167 Investing in Costa Rica v Mexico and the USA with TLA Financials Services Managing Partner

[Richard Bexon]

Good morning, Frank, how are you doing?

[Frank Busch]

Great, great, great to see you, Rich, again. 

[Richard Bexon]

Exactly, man, exactly.

As I said, I've been trying to get you on the podcast for a while. I know you guys have been very busy over there. I think the last time we did a podcast was probably two years ago.

[Frank Busch]

I think it was. It was at least two years ago. We were actually looking at it again.

Thanks for having me.

[Richard Bexon]

No, not at all, not at all. Well, the first question I always love to ask, Frank, I mean, again, you have visibility into the US, Mexico, and also Costa Rica. As some economies worldwide are kind of stalling, I mean, what do you see happening at the moment?

And how is your business, what is the trend this year? Is it still pretty strong? How does it compare to 2019?

Just give the listeners an idea of what you're seeing kind of happening in the market.

[Frank Busch]

Yeah, I would say that 21, the second half of 21 and first half of 22 were all-time highs for many, many businesses, for lots of people, for M&A in the US. I mean, sort of globally, like real estate was obviously at massive highs because then really the rates started to jump significantly in the summer of 22. Our business continues to be very strong in Costa Rica.

It's strong in Mexico as well. I think you have seen that the high end of the US buyers and maybe Canadian buyers as well too, they have cash. I mean, people came away with a lot of cash from after COVID, during COVID, etc.

If we're talking about foreign buyers. So we have continued to see strong interest in Costa Rica. The volumes have normalized, I would say.

I thought that they would drop off more than they have, to be honest with you. And they have not. They've continued to stay strong.

There's always a seasonality in our business, in just sort of when the season is for high time for people to buy. But overall, we've actually seen strength. We continue to invest a lot of resources in Costa Rica.

We think that's just an incredible market for us. But Mexico has seen strength as well. So I wouldn't say that.

We have, just so you know, we have a big project in Belize that has been slower and more muted. But that's mostly because of the project itself. And there's just not nearly as much going on there.

We have a couple of different things that we're working on in Panama, Honduras and Nicaragua. But those are much, much smaller overall for us than Costa Rica and Mexico.

[Richard Bexon]

I mean, if you were to join, if you were to create a pie chart of what percentage of your business says Costa Rica versus Mexico and these other countries, what would it look like?

[Frank Busch]

Today, it's about 65 to 70% Costa Rica. So that is a really big shift for us in the last four years from what was dominated, the business was dominated by Mexico. There are a whole lot of reasons, I think, for that.

But honestly, I just think that's what our business looks like today. I could go into lots of different reasons as to why I think it's changed. But it's meant that we've continued to invest in making sure that we are at the top of our game in Costa Rica and want to continue to stay there.

And we're still, there's plenty of market share to gain for us there.

[Richard Bexon]

If you were to compare 2019, you said that it's kind of normalized. But if you were to compare 2019 to 2023, do you think that it's a lot higher than 2019?

[Frank Busch]

In terms of my business or just overall, the transaction volume?

[Richard Bexon]

Yeah, I mean, in transaction volume, your business, just to give people an idea, because I think what everyone's trying to get an idea at the moment is, okay, we had this craziness, like 2021, 2022. Now, 2023, like things are starting to normalize. We're seeing it in tourism data.

We're starting to see it somewhat potentially in real estate transactions. But how does that compare to what normal is? Because really normal was 2019.

So how does it compare to 2019? Here's what I think happened.

[Frank Busch]

And I don't think this is slowing down. COVID hits, work from home, work remote, all of that takes off, right? And so people all of a sudden were able to go move and do work wherever they wanted, right?

Whether it was a place in the United States, was it places abroad. I think Costa Rica and Mexico both benefited from that. There's no question.

But Costa Rica, obviously, is a much smaller country than Mexico. And it's also a lot further behind in terms of where the overall development was bringing in just sort of tourists. I mean, mainstream tourists or high-end tourists that wanted to have a second home, whether we were considering a second home or even moving.

