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175 Building and Construction in Costa Rica with Belong Costa Rica's Head of Construction

175 Building and Construction in Costa Rica with Belong Costa Rica's Head of Construction
175 Building and Construction in Costa Rica with Belong Costa Rica's Head of Construction

Podcast Transcription

Transcription:

[Richard Bexon]
Good evening, Eric. How are you doing?

[Eric Corrales]
Every day. Good evening. I'm doing well.

How about you?

[Richard Bexon]
Good. Does it feel weird to, uh, that we work together and you're also on my podcast?

[Eric Corrales]
A little bit. Yes, but I'm very happy.

[Richard Bexon]
Well, I know, I know a lot of people listening to this podcast have worked with both of us before. Um, and you're managing a lot of the guys' projects that are on this as well. Again, you oversee all of our project management, construction here, tons of experience.

So I thought it's smart to get you on the podcast because, um, you know, sometimes, you know, I've tried to get construction guys on here, but a lot of the time, you know, they, they don't really have the viewpoint that you have when it comes to, you know, protecting interests, um, and the advice that you kind of give to foreigners when it comes to developing and project managing here in Costa Rica. So I appreciate you taking the time to come on the podcast with us.

My pleasure, Richard. Go away. Awesome.

Well, I mean, the first question I always like to ask Eric is, you know, we're seeing in North America, a bit of a, maybe not a downward trend, but a kind of a bit of a slowing in the market there. I mean, how is the volume of your work being, which I suppose is my work as well, but like, you know, have you seen a slowdown this last quarter? Like, how has this year been for you?

[Eric Corrales]
Every day, it's been a very busy year. Um, I haven't seen much of a down, you know, on construction as a matter of fact, well, we're getting new clients, you know, so that's, that's good news for all of us. Uh, I think maybe there's going to be like a small down, you know, on construction, but I will think like middle of the year, middle of 2024, because I think there's still a lot of, uh, projects, you know, construction that are starting that they did all the construction permitting process during, uh, this last six months.

So they're starting right now, but so I think there's going to be a, like a down, you know, on construction, but we'll see it like, you know, maybe in two or three, three, four months.

[Richard Bexon]
Yeah. I mean, I agree. Look, I think I'm starting to see it from some of the architects that they don't have as much work as they did do in like, that's usually the first sign for us.

Like number one is the real estate. Number two is the architects, but you know, I mean, with the real estate, sometimes as you never really get the true story from the realtors, of course, I mean, we can see in our data here that like things have slowed down a little bit, but definitely from architects, uh, you know, we can see, cause I mean, they're knocking on our door going, Hey, Richard, you got work for us, you know, which a year ago was not the case at all.

You know, they wouldn't even pick up the phone. So, but like you mentioned something there, which is kind of like the timing of everything. Can you just outline the steps that are involved from like when someone buys a bit of land to when they like finish construction?

Like what are the things that kind of happen in between there?

[Eric Corrales]
Wow. You know, once someone buys a property, basically it starts with all the, uh, preliminary studies, you know, like sole studies, topo studies, contour studies. And then after that, it is, uh, the designing process starts.

And normally those preliminary studies, you know, it will take, uh, like a month and a half, you know, a month, month and a half. Then the, uh, designing process with the schematic and construction drawings, that's like around two months and a half, three months. So we are already four months and a half, you know, into, into the process.

Then comes the, uh, permitting process that you have to go to CFIA and some, uh, government institutions to, to get approval. That's a month normally. So you're in five months and a half.

Then, uh, you go into the municipality to get the construction, the final construction permit, and that's between a month and a month and a half. So basically in order to be able to start construction from the date that you buy the, uh, property that you have to think about six to seven months. And from there, it will depend on the design and the area of the construction, but it's normally between 10, 10 months to, uh, 12 months.

So you're talking that you should be prepared to wait, you know, a year and a half, year and a half to a year, then eight months in order to be able to get your new construction.

[Richard Bexon]
Which compared to some, I would say like in North America and also in Europe is actually pretty quick. Sometimes it takes twice as long as that. So, uh, I mean, I mean, sometimes I'm always pushing, you know, to try and get stuff done in like 15, 16 months, as you're very much aware, Eric, uh, especially with our own projects.

But, um, I mean, I, I think, you know, yeah, I mean, I think that that, you know, 16 to 18, 19 months timeframe, depending on again, how complicated the design is as well, you know, that design process can sometimes expand out the Sophia and the mini stuff is kind of pretty fixed, you know, in the studies, the front end studies, the topography source study, but I think it's that design process, um, you know, and also the architect that you work without some architects take forever.

