Wednesday, December 14, 2011

To Buy or not to Buy

Grab this related post Widget!
I was recently in the company of some folks who had attended the latest Ecuador International Living conference. Since we made the decision to move here without the benefit of such gatherings I was curious to learn if they thought the experience was worthwhile.

Each of them in fact did enjoy themselves and felt that they had received a great deal of valuable information about the regions of the country, cultural differences, and many other topics. Regarding the subject of real estate they all shared that the sentiment expressed at the conference was, “Buy now. Prices are going up. You don’t want to miss out.”

During our year and a half here prices have indeed gone up, and one always hates to lose possible investment appreciation. So I’d like to share some thoughts that should perhaps be considered once the decision has been made to relocate to Ecuador.

A disclaimer is in order. Although we have historically been home owners, Cynthia and I rent an apartment here in Cuenca and plan to continue to do so for the foreseeable future. Our desire is to keep maximum working capital available for investment vehicles in Ecuador that don’t involve the roof over our heads. So far this strategy has paid off, as rents are inexpensive and through perseverance and patience we have uncovered some excellent opportunities.

Like the decision of whether to ship one’s belongings or show up with suitcases, buying versus renting is a highly individual decision. Many people are here to retire, period, and are quite happy to have the security of knowing that they own their dwelling and are free to enjoy their lives.

But it is a mistake to assume that the process of purchasing real estate in any foreign country is the same as in the United States. We know too many people who paid cash (there are no mortgages for brand new expats) for their dwellings yet for a myriad of reasons cannot secure deeds for their properties. If this purchase is the intended instrument for obtaining one’s permanent visa, and there are definite time limits for doing so, life can suddenly become chaotic.

After buying their condominium one couple had to ante up $25,000 they weren’t intending to use to purchase a CD (another method for satisfying visa requirements) before the clock ran out. Another ownership couple without a deed confided to us that they are still here on their last tourist visa extension and don’t know at this point what’s going to happen next. They very well may “own” a place here and have to leave the country.

Purchasing during pre-construction is a familiar strategy for getting the best price and realizing maximum potential appreciation. But what if occupancy is delayed for over a year past the promised delivery date, as has happened with another couple we know? Or how about the folks who bought a beautiful place with a lovely view of the nearby Cajas mountains, only to learn that another high rise is going up right beside their building and they will soon be looking at bricks and windows?

Let’s visit this whole notion of the “appreciation” we don’t want to miss out on. I’m sure you’re familiar with the saying that “a rising tide lifts all boats.” You buy a place for $100,000. In two years you can sell it for $120,000. Great—your property has appreciated $20,000. But guess what? Proportionally, so has everyone else’s. This means if you sell for $120,000 you can purchase an identical property now for---$120,000. Your true appreciation, the money you can now put in the bank, is zero.

There are only two ways one can really enjoy the benefits of appreciation: 1) by buying “back of book” (below true market value) and selling for retail, or 2) selling and moving to a place with less appreciation.

Now, many expats in Cuenca have had totally positive home buying experiences. Please don’t take these stories as any indication that real estate purchases in Ecuador are an automatic ticket into the Gates of Hell. The point is that one should proceed cautiously and be aware that possible obstacles exist to which you are not accustomed. Take nothing for granted, perform extra due diligence, and personally stay on top of every detail .

A great choice is to rent before you buy. Whether it’s for 3 months, 6 months, or a year, being “on the ground” for awhile allows you, without missing any significant amount of appreciation, to really get to know the city and make an intelligent decision about where specifically you want to establish your permanent residence. Even more importantly, before making a major financial commitment you get to make sure Cuenca is everything you hoped it would be once the “honeymoon” is over.

“Missing the boat” might not be so bad if you’re not certain of the destination. Remember that 3 hour tour the Minnow took on Gilligan’s Island? Instead of finding yourself marooned on an island of financial uncertainty, be responsible for making sure your expat journey gets off to a great start.


Sharon Nuttall at said...

Great points, Edd. I'm in the U.S. and everybody knows what has happened to all that "guaranteed" appreciation here! Even before the housing meltdown, I began having serious reservations about the wisdom of home ownership, at least in the Carolinas. When you factor in all the maintenance and upkeep (new roof, siding, plumbing issues, painting, tree and lawn maintenance, etc., etc., etc.) not to mention taxes and HOA dues (for the 'common' areas and amenities), we would have been way better off to have rented. Had we put all that money into investments, we'd have a pile of bucks - or at least some wonderful memories of grand trips!!

And while many ex-pats seem to feel their move away from the U.S. is permanent, "forever" is a LONG time to be basing potentially costly financial decisions on!

I hope to visit Ecuador within the next year to check it out, and should I (or 'we', although hubby's not exactly buying into this whole idea!) make the move, I can say with certainty that you can count me/us among those who will be thrilled to rent and leave the headaches to somebody else!

Peter Kouwenhoven said...

Always leave your options open, good advise from my father.

Dr. Michael Quadlander said...


As usual, your latest post is wise indeed.

You are as intelligent as your are tall !

Thanks for your insights.

Dr. Q. in Texas

Randy said...

Thank you for the well thought out buy vs not to buy discourse. Hopefully, one day, we might meet to talk some more as I am looking for volunteer opportunities now that I am retired. Randy