Thursday, July 29, 2010

real estate information


More than one of you has asked me why I've not gotten into real estate here in Guate, what with all the tourists looking for short-term rentals and the demographic changes in the US that will likely lead ever-higher numbers of retirees to move here instead of Destin or Tucson.

Well, the short answer is I don't believe real estate here in Antigua is a good investment. At $100/sqft, asking prices are often little different than what you'll find in the US (although perhaps not NYC or LA). I've explained on the blog in great detail why this is the case, briefly, Guatemalans use real estate as a 'bank', artificially propping up prices, and real estate has a sentimental value to locals that it doesn't to foreigners, wealthy capitalinos own property here which is rarely for sale at any price, and increasing numbers of foreigners are buying homes as long-term second homes. All this drives up prices and reduces supply.

The real test of the real estate value is what they rent for. As this article in the WSJ points out, a good rule of thumb is that monthly rent is often about 1% of the market value. And yet, you'll discover that you can rent a $500,000 house for $1,500 a month. That tells you something is wrong. What is something really worth? Only what you can sell it or rent it for. Imagine getting $18,000 a year (that's gross income, too), on a $500,000 house. Sounds like less than 4% to me, and that's IF it's rented 100% of the time. I know houses that have been vacant since I first got here two years ago. Lots of them.

So, I won't be buying real estate any time soon because there's not enough investment cash flow in it. But if you're looking to buy a house to retire in, or otherwise own for the next 20 years, and you're certain of it, then it's probably a decent bet.


Real estate guatemala online listing.

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Panajachel, Lake Atitlan, Guatemala

Panajachel, Lake Atitlan, Guatemala
View of Lake Atitlan and volcano from my apartment balcony in Panajachel. Taken by Catherine Todd June 2008.