Safeguarding your portfolio should be your main concern.

The S & P 500 has fallen 42.5% from its all time high one year ago. The TSE has fallen 35.3%. Since 1950, the two worst bear market declines were from January 1973 to October 1974, minus 48% on the S&P, and March 2000 to January 2002, minus 49% (the “tech wreck”). So it may be a bit early to be brave.

However, even bear markets have bear market rallies, up as much as 20% in short time periods. Looking ahead to the bear market rally (November, anyone?), many investors are looking to diversify their portfolios from all-Canadian assets into foreign assets, such as real estate, denominated in U.S. dollars. This gives them safety with diversification, plus hedging against the falling Canadian dollar.

A brief history. The loonie hit a low point at $0.62 to the U.S. dollar in 2002, rallied to a brief top of $1.10 a year ago (or a longer-lived top of around $1.04), before retracing to $0.85 recently, a 23% retracement from the peak and an 18% retracement measured from the longer-lived top.

Previous periods of falling exchange rates against the U.S. dollar, from November 1976 to February 1986, and from November 1991 to January 2002, saw declines of 33% and 31%.

 Real Estate is all about location. Why not follow the experts? Not only do they have more information than we do, their building plans are long term and generate travel demand and rising real estate values.

Many astute investors are getting a leg up by investing in Latin markets, such as Costa Rica, that are going up, rather than trying to find the bottom in a falling U.S. market.

Following are excerpts from a recent press release, indicating plans to expand Hilton´s operations in the Caribbean and Latin America from seven to 30 properties, including a focus on the Guanacaste region of Costa Rica.

Hilton Hotels Corporation Announces Major Expansion Plans to Quadruple its Caribbean and Latin America Portfolio

Company Appoints New Development Team to Spearhead Addition of 150 Hotels & Resorts

 ”BEVERLY HILLS, Calif., Sep 30, 2008 (BUSINESS WIRE) — Hilton Hotels Corporation today announces expansion plans to quadruple its presence in the Caribbean and Latin America by adding 150 new hotels to the portfolio over the next five years. ….”

Central America

“Simon Suarez, chief development representative, Central America, will be responsible for expansion in Central America and adding 23 properties to the current collection of seven hotels. …The company’s growth is expected in all of the region’s capitals, as well as secondary markets such as Liberia, Costa Rica; David, Panama; and Leon, Nicaragua. This will be complemented by active pursuit of opportunities in the principal resort destinations of Guanacaste, Costa Rica; Antigua, Guatemala; Atlantic coast of Honduras and Belize; and Pacific coast of El Salvador, Nicaragua, and Panama. …”

SOURCE: Hilton Hotels Corporation

The greatest investment error is failing to look ahead, instead looking back and saying “I should have bought at the bottom” or “I should have sold at the top”. 20-20 hindsight leads to “woulda, coulda, shoulda”.

It is much easier to identify a trend and then get on the right side of the trend. By thinking outside the box, and looking ahead, you can safeguard your portfolio, enjoy sunny warm winters away from the snow, and enhance your lifestyle. For more information, check out Discover Costa Rica Magazine and Seminars.

 

 

 

 

 

I last updated my quarterly Fearless Forecast (motto: often wrong but never in doubt) February 5. By Costa Rica standards, this three month update is early, but it´s tough to change cultures totally. So here we are, three months later (Costa Rica time). Yawwwn. Strrretttch. I was knocking back a couple of beers last night at La Caracola with my San Diego friends. Surf was good yesterday at Playa Avellanas and Playa Negra, time for Playa Grande today. But first, let´s see how our forecast did.

February 5: Construction appears to be proceeding rapidly at The Oaks (see Nov. 25), but I am exiting the predicting business on this one. I am hoping that the holiday months of February and March will result in more than progress.

Now: The holiday months of February and March resulted in some progress, but we really got going during the holiday months of July and August. We have now delivered 10 buildings to our owners (out of 16).

Future: We have high hopes that 3 more buildings will be delivered “in three weeks”, with the balance by the end of November. I would kill someone if that didn´t happen. Problem is, no one would notice. But, history is history, and 10 buildings are now delivered. Hooray!

February 5:  Real estate prices are going to continue to go down in the United States. More of the same. Real estate moves in long cycles, and this one isn’t long yet.  

Now: Spot on. More of the same.

Future: More of the same. This cycle still isn´t long yet.

February 5:   As the recession gets more obvious, the Fed is going to keep cutting interest rates. More of the same.

Now: No need for Nostradamus. The Fed has said that the rate cut cycle is over. And they never change their mind, right?

