My Costa Rica Trip
***Please note that facts and figures presented here are not confirmed by independent reviewers. Readers are encouraged to conduct their own research prior to any investment decision.***
I learned of a "fly and buy" program though a local investment club. A few weeks before the trip I attended a
webinar where they described the property and the deal. I understood that properties were somewhere around the $250 mark, and land was starting at $75K. I had no idea where the land was, and I barely knew where Costa Rica was! The trip was to be 4 days and 3 nights, with them taking care of everything while you are there -- food, transport, hotel. The hotel was located on a beach at the Pacific ocean, and consisted of a number of rooms on the beach. (The first thing that impressed me when I got to the hotel was the quality of the wood.)
I booked my ticket, which cost $650 on Delta into San Jose. I was routed through Atlanta, and the journey was 9 hours of plane rides, a few hours of layovers.
I couldn't get a clear answer on what the itinerary was prior to the trip (despite asking), so I booked a flight that seemed reasonable. It arrived on the night of the 4
th, which was the day before the group trip was to start, on the 5
th. I was told to stay at the Hampton Inn, near the airport, and that the shuttle would pick us up there the next afternoon at 2:30 pm.
I decided to rent a car and explore the country on the 5
th, instead of waiting for the shuttle bus at the hotel.
I checked into the hotel that night, and it was easy. The hotel was up to American standards, had free Internet, as Hampton Inns do. Before I left I printed out some maps of the country, and tried to figure out what there is to see and do in this exciting new place.
The next morning I woke up and went down to breakfast. I met up with a couple there who were from San Diego. They were probably in their early 60's, and were retired. They told me they moved to CR after considering it for 6 years. They said they loved it and have been there 1 month now. They glowed with pride about their home, the quality of the construction, the wood inlays of teak, the floors of hard-wood, the workmanship, the stucco, and how none of the walls in their home were 90 degree angles, but rather all rounded. They said they had an American contractor friend with 30 years experience look at the place and they were amazed at the quality of the construction. In CR everything is made of cinder block or stucco. There is no 'wood construction' or 'dry wall' like we are used to in the States. They said their house was a palace, of over 4000 sq. ft. They were in town, and had stayed at the Hampton to go shopping that day. Their place was in
Guanacaste, near
Tamarino on the northern Pacific coast. It cost just under $1M. Mark and Kathy were both retired -- Mark worked as a CFO for a
biotech company in San Diego formerly. He was a surfer and loved the white sand beach of
Tamarindo.
They said they really took their time looking at places because there were many many scams that go on there, esp. involving real estate. I told them I was there for a RE property investment trip, and they said to be very very careful. That there were many cases of developers taking money and not finishing the job, that there were many "gated" communities that consisted of nothing but the gates!! When you go inside, there is nothing -- not a single house built. They also said free & clear title is of the utmost importance, and difficult to confirm. They said that often times developers are given permits, and then permits are taken back. That the government and environmental agencies are corrupt or capricious. They advised it best to buy a house that has already been constructed, as theirs was.
I left the hotel and drove up to the active Volcano known as
Arenal.
Arenal is located about 5 hrs drive from San Jose, even though I was told it would take 2.5 hours! Driving up to
Arenal I saw the town of San Ramon, and La
Fortuna. The country side is extremely beautiful and lush and green tropical. Along the road were many little souvenir shacks run by locals, and many small outdoor restaurants.
On the way, the engine light came on in the rental car. I was mortified. I stopped in San Ramon and luckily found a mechanic. They were kind and accommodating and let me use their phone to call the rental company. The guy assured me that the car was fine, so I carried on. I was already annoyed with the rental company
bc. the rate they charged me for the car ended up being DOUBLE of what I booked and paid for online. When I got there, they said there was this insurance and that tax, blah blah. I book cars all the time in different places...this was the first time I have seen something like this. (Later I heard of other Americans complaining about the same thing).
I drove and drove and it was raining. Then it would clear up. Then rain again. I stopped for pictures along the side of the valleys a few times.
I finally made it to the town of La
Fortuna, which is the closest town to
Arenal volcano. There are many nice upscale resorts there. Many restaurants, shops, and attractions for
tourists. I was having a lot of fun!
I finally reached the national park, around 4:00 pm. Went inside. Took pictures of the "active" volcano. The volcano would grumble loudly every 20 minutes or so. I saw puffs of steam emanating from it as lava flowed down the sides. The part of the volcano with the lava flow was black. I was told that if I wanted to see the red lava flow I would need to be there at night.
Unfortunately since I was on the investment trip I couldn't spend the night. It would have been great to since the small inns were reasonably priced, starting at $20/night.
SO, I started to make my way back. In my mind I had thought it would get dark around 8:30, since that's what's happening in Cali now, only to learn that it gets dark at 6:30 pm! Closer to the equator, of course.
