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197 2024 Costa Rica Investing & Real Estate Market Update and predictions for rest of 2024

197 2024 Costa Rica Investing & Real Estate Market Update and predictions for rest of 2024
197 2024 Costa Rica Investing & Real Estate Market Update and predictions for rest of 2024

Podcast Transcription

Transcript:

[Richard Bexon]
Nothing but again, it's not, it's not live anyway, but I always love podcasts with you because there's no BS. So I'd said that in the introduction, I was just like, it's always an OBS podcast with Dan. So this one should be a good one.

[Dan Caput]
I sometimes I like to be a little bit of a contrarian. And also, you know, there's a lot of people trying to sell their own stuff. And that's okay.

You know, sell your own stuff and everything's great. But sometimes it's better. People will use you more or you'll have a lot more credibility if you're just honest about it and say, you know, things are not that great right now, or this is what's happening.

This is what we're doing to change it. And I think that's a lot more valuable than, you know, people know, people can tell people know what, you know, what's happening in the housing market and the luxury housing market or the destination housing market or interest rates. It's all over the news every day.

So most people know, right? Yeah.

[Richard Bexon]
I mean, you know, I mean, I'm sure realtors are going to fucking hate me, which I'm sure a lot of them do anyway. Like this couple I spoke to this morning, you know, I was just like, I know they're realtor. And I was just like, look, I wouldn't do it.

I think it's too much of a risk for your first project in Costa Rica. I might just like, are you doing this just for money? And they were like, yeah.

I was like, just buy something Oceanview in Tamarindo and do it. Your land price is going to be the same, your build cost is the same. But like if the market contracts, at least you can cash flow it.

[Dan Caput]
Yeah. I like Grande.

[Richard Bexon]
I like Grande way more than I like Tamarindo. I get that. But I'm like from a from a ease to flip flip from an ease to rent Tamarindo just is a thousand times easier.

Right. You know, you know, Playa Ventanas has like some of the best stuff does like 55% occupancy, the best stuff at like six, 700 bucks a night average daily rate, whereas Tamarindo is like double the average daily rate and its occupancy is up in the seventies. You know, so I mean, just a ones and zeros pure, you know, not even thinking I love Grande.

Don't get me wrong. Like if I was like, if I was to move, yes, Grande I would happily live it. But for a business investment, it's just so much easier in Tamarindo.

But anyway. Yeah. Cool.

Well, I'll pause, say good morning. We'll get started. Okay.

Deal. Do you prefer Dan or Daniel? Dan's better.

Okay, cool. Good morning, Dan. How are you doing?

Hey, Richard. How are you? Good morning.

Good. I appreciate you taking time to come on the podcast. And as I always like to say, give us a no BS kind of view of what's happening in the market here in Costa Rica.

[Dan Caput]
Yeah. But we were speaking a little bit earlier. I think there's a lot more value in being honest and transparent than sort of rosy glasses and it gives more credibility.

And that's what I like about you as well.

[Richard Bexon]
Yeah. I mean, look, I think there's always bias whenever you talk to anyone, we always have bias. I think you just need to always understand that.

And I say that, you know, your product in Costa Rica is only as good as the team that you have on it. Absolutely. Yeah.

Having the right people is always key. Definitely. Well, I mean, give me a perspective of kind of what you're seeing happening.

You know, I mean, markets basically, I mean, you know, doing pretty well at the moment. I mean, we've got some inflation issues up north. I know real estate is slowing down.

I mean, commercial real estate seems to be taking a spanking in North America, of course. But I mean, what are you specifically seeing happening here in Costa Rica? And especially when it comes to kind of like your private lending business?

[Dan Caput]
Yeah. So private lending is not a bad barometer. I think when you look at the U.S., a lot of times when you're looking at real estate numbers, you're looking at housing starts, you're looking at mortgage applications, you're looking at, you know, all these other things that are a precursor to selling homes or a precursor to real estate in general. So I like to use some of the lending numbers and the things that we have here. This year, 2024, our inquiries have dropped a solid 50 percent from 2022 or 2023. The last couple of years, it was so strong that we had to turn off our advertising and almost hide to keep people from trying to find us much work.