They take a lot longer, um, you know, and that's where we kind of help out by putting, uh, you know, uh, meetings, uh, which they love of course, of like delivering art in a set period of time. Um, but I think it's important for people to just know kind of what that, what that layout is. Let's talk about construction a little bit, because again, you know, the design phase of construction documents is all handled by architects and engineers, but like when we get into, you know, construction here, there are different ways to kind of bid a project, you know, what are those, what are those different ways that you, that you bid upon it, Derek?

[Eric Corrales]
Basically, Richard, are you, when you do a bidding process, you, you can decide to do like a cost plus that is basically, you know, the, the cost of your materials and labor plus a percentage of an administration that the, uh, the construction company will, uh, charge the client. So that's one of the options is a cost plus the other one is like a fixed price, you know, where, or fixed price or hand, uh, or keen hand. Okay.

But it's basically, uh, you set up or you, this, uh, how to say, like you establish a fixed amount for the construction, the whole amount, the whole construction. And at the end, you know, the construction company will just give you a, uh, the keys of the house and you're ready. You don't have to worry about anything.

Uh, both have, uh, benefits and, you know, how to say like cost plus normally what we do in order to have our clients on the safe side, you know, is that we have a, it's a materials and labor, you know, it's a variable, but we fix the percentage of the administration. So since the beginning, that's a fixed price in order to like, for example, like if the construction gets delayed. So the amount that, uh, the, the client pays to the construction company for the administration, it's going to be the same.

So like that, we can guarantee the client that our construction company will not delay the process on purpose in order to get more money. And of course we'll sum that up. Yes.

Yes. Yes. Uh, like we've seen it, you know, we've seen that case.

So that's why we, we like fix the price. Of course we do have a really, a very tough construction contract that some of the companies that we invite, you know, they don't like, we have had the cases, you know, where someone declines to participate in our bidding process because we are here to protect our, our clients. And that's our main goal.

And the other, uh, you know, the other, uh, construction, uh, contract is, uh, a fixed price where basically the, the, the owner knows from the beginning how much the construction is gonna cost. Uh, but there's the down part of that, you know, of the, of the, uh, fixed price is basically the, uh, there's some variables on like, on the government, like the exchange rate, you know, that it had been impacting Costa Rica a lot. We're going to be, we're going to, we're going to rule the world.

We keep like this, you know, the colonists are getting stronger than the dollars. Never will be buying oil.

[Richard Bexon]
We'll be buying oil in colonists and in gold. Yeah.

[Eric Corrales]
It'll be, you know, but well, that's something that it had never happened before. So we had a fixed contracts that at the end, the contractor company came to us and say like, Hey, look, guys, we cannot continue with the contract unless we, you know, sit down and, uh, basically do an analysis of what to do with the exchange rate, because it's really impacting them. You know, like it, it was a different of a 20%.

So in a fixed pride of, of a million dollar contract, you know, you're talking about $200,000 that they, no one, no construction company has it, you know, right there sitting on the bank, just waiting for something like that to happen. So at the, at the end, it's a fixed price that cool have some variations due to, uh, major, uh, issues like the exchange rate. So those are like the two type of contracts, you know, that, that, that we manage basically.

[Richard Bexon]
Yeah. I mean, look, I think that what we found out over the, the, the variation here, the exchange rate is a fixed rate contract is not really a fixed rate contract. Like, because I mean, and we put in now that like, look, if there's a variation of 5% positive or negative that we go back to the table and we, um, you know, that we chat, because again, it needs to be a win-win scenario here in all circumstances.

And I think that everyone understands that meaning that like, it can't be that like, Hey, construction company, you know, you set a fixed price contract here. Like, I'm going to make you do this, whether you like it or not, well, they'll just walk away from the job. So, you know, it needs to be a, it's a relationships where both need to win.

But I think one thing we found is I think a lot of clients have comfort in fixed price contracts, but really is with exchange rate at the moment, fixed construction companies are padding it so much that it's really not in the benefit of the client to do it. It's better to do a cost plus and probably have someone sit on top of it like us or someone else that's watching everything for them, if that makes sense. And really pushing those efficiencies with that plus of the cost being a fixed dollar amount, rather than a percentage, meaning if they finish in eight months or they finish in 10 months or 12 months, it's the same amount of money for them.

So they're incentivized to finish quicker. So, I mean, where at the beginning we were pushing clients to more fixed price contracts, I think it's more now we understand of like, look guys, fixed price is not fixed price. Like we can get pretty close to the estimation here, but you guys need to understand that there's going to be a buffer here with the exchange rate.