Future: Read the headlines. Bank failures are not only front and center, when you include Fannie Mae and Freddie Mac, they are historic. Banks need to get well, so I´m not holding my breath waiting for any rate hikes in 2008. With lending choked off, there simply is no mechanism to pass inflation along. Long term rates will go down before they go up, first no  lending, then a recovery that will lead to inflation pressures, short term rates will go down and stay relatively low, and most of the remaining banks will slowly get better. Bank stocks will go up, since they have led the way down. Banks will issue new stock and raise capital. Only after that will rates go up, putting the hurt on the new shareholders. 

February 5:  From November 2007, oil, in dollars, is going to keep going up. (from $80 per barrel in November 2007 to $90 per barrel in February 2008).  Predicted February 5: stay tuned. Probably in a range, fear of recession will bring the price down, political risks keep it up. No clear trend short term.

Now: Oil traded today (October 6) at $87.81. Give the Fearless Forecast an A+!! (If you´ve been surfing nonstop, that´s a joke, folks. From $90 to $147 and back can hardly be called a “trading range”).

Future: Oil is going down! Can anyone say fifty? Then it will go up. But for this forecast, down! On the other hand, maybe you better ask Nostradamus.

February 5:  The dollar probably will be more or less stable. The big move happened last year. Note the probably. Humble.

Now: After remaining stable for over three months, the dollar started rising. All things considered, not a bad call.

Future: As hard to predict as the price of oil, and not unrelated. But with Europe apparently sliding into recession, a continuation of the trend is a decent bet. Dollar rising. Canadians, buy now. You read it first here.

February 5: Buy Costa Rica real estate. In October, the lowest priced two bedroom, two bath condominium unit available at The Oaks was $142,500. In February, the lowest priced unit was $159,000. Prices will rise again by March, and then again in April or May when phase two is sold out. Probably by another 11% or more, which is still below appraised value.

Now: The lowest priced unit available is $185,000. My predictions get better the closer they are to where I live. I actually underestimated the price rise.

Future: Just down the street, a billboard offers competing units at $225,000. Next door, prices are over $200,000. Appraised values are rising because of demand (more airline seats, new hotels) and construction price inflation. And something else. The new 310 room Marriott hotel at Hacienda Pinilla is almost finished and opens in late December. Want a room after Christmas? A pool view one bedroom junior suite at the Marriott will set you back $1,549 a night starting December 26. That´s $9,294 for 6 nights folks.  A pool view two bedroom two bath suite at The Oaks will set you back $1,800 for the same 6 nights. Split it with another couple (two bedrooms, two baths) and that´s $900 a couple.   Prices will go up.

February 5: The U.S. dollar will fall in value against the Costa Rica colon by at least 5% within the next three months, and by 10% or more within 12 months. (The rate of exchange was 493.72 colones/$.)

Now:  The rate of exchange is 550.5 colones/$. Far from falling, the dollar rose by 11% against the Costa Rica colon. I was wrong, wrong, wrong. The after-the-fact explanation is that the Costa Rica government sold dollars early in the year to hold down the dollar´s value against the colon, then was wrong-footed when the price of oil went up. Why? Internationally, you pay for oil in dollars. In Costa Rica, you pay for oil at the pump in colones. So, the country was receiving colones at the pump and sending dollars to Mexico and Venezuela. Result. Devaluation of the colon.

Future: Depends on the price of oil. Oops. Politically, the Costa Rica government is restraining lending, but domestic inflation has soared 15% year over year. Also asking for a favorable subsidized oil deal with Venezuela. Got help from their new political ally, China. Still, until domestic inflation calms down, it´s hard to say the trend will reverse. They have to fix the damage they caused earlier in the year. 600 colons to the dollar or bust. Often wrong but never in doubt.

February 5: You knew it was coming. The time to buy Costa Rica real estate is now. For quality construction and sound environmental design, check out The Oaks.
See you in three months.

Now: Got that one right.

Future: More of the same. See you in three months (Costa Rica time).

If you are interested in vacationing in Costa Rica over Christmas or New Year, be forewarned, prime locations are selling out fast.

There are only a few brand new properties available this year.

I just checked out a room at The Four Seasons, sold out!

I also just checked out a room at the Paradisus Playa Conchal hotel over New Year, sold out!

Pool view junior suites are available at the open-by-Christmas Marriott hotel at Hacienda Pinilla, $1,499 a night for a junior suite overlooking the pool.
Or, two bedroom/two bath condos overlooking the pool are available at The Oaks Tamarindo, $1,800 for six nights, open since Easter.

