You’re considering an investment property or a second house in a Central American residential development—in Costa Rica, Panama, Nicaragua or elsewhere. The shiny brochure is impressive, the website looked great, the pictures blew you away, the marketing representative of the development says all the right things and you’re dead set on getting that beachfront lot with the great view.
Just a second. It’s time to interrogate. It’s time to assess whether the development really is right for you, and whether the development will develop as planned. You want to buy into a dynamic community—not an empty shell that will turn out to be little more than its marketing. The following are ten sets of important questions to ask of a developer to ensure that you’re getting what you’re paying for and that the development is on solid ground. A dishonest developer will shy away, while a good developer will respect your attention to these details, so don’t be afraid to ask every last one of these even if it seems overly cautious. It can mean the difference between achieving your dream and being cheated out of your investment.
Land ownership and title issues are common problems when buying foreign property. Ask these questions to ensure that you won’t be thrown off the land after you have made the deal. If possible, follow up and make sure that the deeloper has answered truthfully and get the importat points in writing. Ask the developer:
- Do you or the landowner have full title to the property in question?
- What kind of title is it? (fee-simple, concession, indigenous?)
- Is title insurance available?
- Have you obtained it?
- If you have, what are the policy exclusions?
- Does a buyer receive title insurance for the particular piece of the project he or she is buying, or is the policy
- written for the entire property only?
- If title insurance isn’t available, how long has the developer owned the property?
- Who did he buy it from and how long did they own it?
- Do you guarantee title in the contract?
If the land is part of a larger community, make sure that it is well-planned. You could be left to fend for yourself for utilities or stuck with neighbors whose style and habits could make your dream home a nightmare to livein. Ask the developer:
- Has the property been properly subdivided and have the plans for development been approved by all relevant authorities?
- Have the appropriate environmental impact reports been submitted and approved?
- Has the lot plan been submitted and approved?
- Will there be a home owner’s association?
- Has it been registered?
- Are the terms and restrictions of homeownership in the development available?
- Will these terms, restrictions and association by-laws be incorporated into all lot titles?
- Are there any remaining government departments that need to approve the project?
- What infrastructure is already in place?
- What is the infrastructure plan and timeline?
- For additional infrastructure and services needed or promised, are those promises available in writing, by contract, to prospective buyers?
- Does your company have the capital to keep the project moving forward on its own, or are you relying on sales revenue to be able to make progress on the infrastructure?
Water is essential to life, but that doesn’t mean that a safe source of it will be provided by a developer. Ask the developer:
- What is the source of potable water?
- Is it being supplied by the developer, or is it up to buyers to provide their own?
- Is there enough water for the entire project?
- If there’s a well involved? How high is the water table?
- How quickly does the water table replenish itself?
- If buyers have to source their own water supply, i.e. drill a well or install a rain collection system, is a feasibility study available?
- Has the water been tested?
- Is it free of contaminants?
Here’s another part of life that you may assume to be a given in any development, but you can’t assume anything when creating your dream home in a foreign land…or even domestically. Ask the developer:
- How will waste disposal be handled?
- Septic of sewage?
- Is it up to buyers to install a septic system?
- Is the piece of property large enough to allow buyers to build what you’re intending to build?
- Compliance with local sewage disposal requirements?
Rights to connect to the grids can be tricky in South America. Some are public, and some are private. Ask the developer:
- Where is the nearest electricity?
- Is there electricity already run to the project?
- If not, when will the power lines be installed?
- Will they be overground or underground?
- Who will run the lines: the developer or the government?
- Who will be responsible for their maintenance?
Developers who have great ideas are not always capable of seeing them through to completion, especially if they lack experience. Ask the developer:
- For how long have you been a real estate developer?
- For how long have you been a residential real estate developer?
- How many projects has your company worked with in the past?
What Is "Plan B"?
The best-laid plans of mice and men often go awry. Investors need an exit strategy and developers need "Plan B". Ask the developer:
- What happens if the project fails?
- What if sales never come in as you expect?
- What if you’re forced to abandon his project?
- Will buyers still have the full use of the property?
When you put your savings on the line, you need to know the risks and have means of protecting it. This is especially crucial when dealing with foreign real estate. Ask the developer:
- What are the details of financing and installment payments?
- If the developer is financing, will the buyer receive property title with a mortgage or does the property not transfer until the final payment has been made?
- And for both projects will a deposit be held in escrow?
- Are deposits and other monies held separately or together?
- What is the first installment you require and when must the property be fully paid in the case of these two specific projects?
If everything goes according to plan, great! But then what happens? Ask the developer:
- Will we be allowed to handle the closing?
- What is the developer’s law firm?
- What is its reputation?
- Is it recommended by the relevant embassy (U.S., Canada, European, etc.)?
- Who else will be involved in the transfer of legal documents?
- Does the developer have satisfied customer letters that can be reviewed?
- Can you put us in touch with past buyers—ideally at least five English-speaking buyers—especially foreigners, especially any from the US, Canada, UK, Ireland or Australia?
- Has anyone started building on their lots?
By the time all of those questions are answered, you should have a clear idea of whether the development will blossom or wither. Take special note of any development you might consider that doesn’t answer these questions directly and promptly. The best of them will have most of the answers ready at hand with supporting independent documentation.