And now, you know, we actually have to work for it. We need to start advertising a little bit more. We're doing some revamps to our website, close to private loans dot com.

We are starting to reach out to different builders to see if they're having some challenges that we can help them finish, maybe reach out to some realtors, businesses, some small hotels. Do they want to do some revamps to their properties? Do they need to add a pool?

Do they need to do 100, $200,000 worth of improvements? We can do this for them very quickly, a lot of times better than a bank can do. So we're having to be a lot more proactive now than reactive.

[Richard Bexon]
Yeah, I mean, it's I definitely think the craziness of 2022, 2023 is over. I mean, we definitely are seeing a slowdown. I mean, tourist numbers are still raging, like the number of tourists coming to Costa Rica is still doing exceedingly well.

And I don't think that that's going to stop. I think just this availability to cash that, you know, I think it was like 23% of all cash had been printed over the last three or four years. I mean, some of that is now, you know, it's now being sucked back up or invested elsewhere.

So I definitely think that's slowing down. Is it better than 2019, which is where I kind of see the watermark, if that makes sense, the real watermark, like, is it better than 2019? Because I look at 2022 and 2023 and go, we're on steroids, man.

But going to the pre-steroid era, you know, of 2019, how are we doing compared to that? And it's still better than 2019.

[Dan Caput]
Yeah, you mean for tourism or building or sales or?

[Richard Bexon]
I think more for tourism, for sure, because I think tourism really kind of drives a lot of the real estate as well. But I mean, I think we're not going to see that craziness of 2022, 2023. And I think we're going to see, you know, I think the markets were overheated here in Costa Rica.

And I think we're starting to see a return to, you know, more, I would say, you know, favorable purchase prices in some areas.

[Dan Caput]
Yeah, I totally agree. There's got to be some value there. And even though Costa Rica is different from the U.S. or it's different from Canada, you know, where most of our tourists and, you know, new residents or, you know, new business owners or purchasers come from, it is a different market, but they're still going to compare it to back home, right? They're going to be saying, you know, what can I get in, you know, different places in Florida? What can I get in, you know, these other places for an equivalent price? And when you say, hey, you know, I'm sort of out in the middle of nowhere paying the same that I would pay in, I don't know, Fort Myers, Florida, or, you know, pick your location.

That is going to make a difference to them, you know, numerically and emotionally.

[Richard Bexon]
Yeah, it's going to be an interesting 2024. I mean, look, we've got more products available, more houses coming online than ever. You know, we do have a lot more tourists coming in as well, but we're also seeing a return to seasonality.

I mean, you know, April and May were not as good as they were the last couple of years, you know, this year, still better than 2019, but not as good. And I say that from a, you know, from a hotel occupant.

[Dan Caput]
Yeah, no, I agree with you with seasonality. I was talking to some, yeah, I was talking to, there's a couple of different people that I check in with. There's different barometers, right?

So sometimes you ask a realtor, sometimes you ask people in tourism business, whatever it is. Just yesterday, there's a boat captain who's a neighbor of mine. And I like to check with him because he runs a lot of tours out of Los Sueños.

And I said, Luis, you know, what's going on? And he says, bro, you know, it's a lot slower than it was last year. And I'm like, hmm, you know, maybe not the canary in the coal mine, but one element to look at that things are slowing down and occupancy rates.

And, you know, when we go to different locations, we were in Monteverde not long ago, there weren't that many people that we saw staying where we were staying. And, you know, it didn't seem to be a mad rush like the last couple of years.

[Richard Bexon]
Yeah, I think we're just seeing a return to seasonality. You know, it's returned to the seasonal pattern that we had pre-COVID, you know. What do you think the rest of 2024 is going to look like for real estate in Costa Rica, Dan?

