By Patrick Connelly

It is, ultimately, the point where the process of living in Mexico diverges into two distinct paths.  The question of whether to rent or to buy – to purchase that clifftop villa on the Pacific or just rent a nice place in the nearby town – plagues many a prospective buyer in the U.S. and Canada.  The decision has more variables in it than a college calculus class, but here are a few things to take into consideration if you are having the same quandary.

1. Renting keeps your options open

If you are like me and have a total fear of commitment (relationships, locations, etc. etc.) then renting is perfect for you.  Well, that and if you are just not totally sure on living abroad for long periods of time or permanently, or don’t fancy investing money in a property in another country.  Renting can be a great option for the certain type of person, especially those new to Mexico.  Buying or building a house ties you down to that property.  Renting does not.  Simple as that.  If you find out that you hate Mexico and want nothing more than to stay in the U.S., it is much easier to cancel or see out a lease than it is to sell a home.  And if you want to travel around Mexico or Latin America for an extended period of time, it is usually easy to sublet your rented property to recoup some of the losses.

2. Buying a house is an investment

While the global recession has driven down home prices in Mexico in recent months, owning a home south of the border is still a great long term investment.  The Mexican economy hasn’t been hit as hard as the U.S. has and the situation north of the border will recover in time.  In fact, many real estate professionals are predicting a strong buyer’s market in the coming months in hotspots like Puerto Vallarta and Cancun.  With a bit of shrewd cunning great deals can be found these days and when the markets bounce back – and they will – owning a property in Mexico suddenly becomes a very, very valuable commodity.

3. There is far less of a financial investment when renting

Well, duh.  Financially speaking, it is definitely the “safer” of the two options.  While you certainly get more bang for your buck in Mexico than you do in the U.S., buying a home is still a major financial investment.

4. YOU own the house and deal with no one else

Anyone that has dealt with landlords knows it can be a real headache.  Its no different in Mexico.  The fact that you do not own your rental property and have to answer to a higher up may lead to squabbles over anything from redecorating to rent to leases.  Choosing a good rental management company can prevent conflict if you want to rent.

On the other hand, when you own a house, you decide what goes in it, what additions will be put on, etc. etc.  You are your landlord.

5. More choices when buying

Odds are, you will find a property for sale in Mexico that matches your desires before a rental.  There are just more options out there to choose from. Rentals are only ultra popular in certain areas frequented by vacationing tourists, while good homes for sale exist everywhere.

The choice ultimately comes down to you.  Owning a home in Mexico can be the experience of a lifetime, but it isn’t for everyone.  My advice would be to rent a house for a few months in your desired location….get to know the culture, climate, and lifestyle.  If you fall in love with it, jump in.  If you hate it, simply back out or try a different region of Mexico.  This is by far the smartest approach to take – many a gringo have made impulse buys after a two week vacation in Cancun or Cabos and ended up with a house they later realize they don’t want.

photo provided by Ze Eduardo at http://www.flickr.com/photos/97968921@N00/756377225/

By Patrick Connelly

If you are in Costa Rica, don’t expect your pizza to be free if it isn’t delivered in 30 minutes or less. That’s because Pizza Huts in that country have recently laid off dozens of employees, a trend that has spread to all sectors of the Tico economy. There is no question that Costa Rica is feeling the current economic crisis, maybe more so than neighboring countries. Economic production is down, with the last quarter of 2008 recording a 9.3% decline. The GDP was down as well, falling 1.3% in the third quarter, its second straight quarterly drop. And in the past December and January, over 25,000 jobs were lost.

Costa Rica’s bread and butter, of course, is the tourism industry; the country’s economy rises and falls on the influx of foreign dollars. As North America and Europe slide deeper into recession, inevitably the tourism sector will be negatively affected. But to what degree will determine whether or not the economy sinks or floats. So far, the drop in tourists has been large, but not catastrophic. Between September 2008 and February 2009 82,000 less tourists visited the country than the same period in 2007-2008, a, 8% drop. With 54% of the country’s tourists coming from the U.S., it is understandable that the epicenter of the recession would be less willing to take foreign vacations. However, the 8% decrease is expected to drop in the rest of 2009 and level off in 2010.

