Defining the real cost and real deal in purchasing property is a challenge that I see frequently as the head of a real estate development company in Latin America.
I hear something like the following a lot, “I can buy a condo in Florida for less than what you are selling them for in Latin America.” While that may sometimes be a true statement — it ignores the ultimate real cost of ownership…. and also, the real reason why people are investing in Latin America, especially when acquisition cost is often the only factor considered.
For all property ownership anywhere, there are three major costs investors must address: acquisition costs, HOA/maintenance costs and taxes.
We’ll look at each of these costs and compare ownership in North America versus Latin America. You will then see why so many investors today are making their move to own property overseas right now.
Defining the REAL Cost and the REAL Deal in Purchasing Property: Acquisition Costs
World prices for materials like concrete, steel, fixtures, doors, windows and most building components are the same everywhere. There is no discount in Latin America for them. However, one cost is lower, the price of labor.
About a third of the total cost to build in a home is labor. And the cost of labor can be up to 50% less in Latin America versus North America. However, 50% of one third is only 15%. A savings for sure, but not a huge one given the perception of a being able to acquire a less expensive home in Latin America.
When analyzing the two locations, you are looking at a comparable price for a new build. It is essentially a break-even deal.
That said, the land portion of the home or condominium can be substantially less. Ocean front properties along the Pacific Ocean in Latin America are often 90% less than a comparable property in the United States or Canada. When that factor is added in, it’s possible to own a stunning ocean front home for under $400,000 or a direct oceanfront condominium for under $200,000.
Such pricing for ocean front property is something unheard of in California or British Columbia.
Defining the REAL Cost and the REAL Deal in Purchasing Property: HOA Costs
When comparing between North and Latin America, we must revisit the cost of labor. HOA fees and the cost of maintenance are very labor intensive. While only a third of a home’s construction cost is labor, 95% of mowing the grass, and a very high percentage of general upkeep is labor. Because labor costs are far less in Latin America, HOA fees and upkeep costs are much less per month for comparable services in North America.
For example, HOA fees in North America can often run up to $0.75 per square foot, per month. Compare this to $.15 – $.25 per month at some of the highest levels in Latin America. At that rate, in North America you’re adding an additional $7,000 to your annual expenses. Even if you estimate the lowest of upkeep costs, over 25 years, those expenses add up to a lot of money that totals $175,000 in ongoing ownership costs in this example.
Defining the REAL Cost and the REAL Deal in Purchasing Property: Taxes
Lastly, let’s look at the elephant in every room. Taxes.
Property tax in Miami generally gets calculated at about 2% of purchase price. If you paid $500,000 for a condo, that means you’re looking at $10,000 in property taxes annually. Over 25 years, that’s another $250,000 in ongoing ownership costs.
Latin America, on the other hand, reads a lot differently. In some places, you won’t even pay property taxes.
Panama, for example, waives property taxes for retirees who take advantage of their retirement incentive program. Other countries have miniscule property tax charges, such as Belize, where a $200,000 island condo will run about $200 a year in property taxes.
Compare $200 to $10,000 PER YEAR, and you see the huge difference!
Defining the REAL Cost and the REAL Deal in Purchasing Property: The Real Deal
You might now be saying, so if acquisition costs aren’t necessarily less, what would entice me to pursue a new build in Latin America versus North America if the cost to build isn’t much different?
Part of acquisition is cost of living, and it isn’t rocket science that the cost of living in Latin America is far less than in North America. While it is easy to see the clear difference in cost between North America and Latin America when it comes to property taxes and HOA fees, there are deeper reasons investors of all kinds are looking at Latin America.
Defining the REAL Cost and the REAL Deal in Purchasing Property: Lifestyle
Perhaps not surprisingly in today’s climate, the answer is really quite simple and it all points to lifestyle, something that owners focus on when making these kinds of big decisions.
In all reality, price is only one part of the decision-making and that is abundantly clear as the amount of people investing in property overseas continues to grow exponentially.
Lifestyle is the true reason people are looking outside of North America for retirement and near stress-free living.
Real estate can be inexpensive, yes, but compounded with a much lower cost of living and higher quality of life, there is no doubt why over half a million retirees, and now troves of digital nomads, are flocking to the south of the border.
And while the idea of a lower cost of living but higher quality of life may seem paradoxical on paper, in reality, it is a dream come true.
Defining the REAL Cost and the REAL Deal in Purchasing Property: Home Ownership
Home ownership is less expensive in the long run, simply between the lower taxes and HOA fees. Hundreds of thousands of dollars less.
Then, add in the cost of little luxuries, like an hour massage for $20, a full-time maid for around $200 a month, steak and chicken costing under $1 per pound. Plus, fresh, organic fruits and vegetables are a fraction of the price charged in North America.
Doesn’t this all sound like the best in quality of life?
Having a maid means more time for oneself to play golf, catch up on reading while swinging in a hammock, or perhaps even volunteering with a local church or organization to help better the lives of others. It means the kind of purposeful life you dreamed of, fulfilling one’s passions at an affordable rate.
Defining the REAL Cost and the REAL Deal in Purchasing Property: Escaping Florida
If you’ve worked decades of your life while planning on a retirement in warm weather, then suddenly find yourself unable to afford that dream, in let’s say Florida, it would be an understatement to say you’re feeling trapped.
Yet, you can still have golden years ahead. It might just mean changing locations, perhaps Latin America! Hundreds of thousands of people are already headed this way. They, too, have heeded the call of higher quality life at a lower cost.
This brings us back to that condo in Miami. Weigh the price against a similar condo in Latin America.
For the base price, maybe Miami calls to you because it is familiar. But then I want you to add up the rest of the costs: property taxes, HOA fees, cost of living, amenities and quality of life — over the next 20-25 years.
Stop and imagine where you can live really well on $1200, $1500 or $2000 per month? That’s where you need to look.
Add up the cost of living for the next two to three decades and factor that into your decision. Latin America may be the answer.
CTA: Click here to find out 15 Things You Should Know Before Investing Overseas.