[Dan Caput]
I really think it's going to be pretty slow. Macro reasons and micro reasons are pretty much behind that. So like I mentioned before, what can you get as an equivalent in the U.S. or Canada? If you're looking for a warm tropical location and you want a two-bedroom, three-bath house, you know, if it's a $500,000 house in Costa Rica that you need to pay cash for or a $500,000 house, you know, somewhere in a nice location in Florida to finance and get tax breaks and all these other things, you know, which are people going to choose? What's going to be a better ROI, especially with higher interest rates? So I think it's, you know, based on almost equivalent pricing for almost equivalent homes, not exactly the same, it should be slower.

There's a lack of good, affordable options that are a good value. Or if you can get good, affordable options at a good value, people have these asking prices that are so unreasonably high that it scares people off. You know, maybe, you know, somebody's willing to sell a house for $500,000, but they have a $1.2 million price tag on it, so nobody even bothers to call. And those are a lot of things that will go through 2024. That and there's an awful lot on the market for sale.

[Richard Bexon]
Yeah. Yeah. Look, I agree, dude.

I think that we've got the hangover. We're in the hangover, if that makes sense. We had a great 2022, 2023, kind of the party times.

And I think 2024 is basically we're going to have to return to some form of normality. I mean, I still think there's opportunities out there and opportunities are going to rise if you know what it is that you're doing. And I mean, I think that that's the difficult part of a lot of people come here wanting to invest, just don't have perspective.

And it's very difficult for them to get perspective as well.

[Dan Caput]
Yeah. When you talk about perspective, something that I kind of came up with that I like to share with people, just because I'm conservative, like to stay on the safe side of things. You know, people come down and I go, you know, it's the next big thing.

You know, we're just getting started. And I'm like, OK, yeah, that's fine. I think it's a great country.

I'm a citizen. I have a good, positive, long-term perspective, of course, as well. However, I like to use Austin, Texas as a barometer because it's not a grossly overpriced city like New York or Los Angeles or something like that.

And everybody knows it. That's the Costa Rican economy. The entire country, the GDP is half the size of Austin, Texas.

Right. So take that 10 of Austin, cut it in half, and that's the size of our entire economy. When you're looking at some of these opportunities, just keep in mind just how small it is.

Right. This is not a big place with a whole lot of access to to different opportunities and capital. You need to be really sharp and really on point when you're looking for business opportunities.

[Richard Bexon]
I agree. For me, it always comes back to cash flow, which is, you know, I try and buy stuff that I know that's going to cash flow well, so that, you know, that's why sometimes I just don't like land banking. Like I buy land, but I want to put something on it that's going to cash flow straight away, just because, again, otherwise it just sits there.

And I have no idea whether it's going to appreciate or not. And it's stuck. And the ability to have it generate cash or to resell it, it's just so much more difficult.

[Dan Caput]
Yeah, absolutely. And people put, they're putting silly prices on their land as well. Correct.

And they're pricing it to where there's no deal left for the next person, right? So they're pricing it for the maximum possible, you know, crazy person might want to buy who just won the lottery, but they're not thinking about the average person who wants to convert that into cash flow. For the next person, if you really want that thing to sell.

[Richard Bexon]
So, I mean, I think we're getting an idea of kind of what's happening. And I agree with you on what's going to happen in 2024. You know, I mean, I'm excited just because I think opportunities are going to arise.

And there's opportunities that also have good cash flow. But I do think that there's, well, a slowdown has already happened. You can just see it.

I mean, the amount of just like the words fire sale being used or cuts, those kinds of things, which, you know, price reductions, those kinds of things. We'll see them all the time. Yeah, price improvement.

Sorry. Yeah. But let's change gears a little bit.

I mean, how do private loans work in Costa Rica and who are they for and who are they not for then?

[Dan Caput]
So private loans, traditionally, we try where we have completely changed the way that private loans traditionally worked here. They've been around a long time. These are hard money loans in the US and Canada.

But traditionally, private loans have been used as somebody with some cash taking advantage of somebody else who's in a bad situation. I don't like to do business like that. I don't like the risk with my own money.