There is little the Costa Rican government can do to fix the problem in the U.S., but the Arias administration has put together a comprehensive plan to ward off continued economic deterioration. Called the “Plan Escudo” (Shield Plan), it centers around the idea that to secure the economy, the middle class must remain a strong contributor financially. Surprisingly, little attention is paid directly to tourist/expat industry, although shoring up the middle class will certainly maintain the current strong tourism structure and increase investor confidence in the country. The main highlights of the plan are:

1. $117.5 million U.S. added into the government-controlled National Banking System

2. A 2% decrease in mortgage loans on loans of $100,000 or less. The government estimates that over 100,000 middle class small business owners will benefit.

3. Low income housing bonds within the Housing Development Agency

4. Costa Ricans with multiple debt obligations can consolidate all of them into a single mortgage loan with one payment

5. Increased financing for the Public Works office for construction projects (many large projects have stalled in the last nine months), and to the National Food Plan to stimulate agricultural development

6. Social Security pensions will be increased 15% for Costa Ricans

7. Start legislation that would extend the Free Trade Zone, allowing foreign companies to continue to operate there with current tax incentives

8. Provide added funding for small to medium businesses

9. This final highlight deals with the tourism/retiree/expat community more directly. The government wants to make syndicated loans easier to acquire. These loans are essential for large-scale developments aimed at foreigners, which have tapered off since the onset of the recession.

Its clear that the Costa Rican government fears a breakdown in the production and services sectors due to lower profits, and the Shield Plan is a proactive attempt to head off large-scale unemployment. Despite the economic crisis, Costa Rica still enjoys the most favorable reputation among foreign investors and retirees because of its good track record. Additionally, the sudden drop in fuel prices, coupled with an increase in allotted seats on flights from the U.S. to Costa Rica, has made air travel comparable to flying within the United States.

While the numbers will drop slightly in the next few quarters, tourists will still flock to the country and the number of foreigner investors, recognizing that a second home in Costa Rica is still a money-making investment and that the economy is well prepared to handle the recession, will continue to make Costa Rica an affordable, profitable destination.

Photo provided by Lydiat

We had the pleasure of speaking with Rick Valentine, President of Latitude Destination Properties. In this short interview he tells us a little bit more about his latest project, Tranquilo Costa Rica and gives us his perspective on the Costa Rica real estate market.

LW:Start off by telling us a little bit more about Tranquilo Costa Rica

Tranquilo is a collection of quarter ownership condos tucked into a ridgeline where the rainforest meets the Pacific Ocean on the Central Coast of Costa Rica. Designed to instill a restorative sense of well-being in the lives of every resident, Tranquilo is an alternative lifestyle proposition; a place to restore, reset, and remember the important things in life. It is a home families can call their own and return to, again and again, for generations to come.

LW: What are quarter ownership residences and how do they work?

Tranquilo is reinventing real estate ownership in Costa Rica with its quarter ownership opportunity. Owners will have the flexibility to use their residence in whatever way works best for them. Owners can place their condos in the rental management program or can trade with other properties around the world via Tranquilo’s membership in a Global Exchange Network.

Each quarter ownership is a deeded interest in one of Tranquilo’s unparalleled residences. Owning a home at Tranquilo is completely flexible, yet 100 percent exclusive. Completely affordable, yet luxuriously designed. Completely unique, yet linked to a larger community of individuals, all inspired by holistic and authentic living at its finest—exactly as nature intended.

LW: What makes your project eco-friendly?

The condominium architecture at Tranquilo is designed to complement the natural landscape, never overpower it, to fit seamlessly into the rainforest and to peek over the canopy towards the Pacific Ocean. With 90% of Tranquilo undeveloped, its footprint has been minimized in every way possible. At Tranquilo, you live in your view, you don’t look at it. Each building is meant to function as a living, breathing organism with a series of systems (mechanical, structural, plumbing, electrical) and biological systems (building integrated vegetation, site landscaping, recycling water systems) that interact with the environment in a beneficial cycle. Large operable window facades, controllable sun louvers, and vegetated walls are main components of the building skin and are essential to allow cross ventilation, provide fresh air, and create a connection between inside and outside. Exterior gardens, green walls, and vertical planters on each terrace moderate the warm climate, purify air, provide shade, cool the building naturally, and attract wildlife and fauna to the site. Green Living walls that grow on both sides of each building cool the structures naturally, and reduce the need for air conditioning.

LW:Where is the project located on the Pacific coast? How do you get there from San Jose (plane, driving)? How long does it take?

