What Is The Best Way To Invest $300,000?

I just got this question in:

I am an American English teacher who has been working and living abroad for many years. I have been living and working in Abu Dhabi, UAE for the past four years.
If you had up to $280,000 to invest in CR where would you invest it? The investment should not involve too much risk [that is the bulk of my savings], but can involve some speculation, as any real estate investment does, of course. Ideally, there would be good rental market opportunities. I have read that the Southern Zone is the place to invest now… Is this true? I can let the money ride indefinitely if there is rent and/or good capital gains.Anything that you can offer is much appreciated…

Here is my response:

I will outline some real estate investment options below. I agree that Costa Rica’s southern pacific zone is likely a top area to look for strong investment potential. Each of the below points are fodder for extensive discussion between us. For example, the risk/benefit of building on your land purchase. What types of properties are the most secure and where should they be bought. How far off of the highway can the property be? What are the costs of owning and holding raw land, versus an active, income generating property – and so on.

The strategies for investment and developing an income stream are varied. Let’ start with the simplest – 
  1. buying raw land and holding it and then selling it for a reasonable rate of annual return at some point in the future. This is far and away the easiest, but it is also the slowest and does not generate any income during it’s life, rather it has an annual expense of taxes, which in Costa Rica are low. There may also be an annual fee of road care and water system maintenance   A property maintenance fee will likely be necessary if you are to hold the jungle back from reclaiming your property. The recommended approach for an “investment” motivated purchase of raw land, is clearly to be in an agile position to take advantage of a raw land that comes on the market and that has a desperately needy seller. Then the below-market purchase price provides the buffer necessary to make the investment rational in the shorter term. “Agility” would be to have liquid assets mobile, perhaps a sufficient amount in a Costa Rican bank so that a deposit can be put down in a timely manner.
  2. buying raw land that is large enough to subdivide and then sell off at substantial returns. This is what I call the first generation strategy. It is the easiest to understand.  Larger properties sell for a lower per-meter price.  When sub-divided and infrastructure provided, this should return a 3X return on investment. The challenges are making sure you can do what you want with the property. That there are no environmental or other laws that would impede the idea. It is a recent development in real estate here in Costa Rica that there are agencies enforcing actual zoning and conservation laws.
  3. buying an existing home at a depressed price, rent it out, and benefit from asset appreciation at some future time. This provides an income stream during its lifetime. The asset appreciation history in Costa Rica is not much help. I have seen well placed and well timed investments pay out a 60:1 (and higher) ROI. However, there are also sellers taking less for their properties now than what they paid for them a few years ago. But, having said that, the present market gives indicators of being low and it being a prudent time to invest. 
  4. buying raw land and constructing a rental home, or multiple villas. This results in a lower outlay of initial investment (than buying an existing home) and offers a regular income stream. There are concerns regarding building here. These are not prohibitive concerns and they can be managed with an intelligent and informed approach. 
  5. applying one of, or a blend of the above mentioned strategies to commercial property. There are some vacant commercial properties right now in the zone which gives buyers an advantage in negotiations. The historic cycle of real estate indicates that to buy now, at a “less desirable” time, will yield substantial returns in the future.
If the idea of having a rental property is of interest to you, we should discuss the pros & cons of owning a vacation rental, versus long term, versus commercial.

This is a brief overview of initial strategies to investing in Costa Rica’s southern pacific zone.

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