I have been reviewing our typical unit owner´s electricity costs at The Oaks, noting that a typical bill during July for a fully occupied unit was $67 CAN for the month. When I asked our on-site concierge, Ana Lorena, for an explanation, she sent me our local electric company´s rates.

Electric Rates Costa Rica to Canada

Rates are divided into two seasons, “dry” and “not dry”. Because 80% of Costa Rica´s electricity is generated by hydroelectric power, rates are 25% higher during the “dry” season from January through June. For an average user of 625 kWh per month, the July low season rates cost $67.75 CAN. VOILA! During the “dry” season from January through June, rates are 25% higher, which would result in an electric bill of  $84 per month.
 
So how does this compare with where you live? Here is information from ENMAX for July.
 
Calgary’s Regulated Default Electricity Rate for July 2008

For Immediate Release
Calgary
26 Jun 2008
The default electricity rate for Calgary will rise to 11.99 cents per kilowatt hour (kWh), effective July 1, 2008. Consumers who have chosen a fixed price energy plan will not be affected by this price change.
As a result, the electricity bill for a typical Calgary household (using 625 kWh per month) will increase by 15.5 per cent compared with the previous month to $112.31.

Hmmmmm.

The Oaks would like to direct your attention to an article written by DAVE SHERWOOD for The Miami Herald

Costa Rica’s Environmental Tribunal and scientist’s report illegal developments along the coastline are threatening sea turtles

UVITA DE OSA, Costa Rica — When judges from Costa Rica’s Environmental Tribunal emerged from the rain forest recently, they were horrified.

In places along Costa Rica’s still wild Pacific frontier, rogue developers had slit the roots of ancient trees to hasten their death, clearing the way for ”ocean views.” Primeval rain forest sanctuaries, home to scarlet macaws, jaguars and blue morpho butterflies, had been flattened for luxury home sites. And backhoes had turned rivers chocolate, read the whole article

Costa Rica Gas Prices

I just filled up my car today in San Jose, Costa Rica. Cost for a liter of diesel was 710 colones, equal to $1.26 Canadian.  Looks pretty cheap, eh, compared to a liter of diesel in Calgary, from $1.294 up to $1.469.

http://www.calgarygasprices.com/index.aspx?fuel=D  Whoaaa! Time to fill her up in Costa Rica!

 

Or, how about a fill up in San Jose, California. After some high class arithmetic, the cost per gallon of diesel in San Jose, Costa Rica was $4.82 U.S., compared to $4.95 to $5.39 in San Jose, California. http://www.sanjosegasprices.com/index.aspx?fuel=D 

 

By the way, the car, a Toyota Land Cruiser, gets 20 miles per gallon, crosses rivers and eats potholes – a perfect Costa Rica car.

Where is this maneuver being practiced?

Unless prohibited, a three-point turn may be used to turn around on a narrow, two-way street. You may be required to make one of these turns on your road test.

To make a three-point turn:    

 

1.    Signal with your right directional, then pull over to the right and stop. Signal with your left directional, then check carefully for approaching traffic.

2.    Turn left, cross the road so you come to a stop while facing the left curb or edge of the road.

3.    Check again for traffic. Turn your steering wheel as far to the right as possible, then back up to the right curb or edge of the road.

4.    Stop, check again for other traffic, then pull away from the curb.

 

 

We finished construction on our first 30 condominium units at The Oaks Tamarindo before Easter, and some of our owners already have begun renting out their units. Out of 30 units completed, 5 units are being rented out on either a short term or a long term basis. We are using the 3 units that we are not selling as model units, a home for our manager of guest services, Ana Lorena, and as VIP units for local dignitaries. One of our owners even has set up his own web site.

First, let’s start by stating the obvious. (It makes blogging so much easier.) Renting is extremely attractive from an economic point of view.  Prices are going up while phase two is under construction, making renting an attractive option to cover one’s costs while enjoying the benefits of price appreciation.

We recommend that owners enter into short term rentals whenever possible. Rates are attractive, at $900 per week during the low season, pretty much the same as renting two rooms at the new Best Western Motel one mile down the road. Additionally, an owner can schedule personal and family use during the year, and we can keep a close eye on the unit’s use when it is rented out.

Still, some owners have told us that they believe that long term rentals are more attractive to them, because their income is more stable, and because there is less wear and tear on their units. In our opinion, both beliefs are questionable.

From the point of view of stability of income, the law limits a landlord to only one month’s rent in advance and one additional month’s deposit for damages.  As a nice trap for the unwary landlord or lawyer, a tenant can cancel his lease with three months’ advance notice unless the lease explicitly provides otherwise.  Moreover, a long term lease really is long term. Under Costa Rica law, every residential lease has a term of 3 years (even if the lease itself says otherwise). So, if you enter into a lease for any term (other than a short term tourist lease), you have entered into a three year lease. Combined with the discussion in the following paragraph, think of this as a form of rent control.

