Wire Transfers, Escrow and an Investment Idea

When you buy a piece of property in Costa Rica, you will likely wire money from your home country bank to a Costa Rica escrow service. This can be quick and easy, or it can be a major pain in the neck. Life used to be so easy before terrorism… and drug running… and global economic crisis… and climate change and…

Funny thing, we used to find things to complain about, even before all this wonkiness in the world. Had we only known then what we know now.

It has gotten a bit dicey moving money around this planet. There is the off chance that you might be laundering some drug money, setting up to fund an attack of some kind, or generally not doing things just right, so there are safeguards.

For years we have used a rather casual system here in Costa Rica by which lots of land was bought & sold. Buyers generally put 10% of the purchase price of a piece of property into escrow while we real estate guys and the lawyers went about being duly diligent making sure that the property was what it claimed to be.  That money was put into what we called an “escrow” account.

Well, as it turns out, those escrow accounts were anything but actual escrow accounts.  They were simply the attorney’s business bank account and he held the money pending the closing when he would then disburse the funds. What can I say? We were told that they were escrow accounts. I didn’t ask the question for many years: “You do mean a bona fide, legitimate, registered and managed escrow account, right?”

Well, by the time that I asked the question, the accounts were becoming all of that – legitimate I mean. Now they are, and boy do I miss the good old days. I don’t know of one bad experience from the former program, but I’ve had some tough situations with the current one.  As we have grown up here in Costa Rica with respect to legit business practices, we have entered the world of complexity on an international scale.

When transferring a land buying sum of money into Costa Rica, you must also document where the money is from, how you got it, and what it is going to be used for.  Without this information, the escrow agent, for fear of severe fines, won’t accept the funds into their account.

I know, this doesn’t sound like that big of a deal, and I guess really it isn’t.  It’s just that it used to be so much easier, and it worked just fine. I suggested to my lawyer that we just ignore all this procedural hogwash and that we just use his account and let’s move on.  He said that if he were to do that he would get into trouble, so those days are gone.

A Great Investment Idea

My bank account bears silent witness to the fact that I’m no great investment advisor.  That’s my disclaimer.

Here’s my idea.  Actually, in addition to my disclaimer I probably ought to give credit where credit is due. My buddy, kick boxing partner and competing real estate agency owner John Weiland over at Coldwell Banker one morning shared what he thought was a great investment idea. “His” idea ran parallel to an idea that I had had percolating around my brain for some time.

Disclaimers and Credits Done, Here’s the Idea

Buy up some of these under $100k (U 1K) ocean view lots, build a reasonably nice, well designed house on it, and put the house on the market, squarely placed in our breadbasket market of $300 – $350k for a turnkey house.

Reasons Why It’s a Good Idea

  • Under $100k ocean view properties have an ocean view – duh! Ocean view is the #1 quality looked for in a property here in The Zone.
  • Most U 1K properties are under $100k for some motivating reason that makes them especially good deals. It is likely that the seller is motivated and so the price is below market.
  • Most of our buyers start off looking for houses, but end up with raw land – reason? There isn’t a good selection of houses in The Zone. Fill the need, make a buck.
  • With the costs of the land and building a house (see table below), you are providing “supply” for the “demand” that we are seeing here: houses in the $250,000 to $350,000 range (with ocean view).

Numbers Breakdown

Item Expense
Under $100k property $75,000
1,600 sq. foot house @ $100 per foot $160,000
Small pool $20,000
Total $255,000
Selling price $325,000
Profit $70,000
Projected Time span 18 months

As the Costa Rica real estate market continues to morph with the changing world conditions, we are talking with more and more people that are looking to Costa Rica as a possible place to make a new home. How to make a living in a foreign land is one of the hotter topics of the day. This one would work to support a family, providing a decent yearly income.

2 thoughts on “Wire Transfers, Escrow and an Investment Idea”

Leave a Comment