So I do think that COVID lit the fuse on, it blew up, really. The fuse was lit and then it really blew up. But I think what happened is now you've seen people, whether they're doing work from home, work remote, half and half, whatever, people are certainly able to be more flexible in their sort of working deal.

And Costa Rica was discovered. It's not like it was not discovered before, but I feel like it's been discovered in a much different way now, just based upon anecdotally conversations I have with people in the United States. Mexico was already there.

There was no question it was already there. Do additional developments took off in Mexico? You see a lot of action in Cabo, especially on the East Cape.

You've seen more north of Puerto Vallarta, north of Punta de Mita in Mexico. But all up and down the Pacific coast in Costa Rica, I feel like, has just, you know, it's like everybody knows about it. Now, to a certain extent, more places than others, right?

Of course, as you can imagine. But that trend, I don't see stopping. And that's what's really interesting is it's like, okay, it became discovered because a lot of people moved to other places.

But I think that actually has real staying power in that now you hear people in the United States and you see tourism magazines and you see other things talking about the wonders of Costa Rica that, you know, and you put that against the backdrop of some of the, frankly, the violence and the cartel action in Mexico. I think it's just become more and more, it's snowballing. I mean, I think the snowball effect is real and I think will continue to roll for Costa Rica.

That's my opinion.

[Richard Bexon]

Yeah. And I mean, look, if the demand continues, the suppliers can never keep up really in Costa Rica. It's very difficult to develop here, as we both know.

So yeah, it's going to be very interesting over the next, you know, kind of year, two years to just see what happens here. Because I'm seeing exactly the same thing that you are, which is that like, again, pre-COVID was a lot of retirees, you know, kind of looking at Costa Rica, snowbirds, those kinds of things. But now we've got more people, families moving here, it's now a location where people are looking to relocate.

[Frank Busch]

I don't disagree with you. I mean, it really became much more mainstream as a destination than I think it was before. And consequently, mainstream as a destination to look at, you know, for second homes and or complete relocation.

[Richard Bexon]

Yeah. Hey, I mean, we get, you know, we get Elon Musk's Starlink, you know, this month. So something must be going right.

That's right. So, well, let's change gears a bit and talk actually about escrow. You know, I think it's great to get a, you know, your viewpoint on kind of what's happening in the market.

But like a lot of people, actually the other day, working with a client at the moment where he was like, hey, the real estate across the document, which basically says I got to deposit, you know, $17,000 directly into the seller's account. You know, we were like, nah, nah, nah, nah, nah. Like you need to use escrow, dude.

So, I mean, when should people use escrow? And when shouldn't they when buying in Latin America? Because I'm sure that you've like had a lot of experience in this, but like just to educate people is like, when should they use it?

What is it? And, you know, kind of what are the advantages of working with you guys?

[Frank Busch]

Yeah, I would say, generally speaking, escrow is growing throughout Latin America, whether it's foreigners transacting or non-foreigners transacting. You know, before escrow is a very American, you know, kind of concept. But it really, we just provide a third-party service where it's, you know, we can help assure the dollars are going to the right place between the buyer and seller.

And candidly, the realtors like it more than anything because it makes sure their commissions get paid. It's great. That's a huge part.

It protects everyone. It protects everybody. It really does.

Whether it's deposits that are going in on the front end as earnest money or deposits that may be used for development dollars for a developer, it protects all of those things. And so we've seen, you know, the growth, I think, in the demand. What we're starting to see is all of the major areas are familiar with the concept, right?

Major areas throughout Latin America, but let's just talk Costa Rica. Very familiar with it now. But you're starting to see smaller areas that maybe did not use it and still were sending direct deposits to sellers, for example.

Or even some realtors would handle it, which I think is a big no-no. Generally speaking, for a realtor, you don't want any of that. At the end of the day, you just want, you know, you want a successful sale and to obviously get paid for work.

So I think we're starting to see it catch on in areas that just, frankly, we're kind of further behind probably is a good way to describe it in terms of the overall transaction processing.

[Richard Bexon]

So yeah, I mean, I had to educate a seller the other day on escrow and what it is, you know. But a lot of people, like, again, Costa Ricans, Costa Ricans aren't used to escrow. Like, it's usually like they sit down at a table, a cashier's check or a money transfer happens, and that's how, you know, it happens.

