Land banking gets a bad rap. It is defined as the practice of putting pieces of land together for future sale or development. However, scammers give the business a bad name because they make false promises to unsophisticated buyers who ultimately get burned.
Criminals bank money in land too, so they can launder it over time.
Sophisticated buyers, on the other hand, know that today’s dirt is tomorrow’s gold. They know real estate markets run in 15- to 20-year cycles. Costa Rica is no exception. The real estate market turned around in 2012. It has continued to rebound with more improvement in 2013 and 2014.
Land banking is not limited to buying raw land. It can be buying or banking money in any property for a good return on investment. This process differs from what many expats do. They just come to Costa Rica and buy a place to retire without the end in sight. That is the key difference. A land banker buys with vision of a good, if not great, return.
Examples of this growth are in the news. To name only a few: Costa Rica’s newest luxury super yacht destination is under construction near Golfito, the Wyndham Hotel Group has signed a deal to build a resort here, and someone is advertising in The Wall Street Journal a small lot in Papagayo for $1.2 million. These events give the impression things are on the upswing.
Many of the project today began as land development schemes. Nosara, now a Costa Rican tourism jewel, was nothing more than pasture totaling 1,110 hectares (2,718 acres) from 1969 to 1972. One man and a well-known Costa Rica law firm combined three farms to create two companies to sell land to foreigners. He placed classified ads in U.S. publications including the Wall Street Journal to find buyers.
The developer bought up those parcels for almost nothing, combining properties into sections and then slivering them off as small-subdivided pieces and sold those lots to the many buyers answering his ads. He even offered fantastic payment plans making the purchase of a lot so attractive it was irresistible. Many people bought into the dream.
Scammers and thieves have hurt the country’s reputation. However, the good news for investors is people have short memories. New generations come on stream about every 30 years. Costa Rica’s unbeatable beauty and diversity are very inviting. Many baby boomers want to live here because of the country’s mild climate and great people.
When people give up and sell cheap, that is the time to buy. Just as the time to sell is when they are nuts paying dumb amounts for property.
Banking in property, not just raw land but any type of real property if the price is right, is a good investment. There are many of these opportunities in Costa Rica today. The key is homework and due diligence, as in any investment strategy.
Where do we stand in the cycle? If the premise is true. the country turned the corner in 2012 and things are improving. Then 2015 would be year three in a growth trend. If real estate markets do run in 15- to 20-year cycles, then Costa Rica would be about 20 percent on its way to the top depending on one’s calculations.
During the last boom, property values increased astronomically. This type of growth will probably not happen again, but even modest gains could possibly provide a very good return on investment.
The process of buying property in Costa Rica is relatively simple. Anyone of legal age can do it. The Devil is in the details, as people say. To start the process of looking for a bankable property, investors must educated themselves and decide on whether or not a long-term, non-liquid asset is a good idea for their respective financial situations.
A good real estate agent or buyer’s broker is necessary. Many do not know what a buyer’s broker is or does. This person represents a buyer in a real estate transaction rather than, by default, representing the seller. The best news is they are usually paid by a seller or by a seller’s agent, thus making the work they do for a buyer free.
Once a property is spotted, and it is a banking opportunity, financial analysis should be done to insure a successful investment. It costs money to hold property. However, in many cases, there are ways to monetize the investment so it pays for itself.
Costa Rica does not have a viable title insurance solution. Therefore, it is very important to get the right professionals to assist in the acquisition of property. This is true for any purchase, not just buying property for land banking.
Everyone knows there is money in buying real estate. However, many do not buy property and make money. They lose sight of value. In Costa Rica, many retirees buy a place and spend too much money remodeling. Putting $50,000 into a $100,000 house does not make it worth $150,000. They figure this out when they try to sell.
Property bankers on the other hand look at buying property like putting money in the bank or other investment. It all comes down to return. Everyone knows Donald Trump is a great land banker and has the money to prove it. However, most do not know Bob Hope was almost as good.
Garland M. Baker, a certified international property specialist, is a 44-year resident and naturalized citizen of Costa Rica. His firm’s team provides multidisciplinary professional services to the country’s international community. Reach him at firstname.lastname@example.org. Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica. Find the collection at http://crexpertise.info, a free reprint is available at the end of each article. Copyright 2014. Use without permission prohibited.