Category: Investor News/Analysis

“Get down, get down, he’ll see you!” My Ecuadorian friend gasped…

…as we both sat in a car outside a gas station waiting for the seller of a property in Ecuador I was interested in.

The seller arrived.

And we didn’t want him to see me.

You see, I wanted my local friend to do the initial negotiation for me so the seller didn’t know a foreigner was interested.

Because I’ve seen that the price can and does rise – SOMETIMES – when the locals see a foreigner is interested in their property.

But more precisely, they often get stiffer with the price and won’t be as quick to lower it cause they think the foreigner will buy anyway.

So that’s exactly what my friend did, he went inside the gas station and sat down with the owner to negotiate, while I stayed in the car.

There’s advantages and disadvantages to being a foreigner in Ecuador.

A big advantage I’ve experienced is in the business world, where you get “instant cred” and people listen to you just cause you’re a foreigner… it’s true! It also helps with the opposite sex to look different than the norm.

But a big disadvantage is that the locals think you have money, so at times, not everyone, will try to charge you more for things, and if buying property that could mean thousands.

This happens everywhere in the world to foreigners.

I lasted all of 5 minutes in Spain before I got ripped off paying about double for a taxi ride than I should have.

Luckily its not that bad in Ecuador compared to some countries I’ve been recently, like India, where many (not all) of the locals are ruthless and work together to extort as much as they can from overly-trustful foreign tourists, particularly the Japanese are the easiest to fool (I saw).

But they got me too, bast@rds!

It is what it is. It’s all part of the fun.

You gotta play the game by the rules.

And that’s what I did this week as I started my newest property search on the coast of Ecuador.

I’m looking for a great deal.

Could be a lot, a fixer-upper, we’ll see what I find.

First I hit the local paper El Universo where in the Sunday Classifieds ads for properties on the coast will often get mentioned.

Now I’ve hit the coast.

First I’m identifying where I’d like to buy, then specifically which property.

People amaze me when they say they saw nothing for sale.

Actually everything is available.

You just have to do some investigating to discover the owners.

That’s how it works down here.

And I have noticed “the spread” is getting bigger in that the range of prices people are asking is widening, with some asking ridiculously high prices, while others ask the same prices as years ago making this a good time to buy and sell in Ecuador!

But this won’t last forever, the window is closing. In nearby Colombia, Brazil and Argentina the prices are already high.

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“There’s like no taxes here.” One friend who’s a foreigner and business owner here in Ecuador told me.

“I know, it’s cool.” I responded.

It’s true, compared to many other countries Ecuador has a very light tax load.

I pay $44 a year property tax on my small 3 bedroom house on the coast.

But there is one tax that exists in Ecuador that doesn’t in the US you should know about in the beginning stages of a property search in Ecuador.

A tax that no one tells you about until its too late.

Ecuador has a “capital exit tax”.

That is, if you try to wire or transfer money out of the country in access of $1000, you will have to pay an unavoidable 5% instant exit tax (as of early 2012) on the money in addition to the normal transfer fees usually occured when transferring money abroad.

Western Union charges it.

So do ALL the banks.

Unavoidable.

Unless you want to carry the money out in the plane with you in cash, but there are limits of usually around $10k when entering most countries.

It may not seem like a lot, but when tranferring out $100,000 that’ll cost you $5,000!

At least there’s no extra taxes to bring money into Ecuador. (Just in case you were wondering.)

So, in this second post of this series detailing every step along my new property search in Ecuador, one I started this week in September of 2012, I wanted to get this point clear right from he get go.

Don’t transfer money in until you’ve found the property you want to buy and you make it to the final stages of the purchase!

Bringing it in, then quickly taking it out could be very costly.

And I doubt anyone has mentioned this, especially if they’re trying to sell you something.

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“What a dump.” My friend said.

While we looked at a middle-class condo for rent in Guayaquil, Ecuador.

But through my eyes, the place looked OK.

Typical for Ecuador, clean, safe, cheap ($300/month) and well located.

It would have worked for me, but not him.

You see, he was used to luxury, high-end, first-class, waterfront living in the USA.

So we kept looking for a different rental.

And we looked.  And we looked.

But as we visited the higher-end, luxury places for rent in Guayaquil, then Salinas, then Cuenca, he noticed one thing.

There isn’t much true “USA-standard high-end” to choose from.

And if you do find it, as he put it…

“Jeeze, this ‘luxury’ place is even more expensive than the same place would be in the US.”

It’s true, the current lack of supply and growing local demand for high-end places- particularly in the big cities of Ecuador like Quito, Cuenca and Guayaquil-  causes the high-end, luxury properties in Ecuador to be very expensive, in fact, often more expensive than a similar-style property would be in the US these days after the recession knocked down prices.

But for cheaper middle-class and lower-class stuff, there’s a ton to choose from.

Now, if you’re willing to scale down your lifestyle to a middle-class Ecuadorian style, and trust me, for most it is a bit of a drop-off in “standard of living” from a middle-class American lifestyle…

…you can save A LOT of money and live very cheaply.

But don’t see it like a “drop-off” just merely a “different” style of living.

A life-style I prefer over that of the US (that’s why I’m here).

Now while luxury places are few and far between, decent middle-class 2 bedroom apartments in decent areas of cities in Ecuador rent for $250-450 a month and are plentiful and easy to find.

In the country-side it can be much cheaper.

And it’s true about electric bills that often run less than $10/month for a 2 bedroom apartment.

Heck, my water bill is often around $5.

And I don’t have a car (cause I really don’t need one!) with so many cheap taxis and buses around that will take me where I need to go for often under $2.

That means no car payments, insurance, parking or maintenance costs.

And I don’t pay any other insurances.

With health care costs so cheap, I just pay out of pocket if I need to.

So yeah, if you can handle the “scale-down” from US middle-class living to Ecuador middle-class living, you can actually stretch your pension much further down here.

But if you’re used to a luxury lifestyle in the US and would like to maintain that in Ecuador, at least your rental cost will likely go up.

Now, you could look at this one of two ways.

From the standpoint of a consumer with few true luxury options.

Or from the standpoint of an entrepreneur.

Or someone that sees a need and fills it.
That’s right.

I wouldn’t build anything in Ecuador unless it was US-standard luxury.

Why?

It’ll sell like hotcakes.

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