But then as the buyer, I'm like, there is no security that I have that when we get to the closing table, that, like, the property's still going to be for sale because someone else could just come in and buy it. Like, if I have a sales purchase agreement that says we're buying this and closing in 30 days, I'm doing my due diligence. And the money sits in escrow knowing that here's my commitment.

Seller, you can see the commitment. Like, it just keeps everything a lot cleaner and smoother.

[Frank Busch]

Yeah. I mean, there's no question. I don't disagree.

Historically, you've seen, you know, domestic transactions in Mexico, Costa Rica, you know, most other Latin countries are done exactly the way you just described or some variation of that where there isn't an escrow company involved. But I think what we've seen with the growth of, obviously, foreigners buying in these countries is they're very used to it, right? It's the only way that really real estate gets transacted in the United States is with, generally speaking, title insurance and an escrow company providing services, intermediary, fiduciario services.

But you're starting to see it more and more. And people are just understanding, you know, the benefits of it, even, frankly, domestic, you know, just purely domestic transactions where you don't even have a foreigner involved. We're handling some of those now at this point.

Yeah. And, you know, the other thing that I would just say to, you know, jump ahead on your question, what's really happening right now in our world that is scary, hot button, whatever you want to call it, is cyber fraud. The cyber fraud stuff has been real for years and years and years.

But, you know, every day these thieves wake up and are trying to figure out how to be one step ahead of the game. And what has happened the most, no question, is that people who do not have dual authentication on their email servers or do not have, you know, if you're just using Gmail, if you're just using, you know, Yahoo or AOL or whatever it is, it's very, very, very easy to hack for these guys. And so consequently, and by the way, these thieves know who the people are they're transacting.

They're not looking for the buyer and the seller who may do a one-off deal. They're looking at the real estate agents. They're looking at the lawyers.

And so I would say that the real estate agents are the most vulnerable because generally speaking, you know, the lawyers have obviously confidentiality duties and oftentimes are investing more in my, from what I see in the IT systems and in security of the IT systems versus, you know, as well as I do. You can show up in Costa Rica and there's many people that become real estate agents and, you know, there's no licensing. There's no, it's nothing.

It's just a sort of, so I oftentimes try and caution the real estate agents and say, look, you should just assume that your email's hacked. You should absolutely assume that your email's hacked every day. And until you invest or you figure out how to make sure that, you know, you're working with an IT company and you're investing the dollars to do that, you should assume that you're hacked.

And so you're, you know, my thoughts to you, you know, that you should be talking to your clients about whether you represent the buyer or the seller is, look, we need to be extremely diligent about where and how we are sending out any wire instructions or you're wiring any money to any wire instructions because that is where we are finding the sort of the biggest weakness spot. And we've thwarted a number of cyber attacks this year already, or essentially fraud attempts is really what it is. And so that's probably the biggest area that I would just caution people.

We saw it 10 or so years ago in the US. I mean, this is not, this is something that all, I mean, title companies got burned on. Realtors got burned on because it was the same thing.

The realtors in the US are doing the same thing. I mean, there's a bunch of them that have Gmail accounts and Yahoo accounts. And that's okay.

I mean, look, I'm not telling them they need to go invest thousands of dollars in IT security that they may not have or that may not be feasible or practical. So, but I mean, look, they should, but you know, that's my take on that. Cyber fraud is very, very insidious.

[Richard Bexon]

Well, I mean, it's pretty easy to just put two, you know, two-factor authentication on something that you have to like, okay, you might need to put an authentication code in every so often, but like, or an SMS kind of, you know, code, you know, so, you know, I get it all the time of like, hey, Microsoft single sign-on. Hey, please, you know, change your password here. And I'm like, come on, man.

I haven't requested anything. Like if I haven't personally requested something, I just ignore it and delete it, you know? But yeah, I agree.

You know, cyber fraud is, it's incredible. It's insane, you know? So, I mean, let's, you know, people have options when it comes to using escrow, okay?

I think you guys are in a unique position than some companies here in Costa Rica. I mean, what is the main advantage of using TLA over say a local escrow company?

