Last week, I talked about what $250,000 to $1m can get you on the Guatemalan property market. It was a long post so I split that second part about the specifics of Guatemalan real estate.
Guatemalan real estate is a bit different from other parts of the world I have lived in. Being a small country with even fewer places that live up to expat standards, the small market calls for higher prices than similar houses of the MidWest and other rural areas. And there are a few things to know before you make an offer on a property:
1. Finding out the true value of a place is hard
Unlike markets like Ecuador, there doesn’t seem to be a “gringo price” for expats, higher than the market price, but people who can afford to own a place are usually pretty rich, so they set a ridiculous “if I can sell for that much, I will, otherwise let’s wait” price. In some cases, you can negotiate as much as 40-50% of the asking price. We got 50% off asking when we bought our place, as the seller had medical bills to pay and hadn’t been on site for a couple of years.
Realtors generally take a 5% commission, and don’t expect them to do much more than showing you around for that price. So if you like a property, the best way is to ask them to put you directly in touch with the owner, so they can mention they referred you and still get paid, and then negotiate directly.
2. Cash is king
Most people pay cash for properties, and if you can afford to, you can get a serious discount on the price. Otherwise, you can negotiate the terms directly with a seller and get them to offer financing plans. For our land development plots, we offer seller finance over 12 months so people don’t have to get a mortgage.
3. Mortgages are hard to get and expensive
Mortgage can be taken in dollars or the local currency, the Quetzal. A good rate in dollars is around 7.5% and in quetzales 9%. That is pretty high. If you do need a mortgage, as a foreigner it will be hard to get, unless you have a Guatemalan source of income, or can prove that you have a regular foreign income such as a pension. Some banks require you put down 50% of the price of the property.
4. Apartments are great… for the first 10 years
Maintenance costs in buildings are fairly high (see below) but don’t include building up a repair fund. So if the elevator breaks down, you need to fork out extra cash. That means co-owners often forego cosmetic repairs, and a building that looked really sharp when you moved in starts looking quite old pretty soon. If you buy off plans or move in pretty early, you should see appreciation in your property the first few years, when the place is fancy and everyone seems to want to move there. Then it plateaus and eventually starts looking unappealing to potential buyers. Houses are a safer bet, although common parts like the gardens, gym or social area can also look decrepit if the HOA foregoes repairs.
5. Beware of maintenance costs
In some high end buildings, with a pool, social area for parties and neatly maintained gardens, maintenance can be as much as $400 a month. That is almost the cost of rent in a lower key building. Sure, labor is cheap but you pay a lot of insurance due to Guatemala City being a seismic zone. Read the maintenance contract well to be sure it does include insurance. Also, expect to pay extra maintenance if the building needs repairs (see above).
6. It is hard to resell an old property
People want to christen a new place. They don’t like old kitchen countertops and aren’t very likely to see the potential of an older place. It is still a market where people move to entirely new developments and leave the old once to die a slow death. The epicenter hasn’t seen rejuvenation efforts yet. So your place may go out of fashion and be hard to sell.
7. Rental yields are low for new properties
I have seen a $250,000 2 bed property rent for $600 a month, a weak 2.9% yield. There is a large rental market but few people can afford to pay much more than $700 and for that price you can get a nice 3 bed townhouse a bit further away from the center. You can still get good yields if you buy a cheap old property and fix it up though. I paid $500 for a 3 bed condo in a desirable part of town including maintenance, but I am pretty sure the owner bought it for less than $50,000 15 years or more ago.
8. You often declare a much lower sales price
This is a sneaky manoeuvre so the seller doesn’t have to pay much capital gain tax and you as a buyer don’t have to pay much property tax, which is based on the property value (0.9% a year). You often declare about 60% when you buy new and as little as 10% if you buy bare land to build on. That can backfire on you if the council re-evaluates your property down the road, and if you declare the real resell value, you will pay a lot of taxes.
9. You can create a company to own the place
This is actually a good way to go around capital gain tax, as the company buys the place, then when you want to sell, you just transfer the company shares to the new owner. Setting up a company costs about $2,000 plus around $50 for an accountant every month to take care of tax reports and obligations for you. As a foreigner, you can’t own 100% of the company shares, so you will need a Guatemalan shareholder who can hold one share while you own 99. Your accountant can be that person for a small monthly fee.
10. Measurements differ with every property
In France, there is a law to unify measurements, and the square footage of a house is taken inside the walls, excluding built in wardrobes and any place you can’t stand on your feet, like attics under 1.80 meters. In Guatemala the square footage includes any paved area, that means balconies, porches and even garage areas. But some buildings will exclude parkings. And if you buy bare land, even though the property title is in square meters, they talk about other scales like varas, which are about 70cm, manzanas, which are 10,000 square varas, and even brazadas in rural land, which is the width between your open arms, and can obviously vary a lot. You should take your own measurements or at least ask if parking areas are included or just the area inside the house.
11. Outside Antigua, you can pretty much build anything you fancy
I know I said 10 things but #11 has its importance if you plan on building a house. Antigua is a UNESCO World Heritage town where it is very difficult to get planning permission, and if you do, you will have to build a house that looks exactly like the other colonial houses of the town. Outside of it, you can build pretty much anything. If you buy land within a development, you will have to get approval from the HOA, which should be a breeze as long as you don’t build a huge building that will hide everyone’s view. In our little village, there were no permits needed so we built what we wanted with no trouble. We just had to get approval from the protected areas bureau as it is on a lake shore but that was about it. You can design your own house, then have an architect validate the sketches, and that’s it. But that also means your neighbor’s house can be an eyesore and you can’t do much about it.