Developing and Real Estate

Settle Down – Common Sense for Costa Rica Real Estate Buyers

craig@craigwilliamson.com — Thu, 06 Nov 2008 02:52:00 GMT

After reading Jesse Bogan's article, “Trouble in Paradise”, on the Forbes website, I was dismayed by the inaccurate portrayal regarding the amount of squatters in Costa Rica and the laws regarding them. The cases mentioned were anomalies that could have been prevented if the offended parties had followed the proper procedures and taken precautions which would be considered basic in any real estate transaction of that nature. They are not representative of the vast number of real estate transactions which take place in Costa Rica every year, and I would like to lay to rest some of the concerns raised by Bogan in that article by examining a selection of those cases, showing where the buyer could have prevented the issue, and briefly covering some ways you should protect your investment if you choose to buy real estate in Costa Rica.

In that article, Bogan names several cases where squatters have settled on a piece of land and caused trouble for the owner—then proceeds to report on one-sided opinions which blow a few isolated cases far out of proportion. While squatters do exist in every country and have been given certain rights, they are not a widespread epidemic that plagues every land owner in Costa Rica. In fact, the cases mentioned by Bogan are extremes caused by neglect and poor management of investments.

The laws regarding squatters were put into place to prevent a scenario which could be highly detrimental to the Costa Rican economy: a small majority buying up all of the land and holding it hostage until they can flip deteriorated properties at inflated rates. As stated in the Civil Code of Costa Rica, squatters can claim land which is uncultivated, unimproved, and otherwise unoccupied for an extended period of time. If they are allowed to stay on the land for ten years without contest, have peacefully occupied it, and have made improvements to it, they can file for ownership of the land. Before scoffing at the law as a free-land pass for squatters, you should ask yourself who would make a major monetary investment without monitoring it closely.

The isolated cases mentioned by Bogan are cases where the landowners did not take care of their land with due diligence. Let's examine the examples used in the article and see where they could have prevented the problem.

H. Craig Carter purchased 180 acres in 1993. His intent was to build luxury condos on this property, yet squatters had time to establish 20 shacks and cultivate the land. He believes that the plot is worth $4 million in contrast to the $50,000 he and his group paid for it. If the land had been properly monitored before the construction started, he would have known that squatters were on his land. Early detection is of the utmost importance, and if he reported them, the squatters would have been ousted by the police before there was any need to take it to the courts. Early detection is a cure-all for the vast majority of squatter cases, the tool most landowners employ to protect their investment.

The two parcels that Jean Marie Meadows bought were legally owned by people other than the person she thought was selling them to her. One was part of a public park, and the other belonged to Daniel Fowlie. After questioning her agent about it, she proceeded to purchase another parcel through him. This case is one of monumentally poor judgment in choosing who you do business with. If an agent has obviously betrayed your trust, do not continue to use that agent. When purchasing real estate anywhere, verify that the agent you are working with is licensed, trained, and credible. Also, verify ownership of the land. There are many cases in the United States of people reselling and renting apartments or houses they do not own. It's a sad fact that con artists may use your property to do that. To prevent being harmed on the other side of this deal, having your land sold illegitimately, make sure that there is constant monitoring or work being done on your property. Con artists need a reliably vacant and dormant property to pull of this scam, and they can not run their scam if there is activity on the property.

Robert Sprague bought 2.5 acres and invited squatters to live on it. The land was sold from under him. This case is another of fraud as opposed to squatting, but it also shows that you should not invite squatters to live on your land. If you can not be present to care for the land, you should hire a reputable company to watch your property for you and do the necessary upkeep. Keep your receipts and watch the company closely. If someone lives on the land, it makes it easier for them to convince others that they are the owners and legally able to sell your real estate. You should also personally check up on or send a trusted representative to check up on your land, document any improvements you've made, and have copies of those documents sent to the local government for their records. If you absolutely require that someone live on the land, you must pay them a wage so that they are an official employee, keep receipts and records of everything you can, and check up on them frequently. Have them sign a legal document with a witness which explains the situation, and have a copy sent to the local government as proof.

