I have had my eyes on a sweet piece of land lately, and as you may know, I have a bit of cash that I want to invest. About $100K already went into buying my share of the beach access on the 90 acres land development in the North, and doing some works on the roads and digging a well over there, so I have $100K left. And it just happens to be the price of this parcel:
In Guatemala City, the best neighborhoods are in private condominiums, and this is the case for this one. It is on a green hill with lots of nice houses, 6 miles away from the historical center, and about 2 miles from busier parts of town with malls, supermarkets, bars and restaurants. You never walk in Guatemala City, it is like the US, so 2 miles is a reasonable distance to be away from the supermarket, although when I lived in the epicentre before, I enjoyed having the supermarket one block away. As a European, I am not used to having to drive to buy bread and other necessities.
But now that I live in the jungle, I have a car, and the supermarket is 20 miles away, so it is not that much of a problem.
Anyway, the land is 18 meters by 45 deep, meaning you could do 5 parking spaces, then the maid and handyman quarters, then the house in the back, with a gorgeous view over the volcanoes and a nice garden.
At night, you also see the whole city at your feet, with little lights glittering, which is something I love.
My next door neighbor to the left, whose tile roof you can see built a 12,000 sqft house that he wants to sell for $1,500,000. I don’t think he will get it but the property could be worth $1M.
For being on top of a hill, the land is still pretty flat, meaning limited earth movements, that can be very expensive when you have to bring caterpillar to move big volumes on steep lands.
Another advantage is it is already built on three sides, so you won’t have a bad surprise that your neighbors in front block the view with a sky high building. And it also means free perimeter wall!
I really like it, and my plan would be to build a 300/400 sqm house (3,000/4,000 sqft), maybe to use myself as a city pied-a-terre, or rent, then sell for a profit. Construction costs are around $400/sqm so that’s $160,000 to build the house, say $200,000 because life is always more complicated than you think, and $100,000 for the land, total $300,000. If it is well done in a neutral taste (with a practical architect, not a crazy one), it can sell for $450-$500,000, a $150-200K profit. Older houses in the same residence with 350sqm but half the land size are selling for $400,000.
One year to get the permit, one year to build, that would be $75K profit per year.
The PROS are
– It is pretty cheap. Guatemala is a weird market where luxury means really high end with high prices, and in the nearby developments they ask for $125-150 per vara (roughly 70cmx70cm) and this one is at $90. In the town center two miles away, they ask for $350-500. Four times more! I was surprised because my mother is less than two miles from the Paris city limits and her property is maybe 20% cheaper than if it were in Paris. Here there is a fourfold gap, that I think is going to narrow in my favor.
– It is a safe neighborhood with a gate and security guards, so no one will invade the land if it sits empty for a couple of years.
– The view is impressive and you feel like you are in the countryside while being in the town center.
– The city is expanding and this is a very convenient location between three dynamic zones (zona viva, where all the nightlife, bars and hotels are, Vista Hermosa and Pradera Concepción, where you find supermarkets and malls).
– The space is limited and people have to go live further away from the center for lack of affordable housing options.
– This is known as an exclusive area and people want to live there.
– Lots of big new houses like the neighbor to the left’s have been built in the last couple of years. More than a dozen of them. The area is picking up.
– I could even do two units, or one unit on half the land, and keep the other half.
The CONS are:
– The road to get there has a lot of traffic at office time, where people living further away get down to the city to work. It is already a 2×2 but it is not enough and expanding it is complicated because of the hilly ground. I don’t care as I don’t have a 9-5 job but for people working it is pretty bad. Although the place it at km9 and some people live at km20 and still commute to the center.
– Since is it so high up, it is almost at the same level as the development’s water tank, meaning low water pressure. You need to install a cistern and a pump to get pressure in the shower.
– Real estate is weird in Guatemala and people prefer to buy new houses rather than fix an old one, so the house may not resell if I use it or rent it.
– Guatemala is a seismic zone. There hasn’t been a big earthquake since the late 70s so they are probably due for one. Construction is quake-proof now but the house could be swallowed by the earth if the quake happened right there. Pretty dramatic but it can happen! The answer is taking a very expensive insurance policy or taking the risk to see your savings disappear in the lava!
– No shops around, it is purely residential.
– You have to climb quite a bit, so your car takes a toll, and you use a lot of gas to get back home.
– I would lock up most of my available cash. Meaning having to pass on investing opportunities, and putting a lot of eggs into that Guatemalan basket. I would have to wait a few months before being able to build a house, if not a year, so in the meanwhile the cash is not producing anything. It is a long term deal that is not liquid.