Tranquilo is located in the private resort community of Punta Leona. Largely unknown to tourists, Punta Leona is a hot spot among locals and tranquilo-costa-rica-real-estate2those in the know, making it the area’s premier gated community. Situated on the gorgeous Central Pacific Coast, Punta Leona is just a 90 minute drive from San Jose. With the completion of the super highway in 2010, this commute will be shortened to a mere 45 minutes. Its dazzling array of rugged topography, including AAA and Blue Flag rated beaches and a tranquil butterfly farm, sets it apart from the rest of Costa Rica. At once distinctive and enigmatic, it is also incredibly private: a unique enclave from the rest of the world. Home to the 750-acre Punta Leona Refuge, Costa Rica’s largest private nature reserve, Punta Leona is a veritable wonderland for plant life and endangered wildlife, like the Scarlet Macaw, the White-nosed Coatimundis, and Spider Monkeys, among countless others. Dotted with walking and hiking forest trails to one side and large swaths of pristine white sand beaches to the other, Punta Leona delivers the best of both worlds, and is nothing short of being a true tropical paradise.

LW: Why the Pacific coast of Costa Rica?

Punta Leona was chosen as the home for Tranquilo because of its close proximity to San Jose and the truly unbelievable site upon with the project is being built. Constructed where the mountains meet the sea, the elevations provide dramatic views of the rainforest and ocean. Furthermore, the price of real estate on the central coast remains a fraction of the cost of Guanacaste real estate while providing a far superior landscape. Furthermore, Punta Leona is home to Playa Blanca, the highest rated beach in the country and only beach to win both the Blue Flag and AAA rating for cleanliness and environmental conservation. In addition to Playa Blanca, a white sand beach, Punta Leona hosts two other incredible beaches as well.

LW: Who does the project target (retirees, investors, expats, etc)?

The project targets second homeowners who want flexibility in ownership, a hassle-free vacation experience, and who prefer to match their purchase price with their actual usage. With studies showing the average second home is occupied on average only two weeks per year, we didn’t feel like whole ownership made much sense. Quarter ownership provides Tranquilo owners the flexibility to stay weeks at a time or just a weekend here and there. Furthermore, when not in residence, they have the option of placing the condo in the rental program or participating in our global exchange network. This network provides access to luxury homes around the world effectively multiplying ownership at Tranquilo into an unbelievable lifestyle proposition.

LW: How is Costa Rica real estate being affected by the economic problems worldwide?

As a whole, the Costa Rican market has slowed compared with the last few years. However, real estate priced below $300,000 has not experienced the same slow down. While for most projects, this means one-bedroom units, and small two-bedrooms that are perhaps off the water, at Tranquilo this would include fully furnished studios from below $70,000 up to 2200sqft, three-bedroom residences. It is for this reason that Tranquilo is being viewed as an “intelligent ownership” option. In a world where consumers have never been more price sensitive, Tranquilo has maximized the value-to-cost ratio.

LW: How do you see real estate in Costa Rica (specifically the Pacific coast) 10 years from now?

Most experts agree that Costa Rica is well positioned to boom in the coming years when the U.S. and global economy begin to recover. From its stable government and economy, and easy access from numerous major U.S. cities, to its tropical climate that many compare to Hawaii, one struggles to find a better alternative for a warm weather second home. The people and culture of Costa Rica are warm and inviting, health care is world class, and the cost of living is only a fraction of the cost most North Americans face. The baby boomers will lead the trend, but North Americans as a whole are going to be looking for affordable alternatives that provide the quality experience they expect with the flexibility they desire as the movement towards families reconnecting continues. We envision Tranquilo as the meeting place of multiple generations where there is something for everyone and where going on vacation isn’t about getting away…it’s about coming home.

The Coalition for Development Initiatives (Cinde) projects that multinational companies setting up shop in Costa Rica and those already operating in the country will generate less jobs and reduce their investment in 2009. Gabriela Llobet, Cinde director explained that the capital injection in 2009 will be around $300 million down from $428 million in 2008. Llobet added that in the coming 12 months there will be 5,500 jobs created about 800 jobs less than last year. The main reason for this decline is the economic struggle in the United States. “This year we will grow, but not at the same rate as 2008,” stated Llobet.