So what we've done instead is we focus just on very high quality borrowers who need some cash quickly, who happen to be real estate rich and cash poor. And we want to loan to people who are only a good risk and are going to take that money and use it to make more money. So it's safe for the borrower.

It's safe for the lender. At the end of the transaction, everybody's happy with it. So it's just one individual loaning to another using real estate as collateral.

They're good if you can make more money with something. They're good for short term loans. You can pay it back in three years, maybe max five years.

Because it's important to remember, private loans are expensive. They cost more than bank loans. They definitely cost more than mortgages in the US or Canada.

So you want to be very careful with it. We try to keep everything around 12% if we can. What are they not good for?

A lot of times, they're not good for purchases. Because most people are looking for a longer term 10, 15 year mortgage that they can pay off little by little. Most people can't pay off a big chunk of money in three to five years.

For a longer term loan, a traditional mortgage, we almost always refer to La FISE, Max Zuniga there. Because there's a lot of different people who are offering a lot of different mortgage products. You see them advertised.

You see them on Facebook. I've called a lot of these people. I don't really see a whole lot of value in what most of them are doing.

A lot of them will take a bank product, and they just mark it up and make it more expensive and more difficult. Sometimes they're rather confusing products, whatever it is. So we try to be the very best for private loans.

We want to have the best rates. We want to have the best service. We manage it long term, not only for the borrower, but for the lender.

If somebody has some taxes due, if they have banking issues and weren't able to make the payment, we'll walk them through those processes. But it's a product that should be a last resort. Number one, you should check your loanability in US or Canada first.

That's always going to be less expensive. You want to use a traditional bank if you can. If those aren't available, we're probably the best resource for you.

[Richard Bexon]
Yeah, I mean, again, people always balk at that. They're like, oh, 12%. And I'm like, guys, that's not like a normal here in Costa Rica.

Banks are about 11%, right?

[Dan Caput]
So after they adjust, they'll start out with a teaser rate, like 7.5%, 8%. But what it normally is somewhere between 5.5% to 6% plus the 30-day inner bank rate, which averages out to right around 10.5% to 11%. So we're a little bit more than the banks, but we don't have a prepayment penalty after the first year.

And you can pay it off quick, right? So I'll give you a good example. We had a gentleman buy a really nice house in Cocoa.

It was a million and a half dollar house. He had a million dollars. He needed to borrow half a million.

And then he was retiring and getting his retirement funds in the next couple of years, could pay it off right away. That's something where you can use it for a purchase. Something we've been doing a lot, Richard, is when builders or anybody building a home, they get towards the end and they just run out of money.

This can be for a lot of different reasons. A lot of times it's the exchange rate reason, the cost of materials, a builder walks out on them, anything, somebody robbed other stuff, whatever it is. And they're just missing 100,000, 200,000 in order to finish that build.

We can do those very easily.

[Richard Bexon]
Yeah. Yeah. I mean, I think it's probably lower risks for you guys in that final stages as well, just to kind of get it over the finish line.

[Dan Caput]
Yeah. So a private lender is a very risk averse person. Yep.

Because our upside is capped, capped at generally like 12%, our downside is pretty big. Even if we have the ability to foreclose just like a bank would, we don't want to take to a legal situation. So we're looking at as low risk as possible.

So we will not do a build from the ground up. Unless it has windows, doors, roof, and electrical, we won't do it. We see some other companies and some of the other competitors trying to get funding for something that's like just the concrete foundation and some metal sticking up.

I would never fund anything like that. It's super dangerous for a lot of different reasons that you don't have control as to what's going on. And not only is it dangerous for the lenders, dangerous for the borrower as well, because they're already getting indebted at a relatively risky stage and it can go bad for everybody.

We never want anything to go... We prefer to never do business than to be in a situation to where it could go bad for anyone.

[Richard Bexon]
I think that's a great ethos to have within your business as well. I know that it's a very gray market, but I think that you guys make it very black and white and are very honest with people as well. People always joke that Costa Rica is a sunny place for shady people, but I think you're one of the good guys.

