Tropical Real Estate Is Not Always Paradise – The Six Rules of Investing In US or Tropical Real Estate

Posted on 22. Jul, 2010 by in News

Become an informed investor instead of an excited and emotional speculator.

By Don R. Campbell    Cutting Edge Research Inc.

 Due to the combination of a strong Canadian dollar (and economy), the lack of buyers (and poor economy) in the US, and the huge commissions that are paid to promoters, Canadians are currently being inundated with sales pitches for vacation & tropical real estate – and frankly these pitches are done so well that they are quite compelling.  Sadly, they skip over the 6 Rules of Investing in Property Outside of Canada which has lead to many people making grave investment errors as they let their emotions, instead of realities, do the decision making.

The idea of owning recreational or vacation property outside of Canada has appeal to some, with most of that appeal being based on a dream  This dream can quickly become a financial nightmare if an investor does not protect themself from the hidden risks of buying outside of Canada.  Although many treat it as if it was like hopping over the border to get cheap shoes, the reality is much different.  Buying out-of-country real estate with the inherent tax, immigration, currency and investment risks that come along with it can prove to be profitable or disastrous. The difference is whether or not the Canadian goes in with their eyes completely open and their emotions in check.  

The truth is, buying out of the country requires substantially more due diligence than buying in Canada, and sadly, most people do substantially less.

I have almost 20 years of experience with business and real estate (including tropical countries) and during that time I have seen just about everything, from outright fraudulent developers selling Canadians a dream (and NEVER intending to complete the project), to individuals flying into a region, doing their OWN homework and finding the perfect retirement or investment property.  From this experience I have developed the 6 Rules to Real Estate Investing Outside Canada.

 

 SPECIAL WARNING:  Most vacation real estate IS NOT a real estate investment. You often only own a % of a project and you don’t own the title.  That, by definition, IS NOT a Real Estate Investment – it is a Financial ‘Security’ and should never be considered a real estate investment.  Don’t allow yourself to be fooled – either you own the title outright with the right to do with it whatever you choose, or it isn’t a real estate investment.

 

Let’s set the stage.

Vacation and tropical real estate is a true emotional sell and has proven to be the easiest real estate to sell on earth.  Combine this easy sale with the HUGE commissions that are paid to the promoters in Canada and you have a situation ripe for abuse.  And unlike Canadian real estate, it is unregulated. There is no dispute resolution process, there is often limited land title guarantees, and the contracts can’t be signed in Canada due to the developers/promoters trying to do the deals without scrutiny.

What is So Alluring About Throwing Money Away?  Does Ego Get in The Way of Logic?

Vacation (especially Tropical) real estate has some obvious draws (warmth, holiday mind-set);  however, one of the top reasons people justify buying this type of real estate is because saying “I own Real Estate in Costa Rica” or “I own in Whistler” sounds exciting when you tell your friends and family.  It’s like name dropping – only it’s country dropping.  Imagine that – we can allow our egos to justify a property purchase. That does NOT make it a good investment. 

The second reason we see people buying this type of real estate is the “Grass is Greener” Syndrome.  Anything ‘far away’ seems to have appeal to the untrained investor, even if they live in the best economic region of the world.  There is always a draw to something foreign, which is fine for food and products but not for real estate. 

Buying, owning and operating property outside of Canada is completely different to what we all have come to know here. For instance, titles are not the same (or as accurate), the closing process is not the same (or as reliable), and the financing is not the same (or non-existent). Plus, the immigration and tax laws can come back to haunt you… and that is just the beginning.  Sadly, most people do more due diligence and fret more about buying a property in their own neighborhood than they do with one located outside of Canada.   

That’s why there are very specific investing rules that we all need to follow BEFORE we sign on the dotted line for a foreign property.  Protect your downside, reduce your risk and then you can know that you have done all you can to make it a winning proposition.

Rule number one will be discussed next week, so be sure to check back!

Tags: , , , ,

Comments are closed.