Currently there are 162 multinational companies that employ 42,300 people. According to Llobet the manufacturing sector (electronics and automobiles) will be most affected by the economic crisis. These types of companies that start manufacturing plants in Costa Rica and export to the United States are slowing due to the recession. In 2008 half the multinational companies began manufacturing compared to 2007. “After the second quarter of 2008, representatives from these companies pulled back on their visits to the country. We started getting notices that they were putting a hold on projects,” stated Llobet. The United States has bought less products from Costa Rica during the second half of 2008, according to Azofras (Asociación de Empresas de Zonas Francas). Despite the challenging panorama for 2009, Cinde predicts that there is still attraction for service firms. Last year there were 21 new companies starting call centers and interactive marketing companies.

Quotes taken from LaNacion.com
Photo used on this entry taken from flickr, provided by user dan.messing.  http://www.flickr.com/photos/danmessing/1638572407/

By Patrick Connelly

Recently, legislation proposed by the Costa Rican government to dramatically increase the income requirements to become a CR resident have caused quite a stir within the expat and retiree population, and rightfully so. This is no miniscule rise by a few percentage points to boost the bottom line; these increases, including a five hundred percent increase in rentista income requirements, are not only unfeasible but also send out the wrong message. Has Costa Rica, the longtime destination for North American retirees and expats, hit the crest of the wave and no longer wants its gringo neighbors to keep moving southward?

Of course not. It is unrealistic that the government would – or could – sacrifice such a vital stream of revenue. For better or worse, the Costa Rican economy is largely based on the influx of outside dollars; to suddenly pass regulations that significantly inhibit this flow of money would be economic suicide. But that is what these new regulations would seemingly do. Pensioner requirements for residency are slated to increase from six hundred dollars to two thousand, or a mere nine hundred dollars more than the average U.S. pension. Those falling into the rentista category face similar changes, with requirements increasing from one thousand dollars a month to five thousand.

So what has caused this sudden shift in immigration policy? The government in San Jose says that the main reason is national security; with an ever increasing population of Nicaraguan migrant workers, Costa Rica is desperate to get the immigration situation under control before significant social problems arise. Which is a completely understandable goal, given the increased attention both Costa Rica and the U.S. have given to the drug trade on the coasts.

But if security is really the issue here, the government seems to be targeting the wrong crowd, and at the same time sending a negative message to established expats and retirees. If foreigners who cannot meet the proposed requirements – which, according to the U.S. Social Security Administration, would be most people outside of the super-rich – are deemed security risks by the Costa Rican government, what does that make those who made the move to the Central American country under the existing requirements? Are they a perceived security risk? Intentional or not, it is certainly a strange message coming from an usually meek-sounding government.

Costa Rica, of course, is a sovereign country and free to create and tinker with its policies as it sees fit. But the manner in which the government is trying to pass this legislature is flawed. First of all, the requirement increases are simply too great to be feasible, especially in today’s economic climate and with favorable living conditions developing in other countries in the region. If the core reason is money, then slight residency requirement increases would be met with far less opposition and still garner the same outcome: increased revenue.

Additionally, the Costa Rican government has been surprisingly blind to the long term economic consequences of hiked-up residency requirements. Regardless of their status, from expat to retiree, foreigners living abroad inevitably create job opportunity and revenue for the local population. It is similar to what the Detroit automakers are experiencing; close down a Ford factory, and the damage trickles down far past the auto factory workers, all the way to the company that supplies the nuts that go on the wheels. Significantly interrupting the expat and retiree flow will have the same negative effects, from construction labor to lumber and concrete to housekeeping jobs to the small local businesses where North Americans spend their hard earned dollars.

Foreign investments, another major vein of cash flow into Costa Rica, will also be pinched if these requirements are put into practice. Many in the expat community claim that outside investments will all but dry up; however, this seems a bit extreme. Nevertheless, a negative perception of the country stemming from an immigration policy that is practically impossible to obtain for the average retiree would inevitably have adverse effects on foreign investments.

There is nothing wrong, xenophobic, or mean-spirited about a country wanting to control its borders with a tight fist. It is simply good, responsible governing. But there are better ways to handle such a situation, ones that ruffle less feathers yet still accomplish the initial goals. Hopefully for the Costa Rican government, known for its centralism and level-headedness, a revamped version of the proposed legislation will come about that can satisfy both the Costa Rican people and the valuable expat and retiree community, all of which together have a strong and long-lasting relationship.

Read more about the state of Costa Rican immigration here