Can you move your money out of the country easily if you want to?
I have friends that have emigrated to Canada from South Africa and they are very limited in the amount of money that they can shift to Canadian banks every year. You wouldn’t want your money to be stuck if you decided to move or wanted to invest elsewhere in the world if Guatemala becomes less politically stable.
That is a great point Beth. As far as I know, there is no limit. I have brought quite a bit of funds here, and just had to justify that they came from my European savings as part of the anti-laundering laws, but that’s it, so I imagine it is the same on the way back.
Although 10 years ago a bank went bankrupt. Its offshore was offering crazy 30% interest on “savings accounts” mostly attracting rich people, those lost everything. Little everyday savers were covered by the government and got their money back but I think they had to wait a few months until the bank ownership changed hands.
That is a hard one I would say. I don’t like holding all my money up, but then again, it could be a profitable endeavor.
Worst case scenario once I buy the land I could get a 70% value loan probably, and get back some of the cash.
I think it is a very interesting idea. Personally I like having plenty of easily accessable capital, but I also live in a country where it is much easier to invest money in the stock market. I guess I would also feel uneasy about having so much money tied up in real estate.
I guess in the end I am no help, but I look forward to hearing what your decision is. You seem to make the right call more times than not.
Thank you for you input Brian. I don’t mind too much real estate exposure as leverage is less risky than the stock market, and people will always need a roof, so if there is a crisis at least you can rent while you sell later (if you can afford to wait). But I am more worried about being mostly in one market, Guatemala, if something crazy happens. So far the economy is pretty strong here and you can barely feel the crisis (part of it thanks to drug traffic but hey, at least the currency doesn’t tank), but it could change if a crazy dictator is put in place by bigger forces. Although bigger forces seem more interested in the Middle East those days.
Understanding the real estate market will be key to deciding whether this is a venture you should undertake and if it will be successful or you end up with a property that is not selling. In a developing country the rapidly growing marketplace and expansion means there is money to be made once you are patient and keen on risk.
Within the pros and cons you mentioned are people more interested in buying ready built new construction or they prefer building their own to their own tastes? Overall I like the idea of building on one half of the lot for sale and keeping the other half for future development however, the big decision will be are you comfortable with having a concentrated risk in Guatemalan property? In the end, if you see Guatemala as your place, the decision becomes would your future self be kicking your present self in 10 years for not buying the property? The one that got away is usually the most painful in hindsight.
Wish you all the best in what you decide.
Thanks Lynx! I am already kicking my 25 year old self for not buying property in Guatemala 10 years ago, I would have about tripled my investment. You are right, things are growing fast around here, and I don’t think there is too much risk, unless the US declare a big war against narcotraffic, but since they are the ones consuming the drugs, I don’t see that happening anytime soon.
Most people in the price range I would be targeting are moving into brand new houses they didn’t build themselves. Many are inside condominiums with golf, swimming pool and playground facilities for the kids, but that means they also pay around $250 a month in HOA. This one only has a safety gate so you pay $80. And it has more land than the normal residence so the kids can play inside the house instead. So the house has a good chance to sell brand new, but less chances if I rent it for 5 years then try to sell. People like new and shiny.
How is the overall real estate market in the area you’re looking at? Do people mainly buy and hold or are people selling in less than 5 years of ownership? If they are selling quickly, how are they faring in terms of profit? I know, just questions eh!
The market is booming as there is a fast growing upper middle class that can afford that kind of house. Generally people stay in their houses for quite a while, and used houses aren’t selling very well, so it would be for building a house and selling it brand new, not used, or keeping it as a rental for 20 years.
I think I would pass but that is mainly because I don’t know all of there is to know about real estate there. Based on your pros/cons, I would be worried about earthquakes. But this is coming from a guy that lives no where near earthquakes so the idea in itself is worrisome to me!
“…because life is always more complicated than you think.”
Isn’t that the truth.
Read ‘How to Stop Worrying and Start Living’ if you’re worried about earthquakes. Just because Carnegie talks a lot about the law of averages. Although the idea of your investment being swallowed by lava is pretty scary to think about!
How much could you get just by renting the property? Would you manage it or someone else?
cesareortiz@aol.com
QUESTION????
I WOULD LIKE TO KNOW IF I BUY A LAND IN GUATEMALA,
BUT IS THE SOUTH SIDE (RETALHULEU,
IT IS TRUE THAT THE GOVERNMENT CAN KICK ME OUT FROM GUATEMALA WHENEVER THEY WANT,
AND I WILL LOST ALL MY MONEY??
OR THAT JUST A LIE.