[Frank Busch]

Yeah, so we are not, we're not regulated by SUHEF. That's first and foremost. We have, in fact, written a letter to SUHEF.

We've hired counsel in Costa Rica and we have a letter from SUHEF saying, based upon your business model, you don't have bank accounts here in Costa Rica. You don't have offices. You don't have employees.

You are not required to be regulated by SUHEF. Okay, great. And that to us is really, really important in terms of helping facilitate transactions with foreigners that, you know, look, if you, if a Costa Rican escrow company or a bank in Costa Rica asks, you know, a foreigner for bank statements, tax returns, very, you know, detailed personal information as it relates to trying to figure out source of funds, that can often be a massive turnoff for buyers that are foreign because that is not how things are done in the United States. They're not, it's how things are done in Canada. And so for us, I think part of the reason that we've really taken off is that we're able to, to, you know, let's say it's a transaction between two Americans, an American developer, an American buyer, our level of due diligence as it relates to, you know, what we have to do.

And we're regulated by the Texas Department of Banking. So we have pretty massive regulation compliance in the United States that we have as it relates to insurance and net worth and surety bonds and reporting and anti-money laundering. It's a mini banking regulation sort of regime that we have to comply with here, which is substantial.

So, but at the same time, the KYC is much more minimal. It's US style KYC. So it makes it much easier for us to be able to handle those transactions without, I think out sort of scaring off buyers.

I mean, that's really what we've heard from both buyers and agents and lawyers is that they get scared off by it. Now, at the same time, we've really adapted to make sure that in cases where there's going to be money going to Costa Rica, and that's a lot of our transactions now. I mean, it's probably 35 to 40% of those deals.

Oftentimes it may be just commission dollars or lawyer payments going. Sometimes it may be a payoff if there's a Costa Rican seller, which could be a much larger amount of money that goes in. We have tailored our due diligence requirements to make sure that if there is, the last thing that we wanna do is have funds sent to Costa Rica and those funds cannot be liberated from a Costa Rican account to get to a seller or to get to a real estate agent.

Those are all bets. So we've really tailored our due diligence requirements as it relates to KYC for these buyers. If we know that there's gonna be some money going to Costa Rica, we sort of know that upfront.

We tailor those things. And the other thing is we really tell the buyers, look guys, you're sending this stuff to us on our servers in the US. It's held in, here's all the systems and the IT stuff we've invested in.

It's confidential. It's not going anywhere. It's not gonna be shared with anyone other than if we need to use it to liberate some funds with a bank in Costa Rica, we'll share with them, but you have to know that going in upfront.

So that's kind of what the landscape looks like for us today is it's very minimal KYC. If there needs to be enhanced due diligence, which is what we'll call it, I think we make it really easy and confidential for the buyers to provide that to us.

[Richard Bexon]

Yeah, I mean, it's interesting because a lot of the time I have clients where we do multiple deals together are like, Rich, can we please use TLA? Like just the due diligence, like they've done, they've used an escrow company here in Costa Rica. And I'm always like, guys, they're gonna wanna know what your shoe size is and what your waistlet, like they go really deep on stuff.

Because again, as you mentioned there, Suhef, which is like our SEC here requires them to go that deep for anti-money laundering. Whereas again, if you've used some like TLA is that like you're in the US, the money is in the US, it's just staying in the US. So the requirements are different.

And a lot lighter, especially for US citizens. So you just need to, I think that the seller just, or the buyer needs to know if like, look, extra documentation is gonna be probably requested and required by the banks here. Because as soon as they receive $100,000, they're like, dude, where did this come from?

And you're like, well, it's this real estate transaction. Okay, show me source of those funds.

[Frank Busch]

Yeah. The other thing that I would say that's really that we've gotten down to now is we've done so many of these deals with all the Costa Rican banks. And so lots of them have many satellite offices all over the place.

And some of those satellite offices, frankly, they all kind of act independently in many ways as it relates. We have to kind of go over this, but we've got letters from our bankers in the US. We've gotten on the phone with them.

We have had $0 held up now in Costa Rica banks. And I can say probably the last year, we have not had any issues getting anything liberated. And part of it is our process of kind of maybe collecting some of this due diligence on the front end if we know the money is going to go.

