Being the head of a real estate development business in Latin America, I hear quite a few comments about the price of real estate abroad. People frequently say to me, “I can buy a condo in Florida for less than what you are selling them for.” And they are right. The simple truth is that it is possible to buy a condo in Miami Beach for as little as $150 per sq. ft., but what are you getting?
I’m sure it’s a nice condo, and Miami Beach is spectacular, but isn’t the acquisition cost just the first part of ownership cost? What about taxes, insurance, home owner fees (HOA)? What about the cost of living in a location like Miami? Assuming you plan to own for a period of 20-25 years, what does it really cost to own a condo there and then live there? This is the hidden issue that gets swept under the rug in most conversations. But how wise is it to sweep the elephant under the rug? And it is an elephant, as you’ll see below.
As a rule of thumb, you can calculate your annual property tax in Miami at 2% of your purchase price. So, property tax on a $350,000 purchase price is around $7,000 per year.
HOA can also be estimated at 2% of the value of the property, so that’s another $7,000. You’ll pay a total of $14,000 in property taxes and HOA, every year. Of course, the 2% estimate for HOA can vary widely depending on any number of factors. Some developments, especially the empty, hard hit ones selling cheap, can have fees as high as $.75 per sq. ft. per month. But assuming the lower figures, another $1,200 per month over 20 years is a lot of money more than $250,000, in fact.
So, what kinds of cost of ownership can you expect to find south of the border? In some cases, you’ll pay no property taxes. Panama’s retirement incentive program waives property taxes for retirees. In most other countries, they are so low they almost aren’t even a factor. A $200,000 condo on Ambergris Caye in Belize pays $200 per year in property taxes. That’s 1%. That’s 1/200th of what you pay in Florida.
HOA fees do vary, but because the cost of labor is much less, fees generally range between $200 and $300 per month depending on the size of the condo.
And while the purchase price is only one factor, how much could you realistically expect to pay for a condo in Miami? Interestingly, data shows that average prices for condo sales are much higher than the rock-bottom deal mentioned above, and prices have been climbing steadily over the past year. What does this mean?
It would seem that there are other factors at play. Why would the public pay more than the lowest possible price to own a condo? Perhaps people want a brand-new condo, a nicer neighborhood, more amenities, or maybe they want one closer to the beach. These are the lifestyle aspects, and we can see that people make ownership decisions based on a variety of factors, price being only one of them.
This brings us around to the real reason so many folks are now looking overseas for retirement. It’s not just inexpensive real estate. Right now, according to AARP, over half a million retirees live outside the U.S. Why? Numerous surveys show that the major appeal for retirees looking south of the border is simply this: A lower cost of living and a higher quality of life. This seems paradoxical, doesn’t it? A higher quality of life that costs less? How is this possible?
Starting with costs of homeownership, we see that taxes and HOA fees are substantially lower. Now imagine living in a country where a one-hour massage costs a mere $10, a full-time maid is less than $150 per month, steak and chicken is less than $2 per pound, and a movie, popcorn and soda for two is less than $8.
This translates into an affordable, high quality of life. A maid, what does that mean? No more chores ever. Time to play golf, relax in a hammock, get involved and work with a church or service organization making the lives of others better. Real quality of life that’s affordable.
Some folks rightly feel trapped. People who for forty or more years planned for a warm-weather retirement may no longer be able to afford their dream in North America. But the golden years can still be golden. The dream retirement can still be had. It simply takes expanding the possibilities to Latin America. Hundreds of thousands of folks know this and are already headed this way. As more and more people hear about the benefits and great quality of life from people like you, they will want to have it for themselves too.
So, sure, you can pick up a condo in South Florida for a song right now. But what does it really cost to live there and what kind of lifestyle is it going to be? How much are the taxes and HOA fees?
Can I live on $1200, $1500 or $2000 per month, no matter what I paid for my condo? What will it cost to eat organic fruits and vegetables, and dine on free-range meats free of antibiotics and hormones? And seriously, can I afford a maid?
THE BOTTOM LINE IS THIS… Total cost of ownership over the next 20-25 years should be a major factor in any buying decision. But equally, if not more important, is evaluating lifestyle and how much better can your quality of life can really be south of the border. Latin America has some great answers to the challenging questions facing retirees today.