The case of Herradura is that the land was bought around 30 years ago, and it wasn't cultivated or cared for. It was intended to be a cooperative, yet the landowners stopped visiting and never developed on the land. Many years later, squatters appeared. In this case, the guard in charge of the land notified the police of what he claimed to be a hostile takeover ten months after the fact. Also, the squatters claimed that the guard is the one who sold them the land. Again, this is a case of neglect where the foreign owners did not watch their investment personally and did not keep tabs on the person charged with caring for it. If they had been actively involved in developing their coop, they would have been able to remove the squatters without an issue. It should also be noted that entering into such a generalized business agreement without a strong, centralized core is a bad idea. If the other owners choose to never visit, develop, or care for their property, your property's value depreciates, and the squatter issue will be compounded.

All of the cases mentioned in Bogan's article are caused by poor business decisions. They do not exemplify a rampant squatter problem in Costa Rica. Rather, they serve as a warning that you should not purchase real estate when you are unwilling or unable to develop and care for it. There are cases of squatters in the United States and across the world. There are also cases of con artists who sell or rent properties they do not own, so neither issue is specific to the laws and customs of Costa Rican real estate. A prospective buyer simply needs to make informed decisions regarding their real estate purchases. In any investment you make, you are responsible for ensuring its safety, but Costa Rica is as safe as most countries to purchase real estate in.

Bogan's article claims that land owners have little recourse when it comes to squatters. On the contrary, common sense business practices can prevent squatters from occupying and taking ownership of your land. To maintain ownership of the land, you should make improvements to show that it is not being left to rot. Plant trees, clear the underbrush, and mend any fences regularly enough to show that you are keeping the property in order. Also, you should post signs to inform trespassers that they're not welcome on the land. Record keeping is also very important. Be able to provide receipts, titles, and photo-documentation of improvements to the land to make a clear-cut case that you have kept up with it and that it has been occupied by you (and not the squatters) when you take the case to court. The most important thing is to personally examine your real estate or have a trusted representative do so. When you detect squatters in the first few months, or weeks ideally, you can easily have the police remove them for you.

The most important thing to remember is to only buy through licensed and trained real estate agents. You shouldn't purchase real estate in any country unless you have fully researched the person selling it to you, the previous owners of the land, and the condition you're receiving it in, so why would it be any different in Costa Rica? There are an incredible amount of success stories about companies who have bought, and/or branded real estate in Costa Rica including: Four Seasons, Regent, Mandarin Oriental, Hilton, Hyatt, Marriott, St Regis, Best Western, Jack Parker Group, CIMA, and Bridgestone, and hundreds of North American and European Developers, small, medium and large.

These companies have researched, developed, and built on that land. They've sold it to happy customers, employed local and foreign workers, and have been beneficial to the Costa Rican economy. Anyone you have living on the land or making improvements on it should be thoroughly documented and researched. The process of a thorough background check and rigorous documentation is enough to discourage even the most bold con artists. This is the very same steps you would take in a North American Real Estate purchase…why would you approach this any differently in Costa Rica.

If you're considering buying and developing land in Costa Rica as your retirement home, you shouldn't worry about squatters if you are taking the proper precautions to prevent it. Squatters are more of a problem to people who are trying to “Quick Flip” land for a fast buck, and even in those cases, it's rare to see them. To avoid scam artists, investigate your real estate agent to verify that they are legitimate and trustworthy, and are affiliated with a strong brand. Finally, make sure you understand the laws of Costa Rica and comply with them. If you follow those guidelines, you shouldn't have a problem.

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Costa Rica Developer – The Search

craig@craigwilliamson.com — Wed, 05 Nov 2008 20:11:00 GMT

Developing Real Estate in any country can be considered a craft, and it is more than procedural tasks to be checked off of a list. It is a combination of analysis and intuition, economics and risk, detailed planning and emotional selling, diplomacy and aggressive tenacity. Both sides of the brain need to be involved, all the time. In Central America, there are unique issues in the development process, and Costa Rica has its own very specific critical components. Hopefully, my advice will stimulate some thought for those in the quest to become a Costa Rica Developer.