But the other piece is we've just gotten very used to knowing exactly what the Costa Rican banks want to know and want to see. Granted, they all may have a little bit of different take on what they want to be sometimes. But generally speaking, it's like, look, we've got our little checklist.

And 98% of the time, we're going to be able to get those funds liberated very quickly without any sort of additional hassle that nobody's even going to know that was happening behind the scenes.

[Richard Bexon]

Yeah.

[Frank Busch]

What are fees for escrow, Frank?

[Richard Bexon]

People always like to go, well, how much is escrow going to cost me?

[Frank Busch]

Yeah, so our fees, I mean, I think we're quite reasonable compared to what our competition is. We started $1,000 in Costa Rica. For larger transactions, they'll run up, but we don't charge a percentage of deals.

And generally speaking, in every transaction, most of our clients are, a lot of them split it. They may be split between buyer and seller. Obviously, that's all negotiable, how those fees are worked out.

But generally speaking, we're charging $1,000 per file. And that's really all that kind of, if there's a whole lot of wires or there's a whole lot of extra work. Yeah, I mean, that may be different, but that's basically where we're at.

[Richard Bexon]

Yeah, very affordable. I mean, whose side is escrow on during the transaction?

[Frank Busch]

Neither side. We are Switzerland. And we tell people that all the time.

Our job is to be impartial. We are a third party. We have fiduciary duties to both sides.

And so we don't represent buyer. We don't represent seller. We don't represent the people that send us, generally speaking, the people that refer lots of work to us.

It's a developer client, which would be a seller. It's lawyers, it's real estate agents. Even though they refer a bunch of work to us and they're primarily the people that we get our business from, we tell them very, very clearly, guys, we don't represent you and we don't represent anybody else in this transaction sort of more than one of the others.

Our job is to make sure that we act as a third party, independent fiduciary and make sure that the deal gets closed. And in the event that there's a dispute, we have to figure out what to do with that as well too, which is never pleasant for us, never pleasant for anybody. But at the same time that happens and that's the nature of our business.

And we've been doing it for a long time and understand certainly how to kind of navigate those waters when things come up as well.

[Richard Bexon]

I mean, you guys are literally just following the sales purchase agreement. Like what it says in that is like, we are following that. Like that's what you guys have instructed us to do.

Both parties have agreed to do that. That's what we're following.

[Frank Busch]

Right, that's right. We have no dog in the hunt, right? We're not making more money or making less money or anything else.

We're just trying to make sure that what the parties agreed to is what they're gonna get.

[Richard Bexon]

Yeah, yeah. What are some of the major challenges that you think are ahead for Costa Rican real estate?

[Frank Busch]

Look, I think the challenge is ahead. One is infrastructure. I think that there's just challenges around infrastructure, generally speaking.

We've talked about things like water, roads, municipal infrastructure. I mean, I think all of those things, as I've toured around the country in the last year to two years, there are places that are super in demand and that just don't have the infrastructure. There's a lot of places like that.

And I'm not even talking about airport infrastructure. At this point, I mean, that's... So those are not necessarily specific to...

I mean, they're specifically impacting real estate. I think the other thing is pricing has just gotten... There's been a real run-up in pricing.

Now, part of that was COVID, right? All of a sudden, you just have a lot of people looking for property, looking for opportunities where they can buy and you don't have inventory. So part of it is that's just sort of run up there.

I do think that... Look, we're in a recession here in the United States in real estate. There's no question.

Some places are faring better than others. I sit in Dallas, Texas. That's where I live.

The state of Texas, the state of Florida, the state of Arizona, they've all been beneficiaries of migration from COVID from higher tax deductions in places like California. Consumer is going to be impacted. It's been a real estate recession because of rates because rates just jumped.

They doubled and in some cases tripled depending upon what you're doing. So I do think the consumer is going to be impacted. I just don't know how much of that is going to impact ultimately people's ability to buy in Costa Rica, which is generally speaking happening in all cash.

And so as cash gets sucked out of the system and there was obviously incredible stimulus, trillions and trillions of dollars in the United States alone, you're sucking out cash because student loan payments are having to be made again. You're sucking out cash because profits are just not as high. People are not making money in real estate as much anymore because low rates meant that they could go out and sell high and then just go buy again and with essentially very low rates.