So I think there's more risks now for both parties not knowing what it's going to be in construction than there ever has been. But we just make sure that like, again, or anyone listening, just make sure that there's those balances within your contract that I would say takes care of both parties because both should win. It shouldn't be a win-lose or a lose-win.

It should just be a win-win or lose-lose, if that makes sense, unfortunately. As we found out.

[Eric Corrales]
Yeah. And as you say, a lot of construction companies are now moving into the cost-plus. They don't have the fixed.

No, no, no. As soon as you talk to them, they're like, yes, but cost-plus, that's what we're going to bid on the projects.

[Richard Bexon]
You know, actually this brings up a question. I mean, I've seen a lot of stuff on Facebook, I say Facebook, not that I spend much time on it, of people showing a house that's a pretty nice house and saying that they could build for like, you know, $1,200 a square meter, like a beautiful house, is Eric. And I see it and I just go, oh my God, there's no way that you could build that.

Well, you could build that house if you own the construction company, like, and you know, there was no profit or anything on it. And you really hammered down and we're not using great materials. Like you could probably get it down to that, but give people an idea, you know, from a medium scale house, what the cost per square meter is to like a really high end kind of like scale house based on, you know, what's the cost per square meter, Eric?

Because a lot of us, a lot of what people ask. Yep.

[Eric Corrales]
Like a middle, you know, middle house, middle range house. I will say that it, at this moment, it's something between, you know, 1600 to 1800. That's where it should be per square meter.

Exactly. Now we're moving to, into, you know, like a high end house that's going to be over $2,000, you know, that's, that's going to be like around $2,200 and it could go up to $2,500 easily. You know, it just depends on finishes, you know, at the end, you know, it's funny because a lot of people, you know, it's like, okay, let's reduce the area of the house because like that we're going to reduce the cost, but then they come in and decide to use like very expensive finishes and that's, that's not going to lower your final cost because at the end finishes, you know, that's, that's easily 60, 65%, you know, of a cost in a high end house, you know, it's very expensive, you know, it's, it's very expensive.

[Richard Bexon]
What are some of those finishes, Eric?

[Eric Corrales]
Well, you know, I've seen houses, you know, people asking, you know, for, you know, like floors, you know, like use the tavern thing, use marble type like that, used like, what about windows? I saw that like windows, you know, like use like high end windows that you can easily be like over $150,000 and more, you know, for, for just the windows of the house. What else, you know, like finishes on the walls, you know, just use stucco or, or a special finish for the walls where you can use like paint that it's like really nice paint.

So, wood, you know, like people using wood all over the house, exposed wood, you know, that also increases the cost there because it needs, it, it's expensive at the beginning and then it needs a lot of maintenance too. What else, you know, like they over, you know, having like a lot bigger spaces than what they need, you know, like bigger bedrooms where, you know, you don't need bigger bedrooms in Costa Rica. You need to have like really nice outside areas, bigger outside area, bigger terraces, but not interior spaces.

You need to, you need to have like normal spaces, comfortable spaces, but not big enough. You know, here in Costa Rica, we spend 80% of the time outside. That's why we have a

[Eric Corrales]
Really nice climate, you know, a lot of sun, so basically you are outside always. What else?

[Richard Bexon]
AC.

[Eric Corrales]
AC, yes, that's an important point too. There's a lot of clients, you know, that they decide to use like a central unit for the whole house. And first, it's very expensive, you know, and also it's very delicate because if you have a failure, you basically have a failure all over the house.

So if you have guests, you know, you're not going to have a comfortable area for them. So what we normally recommend, you know, is to just use independent units for each area. You know, it's less expensive and it's also, you know, thinking of maintenance, it's a lot simpler.

[Richard Bexon]
Yeah. Are there different parts of Costa Rica that it's cheaper to build in than others, Eric, in your opinion? Meaning, is it cheaper to build in the southern zone or Hachao than it is up in Guanacaste that might be different in San Carlos than different in San Jose?

And why?

[Eric Corrales]
It is, it is different, Richard, yes. And we have, we found out, you know, that there's at least, I would say like 20 percent, you know, 20, 25 percent difference depending on the area. But also what we have, you know, what we have found out too, is that there's different qualities in the different areas, you know, so you are able to find, you know, to find like a lower cost, but the quality that you will receive for that lower cost, you know, you will see it too.

So at the end is, yes, there are areas where you can build for a lower cost, but you need to really be on top of the builders in order to not have any surprises at the end.

[Richard Bexon]
Eric, we take on a lot of projects sometimes where, you know, the construction company just can't get it done, if that makes meaning. There's just, it's disorganized, it's running off the rails, it's over budget, etc. I mean, in the beginning, when people are interviewing construction companies or considering companies, what are some of the questions that they should ask and what are some of the warning signs, do you think?

