Welcome to the Wild, Wild West. There are prospectors, gamblers, gunslingers, and even saloons, and brothels. One can find gold in them thar hills. Oops, them thar hills are the gold — literally.
Yes, all this is referring to Costa Rica. The translation of Costa Rica to English is “Rich Coast.” Spanish conquerors gave the country its name because supposedly there were tons of real gold to be found in this country when they landed on its coasts. Or better yet, maybe those who arrived hundreds of years ago knew the secrets most people are learning now.
Today, it is not the gold people seek, but the land. Especially land with an ocean view, but all land is skyrocketing in value.
Prospectors are of a different sort these days. They take the form of speculators — gamblers who bet property values will continue to go up and up and up for years to come. The problem is, some are speculating on the money of innocent sellers.
This is how it works:
Let us say one bought a property in Costa Rica some years back for $100,000. Today someone comes along and offers two, three, four, even five times that amount. Most owners jump at the chance to make that kind of profit on their investment.
The issue is, the buyer wants the owner to carry back a mortgage for a significant portion of the sales amount. Even then, most sellers jump at the offer because they feel there will be a nest egg waiting for them when the debt is paid. They even accept deals with balloon payments five or seven years later, and the balloon might be 60 to 70 percent of the purchase price.
Watch out! These speculators are using the scheme to buy property from many people, pushing balloon payments into the future amounting to millions of dollars, and gambling the real estate market will continue to boom for years to come.
However, some believe this is not the case. The current real estate market, although fundamentally sound, has a fragile pricing structure. Many outside factors can affect it. Too many things can go wrong, and as Murphy’s Law suggests: “If anything can go wrong, it will.”
If something goes wrong anywhere in the world that would shake up investor confidence, the real estate market in Costa Rica would reflect the uncertainty.
Speculators would not be able to pay off all the balloon payments they have pushed off into the future, and people would have to foreclose on their mortgages, an iffy process in the Costa Rican courts. Raw land prices would tumble.
This is where the gunslingers come in. Some speculators in Costa Rica are in bed with the nastiest of companions. Their profession starts with the “L” word.
They would rather not give true mortgages to people because of the tax consequences. True mortgages, once registered, become the new value of a property at the Registro Nacional.
The L-word’ers often use a variation of commercial paper to carry back payments, not as secure as a real mortgage, to help the speculators avoid property taxes. The problem here is that the innocent people who have a lifetime nest egg in a Costa Rica property do not get the correct professional assistance to protect themselves in this fast-moving real estate market.
Truly, Costa Rica today is like the Wild, Wild West of years past in the United States and Canada. Property disputes abound. Neighbors move fence lines, stealing property without a conscience. Property fraud is also rampant. The courts are overwhelmed and impotent. Some disputes end in bloodshed.
When selling real estate, here is some good advice: Try to get all your money now. Let speculators gamble with their money. Be skeptical if someone is offering you many times the value of your property. If there is to be a mortgage, get a real one, not a commercial paper variant. Get professional advice and assistance and be sure the sale and mortgage is registered correctly at the Costa Rica Registro Nacional.