So I think that those are all things that I would say could impact real estate there.

[Richard Bexon]

Yeah. It's going to be very interesting the next couple of years kind of what happens here because typically we are 12 to 18 months behind you guys. But our market is different here.

I mean, you mentioned that the infrastructure slows development, which means that there's not an abundant supply and you can't create it really quickly. And especially in areas like Guanacaste where the water infrastructure is just not there to develop a new subdivision or develop condos, those things. So I think as long as tourism numbers stay strong, which they appear to be, we're moving cyclical, that demand is still going to continue to be there.

Again, it's going to be very interesting. I don't think we're going to see this drop off that we saw in like 08, 09, but I think there's definitely going to be a slowdown and some price adjustments, especially in areas that aren't key areas, main key areas.

[Frank Busch]

I think that, I mean, and this is a little bit anecdotal and this is me reading the tea leaves, but I do think that Costa has become the darling of Latin America for tourism. I absolutely believe that the snowball is just going to continue to roll down the hill, which is great news. I think for people there, I think, but I think that's happening.

I mean, I think that it's going to give a much larger country like Mexico, it's already giving Mexico a run for its money in terms of some of the, just look at some of the really high-end stuff that's happening in Papagayo and Discovery Land and the World Historia Project and other things that are going on in Tamarindo, not to mention things in Manuel Antonio and that sort of part of the country. There are, that was not happening. That didn't, that wasn't going on four or five years ago in the same way that it is today, not even close.

So that just generates buzz. It generates buzz and publications amongst tourism. Oh, well, you understand probably better than I do, but you can see it out there now.

And I think that people's eyes are opening in ways that they never were before. And I really do think it's become the darling sort of of Latin America. And it's, the more accessible it can be from a, being able to fly there and get there, we'll only increase that, so.

[Richard Bexon]

Yeah, I mean, I agree. I think we're just getting started. I always say to people like, find the most expensive room in Costa Rica and compare it to Mexico and Hawaii.

Like we're still somewhat cheap for high-end travel. Yeah, I agree. So, well, my last question for you, Frank, is I've kept you long enough.

If you inherited $500,000 and had to invest it in business or real estate in Costa Rica, what would you invest it in?

[Frank Busch]

That's a good question. I've been thinking about this since you sent it to me the other day. I think that I would, I'd be investing in Huatacosta because of the airport.

And I don't know exactly where and what development or what I would buy or how I would buy, but I'd be investing, you know, probably in and around real estate or real estate services businesses in Huatacosta. So that's my honest answer.

[Richard Bexon]

I had one this morning, which was, there is no company that I know that can really inspect septic tanks and leachy fields. I know it's not a clean business, but like no one's doing that down here. So all these home inspections are happening.

People are buying these things and like just having faith that their septic tank infiltration system, you know, their leachy fields are fine. You know, again, not the most beautiful of businesses, but like there's a business there.

[Frank Busch]

I think there's a lot of businesses that can be done like that. You know, the other thing that I actually thought about the other day was storage, was self-storage. And it wouldn't just necessarily be in Costa Rica, but I think the idea is, and we're invested a lot in the self-storage businesses in the United States and self-storage properties.

So I understand it pretty well. But I do think that there's opportunities to service that growth that's happening, whether it's inspection of sewage tanks or think about other contracting businesses that people need, you know, that isn't necessarily just general home construction or general pool construction, which, you know, there's lots of people that do that. And I think some good ones that do that.

Can you improve upon that? Yeah, of course. But think about some of the little side lights.

You know, you very much could be onto that. So, all right, let's find one and I'll put my hand up.

[Richard Bexon]

Well, Frank, I always love to start a new business. So my guys in my office sometimes are like, oh, what's it this week, Rich? You know, but anyway, really appreciate you coming on the podcast, chatting with you.

I'll put all of your contact details as well as TLA's details in the contact description down below. But again, really appreciate your time, buddy.

[Frank Busch]

Okay, thanks so much, Richard. Grab me on. Awesome.

Take care. All right. See y'all.