So hence why you're on the podcast.

[Dan Caput]
Thank you. There's a lot of shadiness in Costa Rica. There's a lot of lack of transparency.

And yeah, but because of that, there's a lot of opportunity as well.

[Richard Bexon]
Correct. Talking about that then, where do you think the opportunity is going to be in 2024? I mean, you know, the market is overheated.

We're coming kind of off this drunken rampage of 2022, 2023. Where is the opportunity going to lie?

[Dan Caput]
I think long-term about the real estate market. A lot of these people who maybe... ...on a short-term rental. When we loan on a short-term rental, one of the things that we're really looking for is that going to be able to be converted into a long-term rental to where they can start getting some cashflow. There's a lot of demand for long-term rentals, especially in the hotspots and a complete lack of inventory. And the short-term rentals are some of the things that have run up the prices like crazy.

So I think long-term rentals and mid-term rentals as well. We have some clients who will do three months at a time, both the landlord and the renter. You know, we see things on Facebook groups all the time, for example, where people are like, hey, I'm coming for two months.

I'm coming for three months. Where can I stay? And so that's too expensive to do an Airbnb and long-term rentals don't want to do that.

For those people who are looking for it, but something else is the landlord or the owner of the property in this case, what they can do is they can have different prices for different seasons. So they can have a green season rate, keep that occupied during the green season. And then they can hike up the rate for high season as well for those people who want to come down and check it out.

Market and I'm sorry, midterm and long-term are what a lot of people should be looking at if they lock in vacation rentals.

[Richard Bexon]
Yeah. What areas of Costa Rica do you think are going to be hit hardest in 2024?

[Dan Caput]
There are, I don't know how much, there's geographic areas, right? So I think some of the geographic areas that are really overheated and have just ridiculous prices, I seen a sorrow with people trying to sell it at seven, $8,000 a square meter when people know that it costs them 2,000 or 2,500 to build. Those are going to be hit hard.

But I think there's a lot of, I don't know if it's the sellers or the realtors that are doing this phenomenon, but there's a lot of badly overpriced homes. Selling as if they're brand new homes, that's going to be hit hard. If something's not a brand new, well-built, really nice house, you shouldn't have the pricing on there that's thinking that somebody doesn't know the difference between a light construction house or a concrete block house or good materials versus bad materials.

So I would say the people that are hit hardest are going to be the ones that are overpriced. You had a guest on a couple of weeks ago, I just forgot his name, down there in Evita, who's a builder, and he said he's looking for 20%, 25% return on his builds. He's going to be great.

The people are looking for 100% return, they're going to be hit.

[Richard Bexon]
Correct. I think that making easy money in Costa Rica is not easy. You've been down here long enough, so if you know what it is that you're doing, yes, you can make money here, but you just really need to know the market and really understand it.

And in coastal areas, it's all driven by tourism as well. So, yeah, I mean, it's going to be an interesting year and I think there's a lot of opportunity out there. I mean, what product do you think is still missing in Costa Rica then?

[Dan Caput]
In my world, there's a product that's missing, a good reason why it's missing, and that is developer or building financing. Everybody's looking for, it's probably the biggest inquiry that we get all the time. I don't know, 10, 20 times a week, we get somebody that's like, hey, I've got a piece of land, I need a loan to build or develop it.

We won't do it because it's too dangerous. There's so many things that happen. There's the water permissions, there's the light permissions, there's the cost of developing, there's people who are new and don't realize just how difficult that is.

So it doesn't really exist, but there's also a very good reason why it doesn't exist, which is it's just too risky for the lenders.

[Richard Bexon]
Yeah, I mean, again, I have probably one or two conversations a week with people that are like, hey, I've got this land that I'm looking to develop or I'm partway through this development, Rich, and I'm like, look, I think I've only done one partnership beforehand just because I'm not going to jump into bed with someone I don't know. But yeah, I mean, it's a long project developing here in Costa Rica. I mean, it's not, I mean, take a look at all the projects in Costa Rica.

