Category: Investor News/Analysis

There’s a lot of bad information out there on this topic.

And it can cost you thousands.

I for one have been burned due to choosing my business type inconrrectly.

Well whenever you are starting a business then it is definite that you will require good shelter service provider. So you should select the good one.

Lawyers are supposed to know the difference, and they’ll say they do.

But most don’t.

The first step to starting any new business in Ecuador is constituting it legally.

So in Ecuador, which business type is best for you?

Here is an overview of your 3 primary options…

Sociedad Anonima:  This is a type of limited liability corporation that is best suited for people who wish to sell shares to raise capital from investors.  This is the only business type permitted on the Ecuador stock exchange.  Shares can be bought and sold without consent of other shareholders and without the use of a notary.  Must have assigned board of directors and present quarterly and yearly balance sheets to government with the aid of a certified accountant.  The legal responsibility of the shareholders is only up to the amount they have invested in the company, their personal assets are not at risk.

Compania Limitada:  Another form of limited liability corporation where a shareholders personal assets are not at risk.  This type of Ecuadorian corporation is usually for family businesses with less shareholders because before one shareholder can sell their shares they must get consent from ALL the other shareholders.  Also, any transfer of shares must be done through a notary public in which case they usually charge around $400 to oversee the transaction.  Must present balance sheets to government and must hire certified account to manage the monthly tax payments who usually charge around $100 a month or more depending on the complexity and sales of your business.

Sociedad Civil:  The easiest form of business to start, this type of business is looked at legally as more of an “entity” and not a “business” for commercial purposes although can be used as such.  The personal assets of the parties involved are at risk if business flops.  In this business type you are given a tax ID number (RUC) like the other business types but you do not have to hire a certified accountant to manage your tax declarations nor do you have to present balance sheets to the government.  Not regulated by the Mercantil Registry like the other business types, the shareholders can act according to what is stipulated in the original contract.

Other fast facts…

Non-resident foreigners CAN create businesses in Ecuador.

For all the above business types you need at least 2 people in the association.

To form any of these businesses a lawyer can assist you from start to finish for the going rate of about $800.

Just like in the US, you can own property in the name of your corporation.

Which business type would I recommend? for that please subscribe to my weekly Ecuador Insiders Newsletter below, you can unsubscribe at any time:

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I think everyone should be in two types of businesses… in Ecuador.

Hospitality and agriculture.

Agriculture is self-explanatory.

Some people invest in metals, others the stock market, others rely on their pensions, but I say, if/when the sh-i-t really hit the fan, I think its best to have something real, something people need… like food.  And although small farmers may have been pushed out in places like the US, they still thrive in Ecuador.

And I like hospitality because I like to sleep.

Seriously, I often will sleep in well past 9 or 10am.

Now past 11am I just feel guilty so I usually don’t do it.

And in hospitality it’s one of those businesses where you go to sleep, wake up and have more money than when you went to sleep.

It’s nice.  And its something that doesn’t have to consume you if you can trust someone enough to hire a good person to run it for you (not all can do this).

Plus at least I’ll always have a free place to sleep if I need it.

You can be in both these businesses types and still keep your day job.

There are many types of hospitality businesses.  And you can find ’em all in Ecuador.

Hotels.  Self explanatory, usually places with 20 rooms or more that cater to the short stay crowd.  Before starting beware of the amount of services your guests expect and the number of employees you will need.  A 24 hour business.

Hostels.  Caters to the younger backpacker crowd and usually has rent-by-the-bed dorm rooms.  A 24 hour business.

Bed and breakfast.  Usually a house converted into a small hotel.  More cozy personal feel for guests, some prefer B&Bs while other travelers prefer the privacy of a big hotel.  Like different flavors of ice cream, all good just different.  A 24 hour business.

Vacation rentals.  This is the least hands-on hospitality business where you can easily manage from a distance and do not need to have full time employees like the other hospitality businesses require.  This is when you rent out a whole housing unit (apartment or house) by the day, week or month to vacationers.  A growing international trend.  People who plan extended stays in places like it cause it allows them to cook and feel like they are getting a closer immersion to the local environment than a hotel can offer.  Not a 24 hour business.

Motels.  As it applies to Ecuador, different from the US, these are pay-by-the-hour places you go to shack up.  Usually on the outskirts of the cities in Ecuador.  Profitable yet slightly sleazy and it can be hard to get a permit.  A 24 hour business.