[Eric Corrales]
Well, you know, like in anything, basically in life, you know, when something looks like to be like a very good opportunity, too good to be true, basically, you know, you need to be aware. I think it's important, you know, that people, when, you know, a construction company tells them or gives them a number, you know, to ask them to detail that number, because normally something is not included, you know, and we have had a couple of experiences there where, you know, a client come, you know, came to us saying like, look, there's this company that is going to build us, at that moment, it was like, I think, $1,250 square meter for a house that we were telling them that it was going to be like around $1,700 at that moment. So I talked to the, I chatted, you know, to the construction company, and I asked them to please detail their, you know, their numbers. And while they were not including furniture, they were not including, you know, like, well, fixed furniture, they were not including some of the finishes, you know, that we were requesting to the rest of the construction companies.

And, you know, as a matter of fact, that same company at the end when, you know, when they level their quote to the rest of the bidding quotes that we had, the rest of the bids, when we send them the construction contract, they quit the bidding process. They just like, they didn't continue. So I think it's important, you know, to ask for their experience.

Of course, I think it's important to ask for clients to talk to and be able, you know, to just ask them, you know, like, you know, where were the hard things with this company? You know, where were the headaches? Because there's always going to be headaches in any construction.

You know, like, the person that comes and say like, hey, look, don't worry, it's going to be like smooth, and it's going to be a really easy process, you know, don't, you know, they're lying. There's no way that a construction is not going to be stressful. There's no way that a construction is not going to have problems.

All of them. Because all of them are very different. You know, there's not like a recipe for construction.

So that's why you need to like oversee the construction like seriously, and always have like a really good communication with the construction companies.

[Richard Bexon]
Yeah. Yeah. I mean, I mean, you said that oversee the construction company.

I mean, whose job is it to oversee the construction company, Eric, like to make sure that they're doing like everything correctly? Well, not everyone has project managers, right?

[Eric Corrales]
No project managers. Well, if you don't have a project manager, then the design, like the professionals, you know, that design the construction, you know, the ones that do the construction drawings, they are, they're responsible to oversee the construction, and make sure that the construction company is doing the right construction. So the technical direction, that is the responsibility of the construction that that is a responsibility of the construction company, but the supervision, that's the responsibility of the professional that did the design.

So they are, they are the ones, there's no project manager, they are, they are the ones that need to be at least overseeing, you know, that things are being done correctly.

[Richard Bexon]
But Eric, we found in some things that even sometimes those people overseeing the construction, you know, do not have the experience to oversee the construction, I mean, and they've never been in construction, meaning they're in the technical drawings, etc. But like, bending rebar incorrectly, or like just small stuff like spaces, you know, between, you know, the molds and the rebar so that when it's poured, it's not pushing out. And like, it's if you're not there every step of the way, and know what it is that you're talking about, I mean, there can be stuff that can be hidden, right?

Because those and those guys are not there every week.

[Eric Corrales]
Correctly, correctly. And, and, and that's why you need, you really need to trust your construction company. And that's why it's very important to find out, you know, a construction company that you feel very comfortable with.

And that's why it's important to at least, you know, talk to at least three different construction companies before you decide, you know, to select one. Yeah, it's a relationship, you know, it's, it's a it's a long relationship, you know, because at the end, as soon as you have like, the construction is finished and done, you know, at least for a year, you're going to be in contact with the construction guys. Yeah, that's for sure.

Because yeah, small things are going to appear, you know, and cracks are going to show, especially in Costa Rica, you know, that we're a very cyclic country. So, and, and, yeah, things like that, you know, the tropic.

[Richard Bexon]
So Eric, that's some, let's just talk here a little bit about payments to construction companies, because that always comes up, you know, I mean, we've had people before would be like, yeah, I put like 25% down on the first day of construction, and the guy did a little bit of work and walked away, or I put 50% down. I mean, what's your suggestional recommendation of people when it comes to payments?

[Eric Corrales]
I will never, I will never give, I will never, will never give more than 15%. I think that's 15% should be an enough, you know, enough for someone to start, and then any payment should be done according to the construction progress, basically, you know, you should not give any money, any money in advance, you know, that it's a big percentage. There are some subcontracts like Windows, normally Windows, you know, that they request 50% down payment in order to proceed.

But normally, what we'll, you know, what we'll do is, we'll give like a, like a smaller percentage, and we'll go and see on their shop, you know, as soon as they have like the material, and they're starting to work in the project, you know, then we approve to do a second payment. So at the end, you know, you cannot be very confident, you can, you have to always think that something could go wrong, you know, it's not that people is thinking, you know, to, to need to take advantage of anyone else, but something could go wrong. So it's just like a matter of protect yourself, basically, you know, but see like down payment, no more than 15%.

