How to Invest in Latin American Real Estate (Without the Gringo Price)

When it comes to making money on real estate, sometimes it pays to think outside the box. Or, in my case, outside the borders. Of the United States, that is.

When my business partner and I first packed up and moved our families and livelihoods to the Latin tropics, we found ourselves in a situation where we literally had to reinvent the way we approached real estate.

Things down here weren't like what you see on HGTV or even House Hunters International. The Central American real estate market is a completely different animal. Different players. Different rules.

It took a little getting used to, but we've finally gotten the hang of things and really found our sweet spot when it comes to scouting out great deals on land, timing our investments, and marketing them to the right set of buyers for maximum profit.

Here are a few things we've learned along the way.

1. Forget everything you know about the U.S. real estate market.

All of it. Central America is a totally different ballgame. For starters, there's no MLS (and no alternative to it). Real estate professionals don't have any way of sharing information, nor do they really care to.

Forget market comps. They're useless. Prices are all over the board and many of the same things that equate to increased value in the U.S. mean little to nothing down here.

What does all this mean? Buying and selling land in Central America requires a lot of ingenuity. But that's a big part of what makes it so rewarding (in both the abstract as well as on the bottom line).

2. Find a totally new framework for valuing properties.

This reality was a tough one coming from North America. So in the absence of reliable market comps, I needed something else to help me wrap my head around how to determine what a property is worth.

What my partner and I came up with was a system of categorizing land areas into one of 5 stages that all emerging markets down here seem to go through on their way from rural land to bustling expat hotspots like the island of Roatan, Honduras.

We like to buy in places that are in the earliest phases, where the land is only worth whatever its agricultural value is to the local community. So what if it's on a cliff overlooking the Pacific Ocean on one side and a lush tropical valley on the other side? If the locals' only use for it is grazing cattle, then it's worth just the same as a comparable property 5 miles inland.

In addition to understanding where land is valued currently, we also learned how to spot signs that it might be transitioning into one of the next phases and what we needed to do to make a profit at that key point in the process.

3. Build a team of professionals you can trust.

Because the Central American real estate market can be a bit tricky, particularly to foreigners, it's best to approach it with backup from folks who've been around the block a few times.

It's kind of like how a new head coach chooses his coaching staff before he even does the first minute of recruiting or practicing. There's much to be done, and you'll fare best if you delegate much of it to others who specialize in those areas.

For instance, a good attorney who has experience with international real estate transactions can save you a lot of time, headache, and even money when investing in land overseas. They can help with things like researching the title and other legal aspects of the transaction that would take a newcomer months to figure out on their own.

Let me emphasize once again that last phrase about trust. Because the mere fact that someone claims to be qualified or licensed to perform a task isn't enough credibility to add them to your staff. Ask around for referrals and interview multiple candidates before choosing who you're going to work with. Go with your instincts. If slick-talking Bob from Costa Rica comes across more like a souvenir vendor in realtor's clothing, run.

4. Get creative with your property search.

This has, by far, been one of the most fun challenges I've faced while working in real estate in Latin America. Having no MLS system, it turns out, means that we've been on our own to scout out properties.

Forget riding around with a realtor in an air conditioned SUV. We've ridden out on horseback, ATV, and even by boat to look at some of the properties we've considered. Not too long ago we spent a month exploring virgin beaches in Ecuador.

It's also not as easy as looking for For Sale signs. More often it's just a matter of stumbling upon a place you have a good feeling about, asking around as to its owner, and finding out if they're interested in selling. They usually are...if the price is right.

5. Keep your eyes and ears open to what's going on in the area.

Some of our best tip offs since we've been investing down here have come in the form of rumors or whisperings in the local community. When folks are buzzing about a potential new road or other infrastructure project being built in the area, pay attention.

You hear about location, location, location being important in the U.S. (and that's still true to an extent here as well). But infrastructure, something North Americans take for granted, is another biggie in Latin America.

One of our most successful projects to date became that way because when we first discovered a barely accessible piece of oceanfront paradise, we happened to learn that the government was about to build a new road leading to it.

We bought it, developed it, and sold nearly every lot. Now we try to replicate that formula with all of our investments. Improved infrastructure means easier access to an area that's now more attractive to residents and tourists. And that means increased property values across the board.

6. Befriend the locals.

This goes along with the above about looking and listening for tips that might clue you in to what's going on in an area. But it also goes beyond that.

North Americans, or foreigners in general, are often perceived as having endlessly deep pockets. As a result "gringos," as we're affectionately known, are usually quoted a much higher price when inquiring about the price of real estate (or anything really). Luckily there are ways around this.

When we spot a property we're interested in and decide to approach the owner about purchasing it, we send in one of our trusted local guys to make sure we're getting the absolute bottom line price available.

Locals also usually have valuable information about the area and the people who live in it. They're a great resource for getting tips about property owners who might be motivated sellers.

7. Do your due diligence.

I can't stress this one enough. So much of the real estate process in Central America can be tricky, and the worst thing you could have happen is to lose a large chunk of money on a deal that turns out to be more than you bargained for.

Things like finding out about all the parties that might have claims to Rights of Possession property, ensuring that proper building permits were obtained for things like piers and boat houses, and making sure there are no liens on a property are all absolutely necessary steps before signing on any dotted lines.

Those are also things that those trusted professionals on your team can help you with, so don't stress over it too much. Finding, owning, and investing in real estate in Central America can be a rewarding and profitable venture, just as long as you know the rules. It also doesn't hurt to know a local with a motorboat.