HOW HAVE TWO COSTA RICA REAL ESTATE INVESTMENTS COMPARED WITH THE TORONTO STOCK EXCHANGE?
By Robert J. Irvin
I have been writing for over two years now, arguing that a carefully researched investment in Costa Rica real estate adds both safety and return to a Canadian´s or American´s investment portfolio.
This time, instead of providing arguments why an investment in Costa Rica real estate lowers risk and increases return, I am going to document the experiences of two Canadian investors in The Oaks condominiums, www.theoakstamarindo.com.
These are real stories, with only the names changed to protect the buyer´s privacy. Each investor bought a two bedroom and two bath condominium with about 900 square feet of construction area. The condominiums are now fully built to excellent North American standards, in an ecologically planned development with 24 hour security.
Cam signed a contract in September 2006 to buy a 2d floor unit for its list price of U.S. $109,000. He made progress payments over the following year and a half, completing his purchase Easter 2008. At the time Cam signed his contract, the Canadian dollar was trading at about $0.89 to the U.S. dollar. Over the term of Cam´s payments, the exchange rate fluctuated between $0.84 and $1.07 to the U.S. dollar, with Cam´s average remittance of funds to Costa Rica coming in at around $0.94 to the U.S. dollar. So, in Canadian dollars, Cam invested about $116,000.
Today, a comparable second floor unit is listed for sale at U.S. $188,000. The Canadian dollar closed last Friday, October 24, at $0.7825 to the U.S. dollar, making the sale price in Canadian dollars about $240,000. After deducting estimated closing costs and commissions of 6%, Cam will realize $225,600.This is a gain of almost $117,000, over a 100% return over two years.
Now let´s do a simple comparison. Let´s say that at the same time Cam invested in Costa Rica, he had $109,000 invested in Canadian stocks, the performance of which tracked the TSE Composite Index. In September 2006, the TSE stood at 11,581. This past Friday the TSE closed at 9,294.
Therefore, Cam´s stock portfolio that began at $109,000 currently is worth $87,475. However, combined with his Costa Rica real estate investment, Cam´s initial diversified portfolio of $218,000 is worth $313,000.
Had Cam chosen not to diversify, his initial portfolio of $218,000 invested in the TSE would be worth only $175,000 now, not $313,000. Ouch.
Kristen signed a contract a year later, in September 2007, to buy a ground floor unit for its list price of U.S. $139,500. She made progress payments over the following year, completing her purchase in September 2008. At the time Kristen signed her contract, the Canadian dollar was trading at par. Over the term of Kristen´s payments, the exchange rate varied from $1.07 to $0.97 to the U.S. dollar, with Kristen´s average remittance of funds to Costa Rica coming in at around $1.02. So, in Canadian dollars, Kristen invested about $137,000.
Today, there are no comparable ground floor condos offered for sale (they sold out). However, using the second floor comparable of U.S. $188,000, for a Canadian dollar sale price of $240,000 and a price after commissions and closing costs of $225,600, Kristen has a gain of $88,800, over a 65% return over one year.
Now let´s do a second comparison. Let´s say that at the same time, Kristen had $137,000 invested in Canadian stocks, the performance of which tracked the TSE Composite Index. In September 2007, the TSE stood at 13,940. This past Friday, the TSE closed at 9,294, so that Kristen´s $137,000 stock portfolio currently is worth $91,340. Combined with her real estate investment in Costa Rica, Kristen´s initial diversified portfolio of $274,000 is worth about $317,000.
Had Kristen chosen not to diversify, her initial portfolio of $274,000 wholly invested in the TSE would be worth $183,000 now, not $317,000. Double Ouch.
How can an investor keep track of these moving pieces? Well, maybe it´s not necessary. Remember two things: 1. Diversified is better than nondiversified. 2. Diversified outside Canada is even better.
Why did Cam´s and Kristen´s investments work out so well?
One, Costa Rica offers a stable, safe democracy and a sunny, peaceful place to spend the winter. With a large ageing population (except for you) wanting a convenient and beautiful place in the sun, demand is going up. Location matters.
Two, Cam and Kristen chose a development that was financed wholly by the developer´s equity. No loans. Contrast that with a development funded by a mortgage loan. In that case, if the lender stops lending (sound familiar?), the developer might have to stop construction, leaving buyers holding the proverbial bag. I am not saying that would ever happen, especially to you, but look around.
If you still want a safe investment in an attractive, growing market, look no further than The Oaks. Ask us about phase three.