I mean, even small ones, there are ones out that have been around for 20, 30 years and still aren't finished and sold. So, but it's also, what's going to make you different? Like, and again, it comes down to cashflow is, okay, people build homes, but like, how are you going to cashflow that and keep it moving?

Because otherwise, like, look, Hacienda Panía pre-pandemic was a ghost town. Yep. You know, like it was a ghost town.

Lots were $80,000. It was a ghost town. No one was ever there.

Today, lots of $500,000, people are living there and moving around, but it took the pandemic for that to happen. So another pandemic, fingers crossed, is not going to happen anytime soon. So like, are you willing to ride that whole thing for the next 20 and 30 years, depending on the size of your project, of course, but it's not, I'm going to have this done in five years.

Why? Because as you come back to it, the financing is not readily available to people.

[Dan Caput]
Yeah, exactly. So with those things, we tell people that, you know, we won't do it. We don't know anybody that will do it.

Banks won't do it, unless it's a special situation in Central Valley. You know, their best option at that point is an equity partner. Yep, exactly.

[Richard Bexon]
Exactly. Well, okay. This has been great, Dan.

I'm sure people are loving this podcast of kind of getting an idea of what's happening in the market here. But my last question for you, I love to ask everyone, if you inherited $500,000 and you had to invest in a business or real estate in Costa Rica, what would you invest it in and why?

[Dan Caput]
I love this question. So part of it goes to what we were speaking about earlier, which is how there's so many opportunities because of opaqueness, a lack of transparency and people just having, you know, ridiculous pricing. For those who are able to, you know, sell something at a reasonable price and still make a buck, there's plenty of opportunity.

But on a bigger scale, there's two ideas that I kind of have that I think are pretty interesting. And it also kind of boils down to a lot of people in Costa Rica are used to overpaying for things. Pharmacies are big business here.

Yeah. Pharmacies overpay like crazy. I mean, the prices are nuts at pharmacies.

If somebody were to be transparent and have a pharmacy that was a true discount pharmacy that showed what their cost was. Mark Cuban is doing this in the US at a very large scale. So you say, this is my price.

This is my markup. They deliver it to you to make it cheap. This is what my competitors are charging.

And you show exactly what your markup is. And you say, we are the very best option. And then, you know, take that and you can apply it to any industry that you like.

There's a lot of opportunity there to make money through all those companies that are trying to make a quick buck or trying to overcharge. If you simply show honesty and transparency and everything, there's a lot of opportunity there.

[Richard Bexon]
Yeah. You said there were two though.

[Dan Caput]
That was one, right? The other one, a 24-hour mechanic shop. You and I are in the Central Valley.

So we can probably relate to this. You drop off your cards ready three or four days later. There's a lot of unreliable mechanic shop.

But if there's 24 hours, so say you drop it off in the morning, as long as they can get the parts that you need, they stay, you've got three shifts, 24 hours a day. And they're working, you know, 24 hours to get that done. They have it for you ready the next day.

Instead of three days later, that would be a hit.

[Richard Bexon]
Wow. I never even thought about that. My brother-in-law was a mechanic and he was like thinking about moving to open up his own mechanic shop up there.

I'm like, dude, you'll be full of work, but making it 24-7 could be very interesting.

[Dan Caput]
It's a thought. I'm a car guy, I like cars. So I've had that one in the back of my mind for a while.

[Richard Bexon]
Awesome. Well, two great ideas. Dan, again, thanks very much for your team.

And I think for your time, sorry. And anyone that wants to reach out to Dan and get in contact with him can. All of his contact details will be in the description down below.

But appreciate you taking the time to come on the podcast, sir. Thanks very much, Richard. Have a great weekend.

You too, buddy. Bye now.

Let's Get in Touch!

Dan Chaput of Costa Private Loans updates us on what he sees happening in the investment and real estate market here in Costa Rica. He describes why the market is contracting, and we discuss where we think the opportunity will be in 2024.

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

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