 If rent payments are stipulated in a foreign currency, such as U.S. or Canadian dollars, the rent cannot be increased for three years (even if the lease says otherwise).  Only if rent payments are stipulated in Costa Rica colones can the rent be increased, once a year, by an amount equal to the annual rate of inflation, up to 15%.

 This actually is a pretty good deal for the landlord, since the colon is going up against the U.S. dollar, and inflation is running around 10% per year. So, your lease payable in colones will have two nice annual increases in rent, while your lease payable in dollars is fixed for three years.

  What can go wrong? You negotiate a three month lease in October, during the rainy season, for a low rent, payable in dollars. You neglect to register yourself or your company as a tourist establishment, thereby attempting to avoid charging your tenant Costa Rica’s 16.39% sales and tourist tax. You figure, no worries, I am covering my costs, the lease is only until December,  and I’ll raise the rent during the high season. WHAMMO.  An unscrupulous tenant will stick you with the low fixed rent for three full years, during low season and high.  Never mind that the lease says it is for three months. Costa Rican rent control.

What about wear and tear? Isn’t it easier on your unit to have a nice, stable, long term tenant? Well, you own a vacation home, within minutes of the best beaches in the country. So, even though your tenant is a professional architect, engineer or lawyer who lives and works in the area full time,with a wife and no children, he has two parents,  six brothers and sisters,  and20 cousins,  and their families, all of whom want to come visit him at the beach. And there is nothing you can do about that. Do you think one month’s security deposit will cover three years of wear and tear?

KEY POINTS

·         You are better off as a short term landlord to foreign tourists, by and large.

·         If you decide on short term rentals, you should register as a tourist establishment, publish notice of your registration and collect and pay your 16.39% sales and tourist taxes.

Want to learn more, click here!

Ken, a 50-something oilman from British Columbia, suns himself in his pool above Tamarindo, Costa Rica, enjoying sunny 34 degree days. Ken just bought four two bedroom, two bath condominium units at The Oaks, 10 minutes outside Tamarindo and Playa Grande. He plans to rent them out to friends and oil business associates as Tranquilo Village.

Prices at The Oaks already have gone up over 11% in the last three months, and so far Ken has only put 40% down toward his purchase, making a 25% cash on cash return in just three months. Ken also put down a $9,500 deposit on a million dollar, 5,000 square foot villa overlooking the lake and nature preserve at The Oaks. Prices are not even established, but as a preconstruction buyer, Ken has assured himself best price and selection, at a price well under $300 a square foot. According to Ken, buying now, while Marriott and Hyatt resorts are under construction less than 5 miles away, ready for occupancy later in 2008 and 2009, is “a total no-brainer”.

While Ken is thinking in terms of investments, John and Raylene, from Calgary, are looking for warmer weather. John and Raylene own a home in Phoenix, but 15 degree Celsius weather over Christmas convinced them to look further south. They chose The Oaks for its construction quality.  Having spent holidays in Cancun, Mazatlan and Puerto Vallarta, they opted for Costa Rica because they feel safer, the ocean temperature is  warmer, they are safe drinking the water, and they like their ability to own fully titled property, with no discrimination against foreigners. Their teen-aged son, a champion skateboarder, enjoys the local skateboard park.

Ed and Chris, from Toronto, bought into The Oaks for lifestyle reasons. In his mid-50’s, Ed retired from the construction business and was looking for a winter destination where his family feels safe and warm, both in the water and out.

Meantime, we caught up with Robert Irvin, developer of The Oaks, to find out why two thirds of his clients are coming from western Canada. Almost sold out, The Oaks has 96 condos starting from $168,000, less than 10 minutes from five of Costa Rica’s best surf beaches. Based on chats with his clients, and market research, Robert offered us the following thoughts.

“The main thing is that Costa Rica looks good to snowbirds right now. It has a hot, sunny,  dry winter climate, like Arizona only warmer, and with the Pacific ocean. Plus, a hot real estate market that makes investing a lot better bet than in the U.S. right now. Culturally, you are a long way from the U.S., while for convenience, nonstop flights are available direct from Calgary to Costa Rica’s Gold Coast. 