Eco-lodge.  Prevalent in the Amazon, its where people stay in local-style housing among a local indigenous community.  Can be profitable if marketed right.  Email me for help.  A 24 hour business.

Camp sites/RV parks.  Neither are common in Ecuador, due to lack of demand.  Everywhere in Ecuador except the Galapagos you can pitch a tent on the beach and sleep, but most opt to not do it due to security concerns.  Camp sites are few and far between and RV parks simply dont exist.  Not good business ideas for Ecuador.

Boarding house.  Common in Ecuador near larger universities, often a larger building or house with multiple rooms that rent room by room to primarily students who come from other towns to study, usually for around $100-150 a month per room.  Sometimes with ensuites bathrooms, sometimes not.  Not a 24 hour business.

Apart-hotel.  Usually a small hotel made up of independent multi-room apartments with furnished kitchen that can rent by the night, week or month.  A 24 hour business.

Retirement home.  Only the first couple are starting to pop up in Ecuador due to zero local demand.  For Ecuadoreans in Ecuador, it is a huge sin to put your parents in one of these homes.  Demand mainly caused by foreigners in Ecuador.  A 24 hour business.

Can’t say I don’t practice what I preach, come visit me at Quito Airport Suites.
So wheres best for these types of hospitality businesses in Ecuador?  For that dont miss my next installment by subscribing to my weekly Ecuador Insiders Newsletter, you can unsubscribe at any time:

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This week I sold a business I owned and ran for a year and half, Hostal Murali in Guayaquil, Ecuador.

It was going good, in fact, January of this year, 2013, was a record month in sales for us.

It wasn’t even really for sale.

I just got an offer and took it.

Business is business.

You can’t be too sentimental about these things, sometimes its just time to move on.

So what sticks out as big lessons learned?

Well, even if you’re the type, like me, that prefers to do things on your own, when starting a new business in a foreign country you’re not familiar with it sure helps to have a local partner you can trust.

In Murali, I had one Ecuadorian partner, a wealthy friend of mine who I had known for several years prior from a short stint I did in the country as a marketing consultant.

I probably would not have had the balls to throw everything I had into a business in a new country without having the local support network to rely on.

Of course we had our differences but we worked well together, I learned a lot, and we ended well.

You can find trustworthy Ecuadorians, just maybe not your first week or two in the country!

Also, I’d say the best way to learn a business is to just do it. You’re not going to learn it by taking courses (although universities would try to tell you otherwise), interning or consulting (you’re still an outsider).

The only way is being that 9-5 employee or owning the business.

Once you know the country a bit the local partner isn’t entirely necessary anymore, in fact, a month ago I started Quito Airport Suites as a solo operation, a small hotel near the airport in Quito, and everything is going good so far.

So if you’d like to meet stop by my new business and say hello!

So where would I invest on the coast right now in 2013? Which areas are moving and which aren’t? For that, sign up for my weekly Ecuador Insiders Newsletter below, you can unsubscribe at any time:

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I get this question a lot…

“Should I Rent or Buy property in Ecuador?”

Complicated question, with a simple answer.

Most people who move to Ecuador wish to at least maintain their standard of living, if not improve it, while seriously lowering their cost of living.

To do that, you should buy on the coast of Ecuador while rent in the highland areas of for instance Quito, Cuenca, Loja, Cotacachi.

Why?

Well, the rentals in the highland towns are cheap and high quality with nice two bedroom apartments usually starting around $300 a month unfurnished.

Heck, my friend rents a decent 3 bedroom house in the highlands in a valley near Quito for $150 a month.

While on the coast the area is more rural, there is less to choose from and you likely will have to settle for a very cheap, very Ecuadorian rental existence usually with cement floors and leaky roofs (which most of us foreigners can’t handle) or pay a premium for a decent rental, usually not under $600-700 a month for a decent 2 bedroom place.

Meanwhile, land on the coast can still be had VERY cheap, starting around a few bucks a meter, especially if you are willing to live a few blocks off the ocean, obviously beachfront would be more expensive.

Yet it can be difficult in the highlands to find a decent 2 bedroom place in a nice area for sale under $50k or cheap land in town either.

That’s why if you ask me this very general question I give you this very general answer.

Buy on the coast, rent in the highlands.

It’s best to buy and build/ renovate something to your own standards on the coast, while consider renting in the highlands.

