse to enter the neighborhood at night think they're gonna tell you that not in a million years bub you will need boots on the ground to know that little fact one by the way when you get down to Ecuador and this goes for any Latin country do call up one of the big real estate agencies and have them show for you around all day or even two or three days showing you all the properties call up the big boys at century 21 and remax they'll speak English and use them to show for you around in their car and on their dime have them show you all the neighborhoods etc and then after you've seen enough and heard enough of their inflated sales pitches the easiest way to get rid of them is

[23:56] just to say you know what I like a lot of that stuff you're showing me but I think I'm gonna rent a while what have you got for rentals now you mentioned that after two or three days of them showing you around all their hand-picked projects in neighborhoods of course and I'll tell you what's gonna happen oh they'll try to tell you how urgent it is for you to buy something right now because prices are only going up blah blah blah you'll get a lot of that but if you hold your ground suddenly pressure and the hustle and the emails and the phone calls will mysteriously dwindle to a halt and your new buddy buddy best friend real estate guy will move you to the B list in a hurry and here's another thing about real estate and housing that's very important zoning laws are somewhat of a fantasy in most all of Latin America and Ecuador is a great

[24:45] example in fact one guy in Cuenca said that the construction frenzy has result in a lot of expats who found their so-called perfect condo with a beautiful million dollar mountain view lasting about a year and a half suddenly after that a huge high-rise building with an adjacent parking lot went right up in front of the mountain and worse yet then popped up not one but two cell towers within a block of his complex and what can he do about it nothing so the good news like he says is when he puts the place up for sale the best selling point will be the cell phone coverage and guess where he's gonna advertise it on the internet of course hoping to snag another clueless gringo it's that greater fool theory you know and another thing to remember in Latin

[25:33] America there are virtually no property setback laws meaning if you put your house up on a property line the guy on your adjacent property can build right on that line too and that's why it looks like so many houses are connected to each other but they're really not sometimes you'll even see million-dollar mansions that look like they're joined at the hip to another million dollar joint in fact because of those loose and crazy setback and zoning laws it's often hard to tell where one place ends and another begins now that's not to say there are no setback laws it's just that if there are they're vague and unenforceable too and by the way the simplest way out of a problem like that if the neighbors complain or try to bring up a statute is to pay somebody off and

[26:21] of course you won't have to do that how would a gringo even know how to go about such a thing that's what your lawyers for and that also means that there are no street setbacks either for properties so a lot of people and businesses just build right up to the street easement too that's why when you're visiting people in the city oftentimes you'll be sitting in a living room and the traffic noise will be so loud you can hardly hear yourself speak and that's also why there are so many dangerous blind corners in Latin American cities too that's because people build right up to the property line on busy street corners too which always adds to the excitement and danger when driving down here you know so how do you handle that well long-term expats

[27:06] eventually figure out that you have to buy into a residential community that has its own zoning laws private developments do set up zoning laws like that and enforce them by committee that means a strip club a slaughterhouse or a division of Monsanto can never pop up a hundred feet from your swimming pool oops out of time again I guess I didn't finish off Ecuador after all but I will next week I promise so stay tuned you've been listening to the expat files living in Latin America coming to you twice a week from somewhere south of the border email me the expat files at gmail.com and don't forget to check out expat wisdom.com to sign up for your free reports on Latin America see you next time nos vemos