The local property market is fueled by a local inflation rate of 11% per year, high levels of airline traffic, and a hotel boom. Add to this a declining U.S. dollar, which is used for real estate sales, and it is no wonder that an average investment goes up 20% a year. Mix in a Loonie that went up 20% last year against the dollar, and Canadians can take advantage of a fire sale on the U.S. dollar, while buying property in a hot market. You need to pay attention to location, ideally one hour drive or less from a major airport, local climate and beach conditions, which vary, and most of all, quality construction. Pay attention to these factors, and you should do better than the averages.”

On December 14, The Wall Street Journal reported: 

“The housing slump has sent many Americans shopping south of the border. Existing-home prices… are still climbing in much of Latin America and the Caribbean. In San Pedro, Belize, the average price of a 2,200-square-foot home was $697,500 in September, up 18.6% from a year ago, according to a study by Coldwell Banker; the price of a similar property in San Jose, Costa Rica, was up 20.7%, to $389,900, the study said.” That is less than $200 a square foot, higher at the beaches.

From a January 23 article in CNNMoney –

“The worst housing financial crisis [in the United States] in decades is only going to get worse, a Merrill Lynch report said Wednesday. The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.”The contrast today is sharp, at least for the sharp Canadian investor. Invest in property using the strong Canadian dollar, but in a local housing market that is in an up cycle, not a down cycle. For more information on The Oaks specifically, or for general information on the contact info@theoakstamarindo.com.

“It’s tough to make predictions, especially about the future.” Yogi Berra

On October 18, 2007, on our sister web site, www.greensealrealty.com, in Birth of a Blog, I made some fearless forecasts. Worse, I promised to revisit them once every three months. On this web site, on November 25, 2007, I made the following forecast.

November 25: Construction is proceeding rapidly atThe Oaks, as our workers try to make a December 15 deadline that I have set for delivery of the first five buildings in the complex, along with the first swimming pool, ranch and barbecue area. About that deadline. Even though I have learned not to promise anything in Costa Rica with a definite date, it looks like three of the five buildings will be ready.

Now: Wrong…. Wrong…. Wrong. After the torturous process of trying to shepherd Costa Rican workers through the holiday months of December and January, I am wondering whether waterboarding would be all that bad.

Future: Construction appears to be proceeding rapidly at  The Oaks (see Nov. 25), but I am exiting the predicting business on this one. I am hoping that the holiday months of February and March will result in more than progress.

October 18: The United States is in the beginning stages of a recession. Yes, that means that real estate prices are going to

continue to go down. In most of the United States, the best time to buy real estate is not now. Ouch.

Now: I’m a genius, with a firm grasp of the obvious.

Future: More of the same. Real estate moves in long cycles, and this one isn’t long yet.            

October 18: As the recession gets more obvious, the Fed is going to keep cutting interest rates.

Now: Genius again, not so obvious three months ago.

Future: More of the same.

October 18: Oil, in dollars, is going to keep going up. ($80 per barrel). Taxes are going up, because the “temporary” tax cuts set to expire in 2010 are going to do just that, expire. So we will have a continuing recession (tax hikes), falling interest rates, falling dollar, rising oil. Yuck. Until the recession reduces the demand for oil enough and sends the price down again. The price of oil truly is cyclical, although in a long term up trend. And don’t tell me about the Chinese demand for oil. They sell their stuff to the U.S., so as the U.S. gets recession, so do the Chinese. There.

Now: $90 per barrel, down from its highs. Good call.

Future: Stay tuned. Probably in a range, fear of recession will bring the price down, political risks keep it up. No clear trend short term.

October 18: The dollar is going to keep going down.

Now: The Loonie is now $0.99, vs $1.02 in October. After being right for a month, I was wrong. Hold the line. The people from Mensa want to speak with me, they want to what….? No clear trend. The dollar did keep going down against the Euro. Up a little against the Pound.

Future: Probably more or less stable. The big move happened last year. Note the probably. Humble now.

October 18: Buy Costa Rica real estate. In October, the lowest priced two bedroom, two bath condominium unit available at The Oaks was $142,500.

Now: The lowest priced unit available is now $159,000, up over 11%.

Future: Prices will rise again by March, and then again in April or May when phase two is sold out. Probably by another 11% or more, which is still below appraised value. Just down the street, billboard raised prices on a competing development from $178,000 to $225,000. Appraised values are rising because of demand (26% more airline seats, new hotels) and construction price inflation, plus a weaker dollar against the Costa Rican colon (see below).

NEW PREDICTION: The U.S. dollar will fall in value against the Costa Rica colon by at least 5% within the next three months, and by 10% or more within 12 months. This means that it is going to cost that much more to build, or buy, in future. You knew it was coming. The time to buy Costa Rica real estate is now. For quality construction and sound environmental design, check out The Oaks.

See you in three months.