My way back was some of the most treacherous driving I have ever done/seen. The mountain roads were narrow, and often filled with one lane bridge crossings. The trucks travel on them at about 15 mph! The roads were incredibly full of THICK bulging fog. I was really hard to see, and it was dark, quite dangerous winding roads. I drove through this for about 5 hours. It seemed to be a never ending, exhausting drive...as soon as one mountain ended, another would start! I was so thankful for the GPS that outlined the road as I drove.
Once I reached flat land, near the beach, after 5 hours of that drive, I pulled over to get gas. It cost $4.70 a gallon!
After another 1.5 hrs, I finally made it to the hotel, not really having an address or anything (I only knew the town to go to). They were about to close, so I was lucky to make it just before 10:00. Luckily I had had dinner at a local
resto. on top of the mountain.
I met there with Paco, one of the hosts on the investment trip. I learned that the hotel has no
internet. He said there was
dail-up.
The next morning I woke up and met the group for breakfast, at the restaurant on the beach. It was cloudy yet very humid. The beach had no people on it, and was a black sand/mud beach. I met the other couples, the investor guides (Ted and Jorge), and a woman named
Helga , an American from the South. She was the head managing member of the syndicate that had purchased this land. I met the other investors on the trip. There were 3 couples. 1 older couple from Orlando, one younger couple (my age) from Toronto, and another couple from my back yard here (also around my age). The couples each had 1 child.
After breakfast we were taken on a zip line tour through the canopy of the
rainforest. That was great fun. We were strapped into harnesses and could traverse the canopy via metal lines that were tied tree to tree, and connected on platforms. Supposedly on the better
zipline tours you can see animals and wildlife. No such luck on our
zipline, however there were some nice panoramas of the ocean.
Then we had lunch and were taken to a neighboring development under construction.
This condo/house project had a condo that
Helga claimed she purchased for $410K a year ago, that was now worth $525K supposedly. It was a nice condo, well furnished. Had the amenities we expect from high-end homes like granite, tile, wood floors, nice bathrooms. The more experienced people in the group noticed poor workmanship in the bathrooms (tile and grout). The woods used were very rich and dark throughout. The doors were tall and elegant. But for $525K? I could find a place like that in S. Cal pretty easy, for that price. The views were of green valleys.
After viewing the condo, we got on the bus and viewed some empty plots of land. We weren't told any prices of actual plots or houses yet. When I asked, they said that construction labor was paid $15/day, and the average Costa
Rican's salary was $500/month.
We later came back to the hotel & got ready for dinner. Dinner was in
Jaco, about a 45 minute bus ride away. Dinner was at a nice place, but with pretty much "American" food. After dinner we explored the town for about 1/2 an hour. On the way to dinner, I asked Ted, one of the investor guides, about the population of Costa Rica, of
Jaco, and some other facts regarding the economy of CR. He just laughed and said he had "no idea" and made it sound incredulous that I would ask such a question.
The investors, amongst themselves, were trying to piece the deal together. Whether we would be investing or not. The couple from Orlando was looking more for a second home than an investment. The couple from
Cupertino (near me) was looking strictly for investment purposes, as was I. The couple from Toronto was looking for investment, as well as to recommend listing this developer for off-shore investment to their investors (as part of investment club).
After dinner, J, the wife of the couple from Orlando, suggested we all talk and get together after dinner. The hosts weren't too thrilled by the idea, but they couldn't really stop us.
I had started asking questions during the day about the issues I had warned of. When we were at lunch, the developer M, showed up to the same restaurant, with some local government officials. The host
Helga became extremely nervous and lost focus on our group. She was watching the meeting with her developer M, and the local officials very carefully. J and I noticed the drastic change in body language (and her nervousness).
After dinner, when we all chatted, we agreed that many things were not adding up. We were told that labor was so cheap -- like $15/day, yet the cost of the home was going to be $125/foot to construct. In Texas, I pointed out, I can get a brand new house for $70/foot with marble/granite/nice upgrades. This is in Houston, by the way, a major metro city.
Helga and Ted just bristled that I brought this up (not happy). So an average 2000 sq ft. home there would cost about $250K to construct, together with $125K for a plot of land = $375K. Plus there would be large home-owners dues to take care of the pools and grounds. By the way, the couple I met on the first day at breakfast pointed out that there was a common
HOA dues scam too -- the developer will tell you that
HOA will be really high at first -- like $500 or $700/month, but that they will go down as more people buy into the project. Of course when more people don't buy in, you are stuck with the high
HOA's.