[Richard Bexon]
I think people just need to understand if there is no recourse. So if you send money, and you've lost it, like just imagine that that you there's no recourse, meaning if you were to put 25% down, and that disappeared, and you never heard from that construction company, again, there is very little recourse, guys. So you just need to be careful of like feeding it a little bit in time, you know, I mean, I think if you're there every single day, it's easier, like when you're in country, but if you're outside the country building, you know, you just need to be really careful.

And I mean, we've seen it with big developers here as well, Eric, where like, you know, they've asked for huge deposits down or final payments, and the place is not ready. I mean, how many jobs have we had where we're just basically being the auditor of work? You know, a lot, a lot.

And then the companies come to us after and say, Hey, you guys did such a good job. Can you now work for us and making sure that everything is done at the standard that's necessary? We're like, yeah, we can as long as you're willing to pay us.

[Eric Corrales]
Exactly, exactly. Yeah. I don't know, it's, I don't know why people, you know, people trust a lot of in Costa Rica.

And I'm sorry, and I'm not saying that we're, you know, that we don't, you don't have to trust us, you do have to trust that, you know, we are, we are very good people, you know, but I don't know why, like people comes to Costa Rica, you know, and they just like, think that everything here is, you know, perfect. You know, we are really cool guys, and we are Pura Vida. Which you are.

Yeah, we are. Yeah. But it's business, you know, and at the end, as you know, as any business, you, you have to be careful, basically, you know?

Yeah. Yeah. Yeah.

But I will say that I will say 90% of the time, everything is going to be okay. Yeah. Everything is going to be fine.

You know, you will not have a problem. But there's always a 10%, you know?

[Richard Bexon]
Yeah. So. Okay.

Well, my last question for you, Eric, because I've kept you long enough, which I'd love to ask everyone, if you inherited $500,000 and had to invest it in a business or real estate in Costa Rica, what would you invest it in and why?

[Eric Corrales]
Wow. Good question.

[Richard Bexon]
You can't say you're going to give it to me, dude.

[Eric Corrales]
Well, that's what I will do. Yeah. I will invest in the fund.

No, no. Well, you know, I will, I will. I think I will look for an opportunity, you know, to invest that money in, in a development, you know, in construction, in remodel, do something with it, you know, and, and because that's of course what I do.

Yeah. And that's what I like to do. So I will try to do something like that.

But also I will look for someone like you, you know, that you have like a really good eye on, on, you know, businesses and things where to invest money. You always have like a really good idea how, what to do with money. So.

[Richard Bexon]
Well, it's worked so far. I mean, what about locations though, Eric, where would you, where would you invest? Which locations do you like?

I mean, we get to travel the whole country, do projects. We get to see everything coming, which of the locations for you where you're just like, that's just great. That's just a really solid place.

[Eric Corrales]
I always say, I will say Tamarindo and around Tamarindo. I think it's like number one. And the second, I will say South Pacific, you know, Ohochal, around Ohochal, not even in Utah.

I will say Ohochal and around Ohochal. Those will be my top two.

[Richard Bexon]
And you basically look to go into development and build something or remodel something?

[Eric Corrales]
Depends on the opportunity. But I will try to look for a really good opportunity of land and I will develop it. Yeah.

Do something new and then, you know, put it on the market.

[Richard Bexon]
Cool. Well, Eric, it's been an absolute pleasure getting you on here. Anyone that has any questions about construction, I'll put all of Eric's contact details in the description down below.

If he has time, he'll answer it. I know he's running around like a headless chicken to all these projects. But no, it's been an absolute pleasure getting you on here, Eric.

I can't believe this is the first time that we've had you on the podcast, even though you and I have been working together nearly two years. It'll be soon. I appreciate you sharing your wisdom with us.

[Eric Corrales]
Hey, my pleasure, Richard. You know, I'm very happy to share all my knowledge and please reach out. I'll be more than glad to respond.

[Richard Bexon]
Awesome. Happy holidays. Hey, you too.

[Eric Corrales]
Catch you later. Okay. Bye.

Let's Get in Touch!

We receive valuable guidance and insights from Erick Corrales, the Director of Projects at Belong Costa Rica, on construction and building practices in Costa Rica. He provides advice on optimizing your construction, strategic budget allocation, project bidding, choosing the right contracts, and various other aspects.

Contact us: info@investingcostarica.com
https://meetings.hubspot.com/jake806/crconsult

Guest today:
Erick Corrales: erick@investingcostarica.com

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