Blog Article II

Have you ever thought about investing abroad in the form of a direct investment in residential or commercial real estate? If you haven’t, then perhaps it’s time you should. Why? Before answering it’s worthwhile to define what a direct investment in overseas real estate entails. Unlike Real Estate Investment Trusts (REITS) and other publicly traded instruments, which may offer a more risk-averse and passive investor some international exposure, direct investments are more active in nature, whereby the investor, in a privately held transaction, assumes some or all control. Thus, the primarily distinction of a direct investment in real estate relates on the one hand to the potential risk, but on the other to the potentially high expected return.

 
If the idea of transferring funds to acquire property overseas sounds daunting – well it is. And that’s why it’s not for everyone. For one thing it’s difficult on any level to contemplate the prospect of investment loss - much more so when the risk of loss occurs outside one’s domestic border where property laws and other legal constraints can potentially make for a regulatory nightmare. Compound that with general risks related to a real estate investment, such as reduced diversification, lack of liquidity, and a high upfront outlay, and now you get the picture.
But for an individual who has both the ability and willingness to assume a higher degree of risk – even for the so-called “average investor” depending upon his or her set of specific circumstances - the reward may be well worth the effort. The reason: the upside to an overseas direct investment in real estate may have the potential to be greater by a much larger degree than other alternatives after taking into consideration such factors as the low cost of entry relative to other opportunities, the potentially high expected return, legal protections that may exist in certain markets, as well as intangible benefits and other incentives like access to oceanfront property at an affordable price. Furthermore, by limiting exposure to those countries that cater to a foreign investor base, it may be possible to substantially mitigate the risk of financial loss.
Take Costa Rica, for instance. This is where I have chosen to focus my investment dollars, and thus far it has been a very rewarding experience.
Despite its classification as an emerging market, Costa Rica performs like any other developed nation with respect to its regulatory framework. For example, in Costa Rica there are no residency restrictions, property taxes are immaterial, and property rights of foreigners are treated fairly and protected in the same manner as locals. Moreover, all documentation related to a property is recorded in the national registry and made available for anyone to view online. Also, the legal system operates extremely efficiently as it pertains to foreclosures and other real estate disputes, and standard insurance is widely available for property owners.
Investing in Costa Rica real estate has some other key benefits that are worth mentioning as well: most notably, access to competitive, skilled labor, unique, natural resources, and access to traditional lenders (as well as private investors). What’s more, in Costa Rica, living costs are as little as half as those in many cities across the United States, while construction and other operating costs, such as maintenance and property management are significantly lower too.
Another point in its favor - the country is a leading destination for tourism, and expatriates, who choose to relocate for reasons like retirement; affordability; improved quality of life/higher standard of living; as well as the desire to live in secure, stable, and spectacular surroundings. Considering further the country’s history of relative financial stability and other favorable, economic growth factors, it’s no surprise that the real estate market in Costa Rica has attracted foreign buyers from all over the world. In fact, according to a country analysis prepared by the highly distinguished research group, globalpropertyguide, local real estate experts have noted a double-digit rise in Costa Rican property transactions since 2013.
On a personal level, what I find most satisfying about investing in Costa Rica is the ability to earn emerging market returns in a country that not only offers the same luxuries, security, incentives and benefits as almost any other industrial nation, but also that is in a class of its own with respect to ecology and natural scenery. Now that’s a value proposition that is well worth the risk!