I was thinking that something doesn't add up -- I'm in a place where the nearest restaurant, grocery store, or any sort of supplies are 45 minutes drive away (and by the way gas is not cheap!), the closest medical facilities or airport is 2.5 hrs drive via mountain roads, and the ocean is not even anywhere near the property. So how could a house there cost as much as something would cost in California? Not to mention that the weather is no where as nice -- very humid and hot. The summers in Cali are gorgeous - clear and no humidity. Plus there is a driving economy in the state, ample transportation, and facilities.
It just didn't make sense.
The couple from Toronto was also shocked at the high prices. They were heavy investors in the Caribbean, and talked of deals on islands like St. Lucia and St. Vincent, and the Dominican Republic (beachfront). They said properties were much cheaper, and the waters were turquoise blue with white sand. The water here was muddy and there is no snorkeling, and the sand is black. Or is it mud?
After the evening discussions all the couples and me seemed convinced that it was not a good deal. And until then, we had not been given any price sheets or numbers. In a typical investment deal, you are given a pro-
forma well ahead of time. Long before you even travel to the place. It details the rents, the expected prices, all expenses, taxes, etc.
During the day I had asked several times how much they paid for the land. Ted, the sales guy, told me $12,000 an acre. They were bringing in facilities and roads into the property and greatly improving it. The cheapest plot of land (no view) was $75K for 1/4 acre. So, what they bought for $12,000 an acre, they were now selling for $300,000 an acres, at the lowest end,
up to $500K high end. Add the cost of the house on top...
We had toured the grounds/land of the property via 4 wheel drive vehicles just before dinner. We were shown a beautiful waterfall that the developer M had uncovered.
I was convinced there was no way I would buy into this. I figured that they were charging about double of what was reasonable.
The next day we woke up and had breakfast at 7:00. By 8:00 we were on the grounds of the property. The developer M talked for a while. I asked him the questions I had about projects that had been started that never finished up. I asked about the permitting process, and that I had heard that permits could be granted and revoked. I asked him where he would invest if it weren't Costa Rica right now. Asked him how many past projects he had done, and were there any that didn't complete. J, Orlando wife, also asked him questions that we as a group had put together the night before.
The architects then came into the picture. They showed us the plans, a Balsa wood model of the sales office (to be built first), and soil study reports, the surveys, etc. They were very professional and nice. A woman-man team.
Then we got on
ATV's and drove all over the property for the next 3 hours. It was a lot of fun! We went to the top views on the property, the rivers, the waterfalls. It was really great. However, to be honest, the views were not too unique. Similar views could be available in so many parts of the world, even California.
We stopped & got pictures. The investors had a blast riding around.
After the ATV rides, we had 3.5 hours of rest time. Since I had the car, I wanted to get out and drive to the next town,
Quepos, and perhaps Manuel Antonio, which is the main attraction that tourists come to CR for. It was about 25 miles away. I figured it wouldn't be too hard to get there and back in 3 hours. The couple from Canada wanted to explore too.
When we told Ted, the sales guy, that we would be doing this, he became very annoyed. He did not want us leaving the property it seemed. He sounded warning bells of traffic, and made it pretty clear he didn't think it was a good idea.
I was thinking to myself: so you want me to invest in your property, but you don't want me to even see what the next town over looks like? Or what the main attraction in CR is? M&S became very suspicious and we started to ponder that the reason they didn't want us to leave the property was that there was a neighboring development they didn't want us to see. We became even more curious and and intent on going. Also, I wanted to talk to a local real estate agent, to get another p.o.v. Ted had tried to warn us that Century 21 and
Remax and other companies there were not really affiliated with the real American companies. S, didn't believe this, as she's an agent herself.
So off we were.
We drove to the town of
Quepos. There we went straight to a local Real Estate Company's office. Talked to an experienced guy who has been in CR for 14 plus years. He is the head of that Real Estate office, and knows many of the local developers and deals.
I asked all kinds of questions about title, public records (such as
MLS), land prices. These were all issues that the couple at Hampton Inn had warned me about. Recall that other investors were simply put on a bus and brought straight to the property -- they didn't have the advantage of local intelligence.
I also asked him specifically about the project that I was visiting. I asked him if he knew how much the land had been bought for... He said he did. He knew. He also said there are no public records for stuff like this in CR. He wouldn't give an exact number, but I asked him if it had been bought for $12,000/acre...he just laughed! Then I asked it was much less, he said yes. Less than $1K/acre...he again said 'much less'. He said "basically that land was stolen." (!!)
He also told us about a case where a TICO (local) had sold land to a big American developer. He then went and sold the land again to a 76 other investors. The case was in court for years. Finally the investors did get their money back, but it was after years of strife.
M&S and I were all alarmed, but it wasn't anything completely unexpected. I had known all along that the deal was way overpriced. It was made for Floridians and Californians, who wouldn't have sticker shock at such prices. "Gringos" as we are known there.
