15 Critical "Must Ask" Questions when Buying Real Estate Overseas – Part 2. Own Community

By Mike Cobb

Part 2 of the '15 Critical "Must Ask" Questions when Buying Real Estate Overseas' will focus on 'Owning Community.' While this seems like a no-brainer to most folks from North America, it really goes to the heart of what 'big brother' does for us and just how much we unconsciously depend on him.

Sorry if I offended anyone there, but please be honest and tell me that if you bought a piece of property in Latin America, you'd ask what could prevent your neighbor from starting a pig farm. Really!

Would you think to ask to see a copy of the local zoning laws? You would likely be surprised to find there are none, and that in fact, your neighbor can legally build anything they want next door as far as the government is concerned. This is real freedom isn't it?

But freedom and responsibility are a double edged sword. You the buyer must take the responsibility to ask the right questions to learn what you need to know so you can make the right decision for you and your interests. But how do you know what questions to ask? How can we know what we don't know? Obviously we can't, but a strong dose of humility goes a long way, as does turning off our filters and confirmation bias. These issues were covered in part one of this series, in the last issue of 'To the Point.'

Owning community is important, not just in zoning, but also in who will be around, or more importantly, will anyone be around. A build requirement on the part of the developer is a key piece of the community puzzle. Without something to mandate home construction, most projects of Latin America are long to be ghost towns and a collection of sold, empty lots waiting for their investor buyers to come build a home. Most won't. They bought the lot as an investment to flip in a few years. Maybe they can, maybe they can't. But a community is something else entirely.

Community is a tough word to define, but the subjective experience is real and we know it when we sense it, don't we? In fact, this soft, fuzzy feeling can be and is quantifiable by the free market. Developments that achieve this sense of friendliness and warmth sell at higher prices initially and retain much higher resale values over time. The velocity of sales, even in down periods, outpace projects close by that lack this so-important sense of community. Case studies abound and several are contained in ECI's Business Plan. If you'd like to see these, let me know and I'll send you the data.

Other factors too contribute to community and the financial and personal benefits that accompany it. Walkability is a huge factor. So are 3rd spaces where people can meet casually and get to know one another.

Sure, there are a few Jeremiah Johnsons out there, but the vast majority of people want to have other people around to golf with, fish with, play tennis, swim, hike, play cards, share a drink or a meal and a multitude of other activities that we enjoy socially. But, if there are no other homes around, no restaurant or fun places to congregate, no amenities in place to play around with friends, how will this happen? Buy what you see is extremely relevant here too.

'Owning Community' is Part 2 of the series and these critical due diligence questions are below. For Part 1, 'Buy What You See,' and/or if you can't wait for the 3rd installment, 'Know the Developer,' send me a note at mcobb@ecidevelopment.com and I'll send you the complete set of '15 Critical "Must Ask" Questions when Buying Real Estate Overseas.'

What kind of construction and design standards are in place and enforceable? Is there a building requirement of any kind?

Zoning is almost nonexistent in Latin America. Unless the developer has written and implemented CC&R's, your neighbor can do whatever they want. Read the CC&R's and make sure you agree with what is allowed and what is not. Know what deed restrictions are in place, or you may be unpleasantly surprised by a neighbor whose tastes are radically different than yours.

Empty lots on the beach are great for a picnic, but don't create much of a living environment. Community means homes around you. If you want to have neighbors around, be sure there is a requirement that property owners build a home in order to avoid living in a 'ghost town.'

Are there amenities for use by owners and visitors?

'Buy what you see' should be the basis for 90% of your due diligence evaluation. Is there a golf course, restaurant, bar, tennis court, fitness center, dock or dive shop in place and serving clients? Or are they just promised?

Promises can be alright, but your due diligence should include the verification of hard funds needed to complete the promised infrastructure, amenities and services. Without the money, you are buying a dream.

Are there state-of-the-art telecommunications or fiber optics for fast and reliable worldwide communications?

This question could fit in either 'Buy what you see,' or 'Own community.' But, in a time where we take internet and phone service for granted, and community is being more and more defined on the web, this vital component must be in place, and in place well.

Understand the reality of telecommunications infrastructure. How is the phone service provided? Can you get the bandwidth of internet you need? Is the service flexible and expandable to grow with the future needs?

What about the Home Owner's Association? Are the fees high enough to cover maintenance of existing and planned infrastructure?

Yes, high enough. You should worry about low fees because they are usually a sales tool to show how cheap the cost of ownership is. Let's be honest, nobody likes to pay monthly fees. However, please realize that fees set too low equate to unexpected surprise assessments in the future and/or a drastic rise in HOA fees when the developer is gone and the true costs of maintenance are carried by property owners.

What about green belts, common areas and the future of the development?

True community requires 3rd spaces and places for people to meet and enjoy each other's company. Club houses, parks, sidewalks and maintained open space are critical to foster a spirit of enjoyment for residents. If public spaces are important to you, be sure they exist and are protected in the master plan.

Remember too, there needs to be sufficient resources for the care and maintenance of these areas. Knowing and agreeing with the vision of a project is important. Be sure that the developer's long term plans align with your goals and desires as a homeowner in the project. Ask to see a copy of the developer's business plan if they have one and make sure it makes sense over the long run for you.