When Really Cheap Isn’t A Good Deal

This week I was forwarded information about cheap lots on a Caribbean island. Prices start at US$7,550. That’s an attention-getter, right?

In fact, this sounds-too-good-to-be-true offer (like every such offer I’ve come across in more than 17 years seeking out international real estate investment opportunities) is just that–too good to be true. Here’s why.

Property this cheap generally falls short on the three characteristics I look for in any property
investment–location, size, and infrastructure.

In the case of the Caribbean lots that came across my desk this week, upon closer inspection, I saw that we’re not, in fact, talking about Caribbean lots. These lots are on an island in the Caribbean, true, but they’re far from the sea.

They also lack infrastructure. There won’t be any beyond an access road and electricity. Once the road is in, the developer says it’s up to the town council to maintain it. And, in fact, the developer isn’t providing electricity. He’s putting up poles. The electric company, he suggests, will have to come behind him to string the wire and flip the switch.

Finally, these lots are really small–1/10th an acre. That is 418 square meters, or 4,500 square feet.

The developer suggests you might want to buy more than one if you intend to build a house.

Bottom line, I’m not sure you’d want one of these lots if someone offered to give it to you free, not once you factor in all the costs you would incur to hold and maintain the lot…nevermind the costs associated with actually trying to build on it and live in this development.

The property is well outside the town services area. Therefore, you would have to provide your own water and wastewater systems.

To be fair, the developer covers these issues openly on his website. In fact, he seems to be more up-front than most foreign property developers I’ve had experience with over the years. Still, you’ve got to know how to interpret what you’re being told.

Would-be owners are advised that their best option for potable water would be to catch rainwater and store it in a cistern. That can work, but, again, you’ve got to factor in the costs to the price of the lot to be able to make a fair comparison to the price of a lot in a development where central water is being provided.

In addition, you’ll have to install a septic system to deal with wastewater. Again, fair enough, but, remember, your lot is only 4,500 square feet. You don’t have a lot of space to work with. Plus, this is another cost you need to add to the price of your lot if you want to make a comparison to the cost of a lot in a development providing central waste water (note that few do in Central America).

So how do you compare prices for lots in different developments where the services and amenities vary greatly? You essentially have to do your own appraisal. Start with the lot price, add in the costs of the extras you’ll have to provide yourself (for example, water and wastewater), and then divide the total cost by the number of square meters being purchase.

Let’s look at another example, two developments I know on the coast of Panama. One is a master-planned community with full infrastructure and amenities. The other is a basic lotification providing road and electricity.

The lotification project is selling ocean-view lots at US$30 a square meter. Average size of 3,000 square meters, meaning average lot cost is US$90,000. While owners have access to above-ground electricity in this development, you have to make the connection to the nearest pole yourself. You also have to drill your own well or design a catchment system for drinking water. You have to install a septic system. And, if you want Internet, you’ll have to provide that, too. In this case, that means a satellite system.

The total cost for these services would be about US$15,000, meaning your US$90,000 lot would, in fact, cost you about US$105,000. That is, US$35 per square meter as opposed to the US$30 advertised. That’s almost 20% more than the list price, all told. And, in this case, you still have no amenities (no clubhouse, central pool, restaurant, etc.) and no direct access to the beach.

The master-planned community on this same coast is selling lots for US$44 a square meter. Included among the amenities are central water, central wastewater management, underground electricity to each lot, paved roads, and central Internet access. In addition, the plan calls for a clubhouse and a long list of other amenities. Plus, this property includes about a kilometer of beachfront, to which every lot owner has direct access.

On the other hand, amenities and services must be maintained. In the planned community, you’ll have higher HOA fees than as an owner in the lotification, where the only thing to maintain are the dirt roads.

I mentioned above that I probably wouldn’t want one of these “Caribbean” lots if someone offered it to me free. The associated hassles and carrying costs wouldn’t be worth it.

I was being flip, of course. A super-cheap lot like this one could make sense for you, depending on your circumstances. My point is to be sure you know what you’re really buying and what it’s really going to cost you, all told. Make sure you’re compare apples to apples, one location to another, one property to another, as best you can.

Lief Simon www.liveandivestoverseas.com

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