In my 22 years developing and selling real estate projects ranging from a single Fourplex to hundreds of condominiums and home sites, hotel/casinos, multifamily units, retail, and now Golf Course themed residential and mixed use communities, I have, thankfully, never stopped learning. In the articles that follow, I will attempt to distill some of what I have learned into something that will help you avoid the “brain damage” that can occur in this business.

First of all, there are four components to a winning project. I will cover just a few of the first, very important considerations of what is arguably the most important component. The first point to consider is that no one knows everything about this business. I learn something new every day I wake up and venture back out to move a development along. One of the keys to becoming successful in anything is to learn from your mistakes and always keep your eyes open for new information. Embrace learning new things, and you will have an edge over the competition.

Second, “Location and Site Selection”. Obviously, this is the number one component and can mean many things. When you mention the “L” word to most first time developers, they have visions of a sexy, beautiful beach, or a cliff top overlooking the ocean, or some other magical position. In reality, the most important factor regarding location is whether it is in the path of current growth or outside of it.

The factor that mitigates your risk is your potential development's location versus the current trends. If you develop in an area where growth is not already established, you may find it difficult to sell the property. The other side of this issue is that you are more likely to find cheap Real Estate, and you may be one of the lucky few who strike it rich by creating a growth trend in that area, but taking this gamble and losing is the primary way developers lose their shirt. So, the only way to minimize this risk is through effective planning.

There are two major variables in development: time and sales. Every other risk can be eliminated all together with careful planning and budget consideration. However, the best you can hope for with Time and Sales is to minimize their negative potential during the entire development process.

Growth in any community spreads along certain natural or man-made paths: along an existing river or ocean front, or just as likely along a highway or major boulevard. First, look at the community and find the epicenter of growth. What are the catalysts of the growth? Is this growth from fundamental events of job growth and natural population increase, or a temporary spike in tourism and fleeting interest? Following along this growth corridor and finding a position at the edge of it will be a strong mitigating factor of the sales variable. All things being equal, give me a spot that is directly in the way of natural growth patterns.

With all of that in consideration, roll out the map and follow the paths or growth corridors. These will go in many directions, so you must determine the two strongest paths and deploy your search and analysis along these. Once you have several potential sites along these corridors, check for the following components:

How far is it from the edge of the Path of Growth? What kind of growth is coming?
Is it safe now, and will it continue to be a safe area? A beautiful view is great, but if its not safe, the sales will be challenged.
How far is it from the job growth epicenters? How far will your home owners need to drive to get to and from work every day?
Look for the “window” onto the major roads. How much frontage does the land have? (more on this in Marketing)
Check the traffic count that currently exists during high traffic times and attempt to project the increase going forward.
Insure that the actual ingress/egress potential of your entrance will not limit the density and convenience of your project.
Topographically, look for any complications that could arise in developing the project. Also, look past your site from the path of growth and determine if growth continues unimpeded, or will be stopped short, just after.
Is there sufficient land, frontage, ease of development, soil type, drainage, WATER SOURCE, utilities, and proximity to daily housing needs (shopping, medical, etc.)?
Is the local municipality open to development of the project you are planning?
Finally, is there the ability to add “Environmental Value” to the land? (More on this in a later article)

As I said at the beginning, my hope is to stimulate thought, and provide a framework for each step in the development process. There are literally hundreds of other considerations and sub-components to be assessed all along the way, so keep your eyes open, stick to the facts and the reality, and don’t let emotion enter into your analysis. Look at the project from an economic position first, and don’t let one factor that is positive distract you from seeing the negative points of the land you are considering. Finally, take notes. MANY notes. Don’t simply visit and ponder. This process is one that needs disciplined analysis and comparisons between potential sites.

Happy Hunting! Next up, “Costa Rica Developer - I FOUND IT!”

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