So where would I invest on the coast right now in 2013? Which areas are moving and which aren’t? For that, sign up for my weekly Ecuador Insiders Newsletter below, you can unsubscribe at any time:

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Teak wood is at a premium.

India craves it.

And Ecuador has it.

And right now the Ecuador government is offering an incentive for reforestation projects reimbersing 75% of the operating costs of any reforestation project for the first 4 years of growth, which happen to be the most costly years of the harvest.

Teak wood is a hard, luxury wood that grows in dry, tropical climates. The numerous things made out of it, according to one lumberjack from www.treeserviceremoval.com, are primarily hand made and tools such as manual log splitter are used for the process. Teak wood grows well with 9 months of dry and 3 months of wet just like in many areas of coastal Ecuador.

Often Teak trees in Ecuador that are 8 years old look like the Teak in Costa Rica of 12 years.

If you need tree services think on Tree Removal Greensboro Agency, they have passion for trees is reflected in they tree care solutions. Tree Removal Greensboro are here to support the health of your trees by providing personalized local tree services.

You see, Ecuador has the dry climate Teak love, their roots are deep roots that reach the deep undertable water making rainfall unnecessary.

Entry costs: Where best to grow?

For me, the most idela areas for this business is the Emalme to Quevedo coastal plain areas… the average price of raw land in the area ideal for Teak farming is going for $1500 per hectare. It’s best to buy vacant land and grow your own plantation. But land ideal for teak is raising in price.

The hottest opportunity area I see for starting a Teak farm is the Pedro Carbo area where the climate is right, a few savvy farmers are already having success and land is still cheap at $800-$1200 per hectare.

Flat land is needed for optimum Teak farming. Plus, the land should never flood.

The harvest:

Trees are usually planted 3 meters apart to all directions meaning you can fit about 1100 trees per hectare of land. To have the most profitable farm it is preferred to have around 100 hectares.

Projected Operating costs:

For a new 100 hectare Teak farm your biggest expense will be the labor costs. You will need one Agricultural Engineer to manage the farm for the first three years. Agro-engineers in Ecuador in this role as farm manager usually make around $1000/month. You’ll also need about 14 minimum wage workers ($318/month) to water the farm and clear the undergrowth among other general farm maintenance work. That’s $5452 per month or $65,424 a year.

Water is attained through wells. Electricity isn’t a significant cost.

On average all inclusive, the first year you can expect to invest about $2000 per hectare of crop, but thereafter you can cutback on farmhands to the point where the most efficient farms spend about $400-600 per hectare annually.

Harvest time:

Your first harvest can be at the 8 year mark when your wood is sold by the cubic meter. 1 tree = 3 “trozas”, 9 trozas = 1 cubic meter = $230 based on diameter min 44cm $110. At the 8 year mark you can expect to have around on average 800-900 trees remaining per hectare. So from 900 trees which are 8 years old we can expect to make 300 cubic meters of wood for sale at the current prices (which are likely to rise) of $230 per m3 giving us a gross income per hectare of $69,000.

The real money can be made if you can wait to the 15 or 18 year mark when each single Teak tree can command $300. But only expect to have around 350 Teak trees remaining of the original 1100 you planted at the onset. This would give you an income per hectare of $105,000.

The sale:

The sale of Teak is VERY easy. No marketing needed, you produce it and the buyers will come hunt you out! You make the deal, they come, they cut and they usually handle the rest including the export.

The potential profit:

Assuming you bought in the Pedro Carbo area for around $800 per hectare, then proceeded to invest $2000 the first year in each hectare, then $600 for each year thereafter for 7 more years, your total investment per hectare comes to $7000. So in 8 years if you can generate an income of $69000 from that same hectare you will have multiplied your investment about 10 times.

Of course, the set-back for this business model is that you need money to play, big money, and time too.

The kicker:

But what makes this business REALLY profitable, right now, in Ecuador, as mentioned earlier is that the government is willing to pay 75% of your operating costs the first four years you are in operation. To qualify for this “type of grant” whether you are Ecuadorian or foreigner you need to fill out the application documentation and submit it to the MAGAP (Ministerio de Agricultura, Ganaderia, Acuacultura, y Pesca) and solicit an inspection of your farm.

Upon approval of the grant you will then need to begin harvest. At the end of one year the MAGAP will once again inspect your farm and refund 75% of the money you have spent on the upkeep depending on what percentage of the original trees remain alive. And for the next three years you can get the refund following the same process.

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