Then I started to get really suspicious of the people in the deal. After our return we went into a 2.5 hour presentation in which Helga gave us a few prices and asked us to pick out lots, and talked about asset protection and how to form a corporation in Costa Rica. We were told that the syndicate would be selling us shares, not actually transferring title. It was something so complex that even I couldn't understand it. And I have even done international investing before!
I got really bored in the middle of the presentation. Helga was talking about how to strip equity out of your primary home and use it to make a down payment on property (yeah, like what amateur investor doesn't know that?!?).
I was not interested at all in the property, and I felt like the deal and the people were misrepresenting facts (such as purchase price of land).
Now that I have been scammed a few times in Real Estate, I've learned my lesson: FOLLOW THE MONEY TRAIL.
Know who has the money, where it came from, where it's going, who has been promised what.
So, on the way to dinner I started asking extensive questions about the syndicate that had been formed to purchase this property. What Ted told me is that each person in the syndicate had put in $100K. I asked what the return on investment would be, and he said they would $1M over 5-7 years. WOW! Put in 100K and make $1,000,000 5 years later?! I also asked if the syndicate members would be paid in between and at what rate. He said they would be, but wouldn't provide a clear answer when (he is part of the syndicate). This again made me very suspicious. What I pieced together was that they desperately needed to make these sales because the investors were waiting for such big returns, fast. Helga was the managing member of the syndicate responsible for this.
Later when the investors got together at night I pointed this out. The couple from Cupertino had somehow been convinced to buy 3 plots of their land! Notice that they had never left the property and had never been to CR before. The sales pitch worked!
M&S had figured out that the 76 investors they had who formed the syndicate were students from a class. The class was run by Helga and everyone paid $26K to get into a class on "International Investing." At the end of it, they were offered membership into this syndicate. (To me they were all amateurs to begin with to pay someone $26K!)
After an hours worth of discussion, the wife started to have second thoughts. She said "Honey, listen to Reenu."
I think I was the most outspoken about the inconsistencies and apparent misrepresenations. S&M and I told this couple about what the older real estate agent had told us. The couple from Orlando agreed with us. When asked my opinion I said "they should be charging about half of what they are. This is not a property for investors, that's more appropriate for a second home, and that it was priced at retail." I also said that it's hard to verify information, and we have no idea what it was really purchased for. I also told them my philosophy about following the money trail in any investment.
M&S and I were obviously on the same page with everything, and we tried to convince this other couple to investigate more, by sharing our experiences. The country being poor, the property not being rentable, about no facilities being around, about the labor cost not adding up to what they were selling the houses for, about how they hadn't left the grounds and seen other parts of the country. S&M shared about a property their friend had purchased...it was $25K for 40 acres of land! And it was on the Caribbean side, where cruise ships come in. We encouraged them to see other developers before investing. M also talked about the deals he was into in the Carribean, and I talked about my French property deals. Both were much better priced
The next morning I woke up and went to breakfast. Before I could get to the breakfast table, Helga walked up to me and said "I need to talk to you." I said "ok" and she said "we need you to not join us for breakfast. You have been a very negative influence, have been playing devils advocate. You're asking questions about the synidcate, and that closed 8 months ago. That has nothing to do with you. You lost money on 3 properties, and you don't know how to invest. You need to leave the property." (!!!)
I was so shocked and stunned I had no idea what to say. I said "well we are leaving soon anyway, right after breakfast." She said "no, you need to leave now. You have been a very negative influence and offended the developer and the sales guy with your line of questioning."
I said I was hungry and thirsty and wanted to have breakfast. She said "NO." And that she would be calling security!!
I managed to tell S&M what had happened, and just as I was leaving the other couple from Cupertino showed up. I told them I had been asked to leave. They were completely shocked.
M&S came to my room after breakfast. They told me that Helga told them she didn't want them spending the day with me and that they would take them back to the airport later.
After some deliberation, they decided they didn't care what Helga said, since they didn't want to do business with these people anyway.
So we all left, and started our drive to Tamarindo. I was still in shock, pretty much the whole day. S&M were great though...they made lots of jokes about the whole thing. I feel like I made 2 really good friends that day.
We had a fantastic time riding around, going to the beach. Many of the RE offices were closed on Sunday, so we couldn't talk to any more people. However, smack dab right next to this project was another one. We wrote down the information off the sign. They were selling completed homes starting at $129K, about $200K cheaper than the cheapest house next door. In addition, these were on the beach side of the highway, not the other side.
S&M and I are planning to get together again when they come to Cali (after M finishes his PhD) and I'll also be joining them on a fly and buy to the Caribbean soon!
Below is a picture of Tamarindo Beach, on the Northern Pacific Coast of CR:
