Category: Ecuador for Investors

Growing palm oil in Ecuador, profitable or not?

“Jeeze, I’ve never seen a road like this,” I thought, this week, as my teeth rattled and face winced along one particularly trying road deep in a palm oil grove. Not only was the road bumpy, but the bushes were scraggly and were impending the vehicles. The track could have had used the services of Fast Tree Removal company.

I was in one of the top places in Ecuador for palm oil growing, La Concordia, a small town tucked deep in the sticks about a half hour from the rough and tumble city of Santo Domingo, Ecuador.

You gotta put your money somewhere.

Keeping it invested in paper US dollars is a well-documented no-no.  Gold may be a better bet, but lets face it, if sh#t really hit the fan, people don’t need it, they need food, they need water.

That’s why one of my next plays will probably be in an agricultural investment, and honestly, its hard to  beat Ecuador for that.

The land is so fertile (and relatively inexpensive).  And farm hands come cheap.

There’s so much water.

Need a specific temperature?  Just find the right altitude in Ecuador, cause its there.

My Ecuadorian friend, and also active palm grower, who I met at a conference I was teaching at this week in La Concordia began to explain…

“Palm Oil is one of the most profitable crops Ecuador has to offer.  At least in this area.”  He started.

Palm Oil is mainly used for cooking, and primarily exported.  The oil is obtained through the fruit this particular variety of palm produces.

palm oil farm ecuador la concordia

The harvest…

Palm oil trees begin to give fruit around year 2, and continue to do so until they are about 25 years old.

Once harvesting begins, you’ll continue to harvest every 20 days for the life of the plant.

One big plus of this product is that it is relatively NOT very labor intensive.  No constant watering is needed.  There is a rainy season, starting in January which then goes for a few months, and that is when the plants receive the water table they need for the year.

The costs…

Most small to medium sized palm farms (20 hectares or less) don’t even have any full time employees, just one live-on watchman.

All farm owners do is hire two guys to come to harvest every 20 days.

One plucks the fruit off the trees with a hook, the other one loads the fruit on the donkeys which take it to the trucks which then take it the nearest factory that proceeds to cook the plant and extract the oil.  They are paid based on output ($15 per harvested ton).

This is another one of those products where no marketing is needed.

You make it, you’ll have a buyer, which is usually the nearest production factory.  As a marketing guy I appreciate that.

The only thing that changes is the market price.  Which for this product doesn’t fluctuate too greatly which usually resides between $150-250 per ton.

Farms start to become particularly profitable when they are at least 20 hectares large.

Each hectare can fit 140 palms.

You can buy the palm trees an inch tall for $1.  Or you can buy them already a year old for around $6.  The best time to plant new palms is in late December or January when the rainy season begins.

You’ll need to invest about $1 in fertilizer per plant twice a year to keep the plants healthy.

You’ll also need to pay a worker $.15 cents per plant to clean the shrub away from around the basin of the plant.  Three times a year.  This comes to about $63 per hectare per year.

You’ll also need to fumigate 2 or 3 times a year which costs around $50 per hectare.

You’ll also need to pay the trucks (considering you dont have one) about $5 per ton for them to haul your product to the processing factories.

“My costs usually run around 20% of my sales in this business.” My friend continued.

Why palm oil?…

One big benefit is that palm is not something that is often stolen, like other crops, due to the weight of the product and also that the factories will not buy stolen product.  They will only accept product with registered tax Id numbers (RUC).

Also, due to the low maintenance and lower risk of robbery, being an absentee owner is more than commonplace, it is the usual.

So no, you don’t have to live there,

Possible sales and profits…

Each hectare of producing Palm can produce on average 2-3 tons of product every 20 days.  The really effcient farms, like a few in Ecuador and many in an experienced Palm oil producing nation like Malaysia, can often produce up to 5 tons of product per hectare.  Each ton sells for the market price which fluctuates around $200… leaving $150 in profit per hectare for the farm owner…

So for a 20 hectare farm that means in the worst case scenario with low market prices ($150/ton) and a farm producing a mere 2 tons per hectare would produce $6000 in monthly sales and leave a profit of around $4000-$4500 a month.

For that same 20 hectare farm at the best case scenario with higher market prices (around $200/ton which the factory pays you the farmer) and a highly efficient farm producing 5 tons per hectare the monthly sales can be as high as $20,000 per month.  With about $13,000-15,000 of that being the estimated profit.

The investment and ROI…

Land ideal for palm growing in the area that is not harvested can be had starting around $3000 per hectare.  But you’d have to wait 2-4 years to start harvesting.  Producing farms with plants in full harvest in the area start to sell for around $5,000-8,000 per hectare.

This week I’ve visited a few 20 hectare sized farms for sale with producing plants for sale in the $6k per hectare range.  So assuming even the low ball figures gathered from friends in the area, that same farm acquired for around $120k could get its money back within 2.5 years.

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1 Costly Mistake when Buying a Business in Ecuador

When I first bought the Guayaquil hotel business with a friend of mine 2 years ago I made this mistake.

And it was costly.

And I see a lot of foreigners who buy in Ecuador do the same thing cause they’re ignorant of Ecuador employment law.

The mistake I made was I didn’t ‘clean house’ and start new with my own employees when I bought the business.I inherited one employee from the past regime who stayed on.  For a while.

I didn’t realize the mistake I made until I had to let him go.You see, in Ecuador when you fire someone, or lay them off, or they leave, you have to “liquidate (liquidar)” them. Meaning you have to pay them a lump sum severance payment equal to 25% of all the money they’ve made while working for you. Constructive dismissal solicitors are referred to if an employer has committed a serious breach of contract, entitling the employee to resign.

For instance, for a minimum wage worker in Ecuador making $318 a month, letting them go after one year of work would mean a mandatory severance payment of about $900.

So what most Ecuadorians do, and what you must do too when buying an active business in Ecuador, unless someone is actually vital to the business, when you buy a business in Ecuador have the previous owner liquidate and get rid of everyone.

It may not feel good, but “negocios son negocios” (business is business).

Because if you keep them on whenever it is they leave you will now have to pay them the liquidation payment for the entire time they have worked for the company, even though the company changed hands, doesn’t matter.  And the employee can sue you if you refuse to pay it.

But the person selling you his business won’t tell you this!

Oh no, he’ll say things like you should keep the employees, they’re great workers and very loyal… yea, yea, yea.  After all, it’s better you liquidate his employees after he’s out of the picture than him now.

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5 years on the coast of Ecuador, a unique perspective

manglaralto ecuador

The beach just south of Montanita, Ecuador.

 

Perspective.

You get it after spending time in a place, and boy is it helpful when investing in property.

Some areas of the coast have stayed drearily the same since 2008 attracting little internet nor foreign investment.  While other areas have flourished.
And since most of the expats in Ecuador have arrived after 2009 when International Living Magazine began really pushing Ecuador its rare to hear an honest 5 year perspective from someone who was on the coast of Ecuador before (me in 2008) while researching for the first version of my now-somewhat famous Insider´s Guide to Flipping Properties in Ecuador.  

 

This was before I lived here full time.  I´ve now been here two years now as a full time resident.But I still remember my time on the Ecuador coast in 2008 like it was yesterday.  And my trip from Esmeraldas down to Salinas setting up shop in each little town I came across.

 

Well I just completed the trip again, in August of 2013 going from Salinas to Esmeraldas, town by town, researching for my new Map Pocket Guide to the Coast of Ecuador.  

 

So what are some of the biggest changes Ive noticed on the coast from then to now?

 

Salinas is about the same as it was 5 years ago.  Prices are roughly the same, so is the level of development.  You can find a nice oceanview condo in a newer building starting around $80-90k and up.  A block back or in older buildings you can find condos for half that, same as in 2008.

The beachfront of Playas has really boomed since 2008 with tourism businesses, while the areas north and south of town have also been developed and bought up primarily by the Guayaquil weathly.  When in 2008 the property here you could get for pennies on the dollar, now its hard to find a beachfront home for less than $100k.

Heading up the coast in the small towns of Ballenita and Ayangue pretty much look the same as they did 5 years ago with relatively the same prices… with one exception, the beachfront properties have soared.  In 2008 in these places you could still find small, vacant beachfront lots in the $10-20k range, now if you can find the vacant lot it would be almost triple that.
Montanita has experienced an incredible boom!  In 2008 there were just a handful of hotels made out of bamboo sticks.  And you could find a house right in the center of town on the beachfront for $50k, (like I did, but I didn´t pull the trigger which Im still bummed about) or a vacant beachfront lot in town for $30k.  Now forget about it, the place is a true tourist mecca on the coast and there is very little for sale for anything under $100-200k right in town.  The difference, the local Ecuadorians discovered the place.  Now you will often see more Ecuadorian tourists than foreigners on a given day and the businesses that have come in reflect the new target for the local businesses, the Guayaquil and Quito weekend getawayers.
Continuing north, in Olon the area called ¨Oloncito¨ has really attracted a small army of foreign buyers skyrocketing the prices where Ive seen nice American-quality two story homes a few blocks back from the beach be sold for $160-190k.  However, the town of Olon has not changed much since 2008 with just a few foreigners which have now bought right in the center of town.Further north the San Jose area, a favorite of the Guayaquil wealthy to have a beachfront hacienda, still pretty much looks the same as it did in 2008, with the same high prices (if you can find anything for sale).  Hard to get your hands on one of these beachfront cottages on 1000m2 of beachfront for under $150-200k.Then comes Ayampe, a tiny town that was completely overlooked in 2008 when one guy pretty much owned the whole place and was willing to sell you any piece you wanted for around $10 per m2, now is the perfect example of what just a few foreign buyers buying in can do to the local prices with land prices now often 4 or 5 times that.Neighboring Las Tunas and Salango still pretty much look the same as they did in 2008, dreary fishing villages void of foreigners and investment.

Puerto Lopez now has a much more developed beachfront with the malecon extending from one side of the bay to the other, in 2008 the development stopped at about the estuary.  The rest of the town still looks the same.

Heading further up the coast Puerto Cayo, San Lorenzo and San Mateo still pretty much look like they did in 2008… as lazy, seemingly vacant, fishing villages with little development.

But there is building (by foreigners) going on in Puerto Cayo.Santa Marianita, the top beach in Ecuador for kite surfers, also still pretty much looks the same as it did in 2008, but the northern end is now thoroughly developed with villas cut into the terraced cliffs.

Manta still looks relatively the same as it did in 2008, but with several new beachfront towers.  Prices have risen too, now many beachfront condos start around $1200 per m2.  The area that has really grown is the area just south of the city of Manta with several new monsterous developments that have been built or are being built.

Continuing north, Crucita in 2008 was a hole, an ugly little fishing village and party town for young people from Quito.  Now the beachfront has really been revamped with businesses and investment and there is a steadily growing expat community, all of which have arrived within the last three years or so.  Just a year ago you could have found a nice two story house right on the beach for $65k like a friend of mine did.

The beachfronts of neighboring San Jacinto and San Clemente have really soared in prices and been improved with development, attracting a steady new contingent of expats, but from a block back from the ocean onward the towns still look the same as they did in 2008.
Further north, Bahia has had many of its buildings renovated and its streets cleaned, but it still looks about the same as it did in 2008, still more a playground for the Quito wealthy with over-priced real estate as it was in 2008.While the towns heading north from Bahia (San Vicente and Briceño) still look the same as in 2008 even with the new bridge… Canoa has really exploded!  In 2008 you could find beachfront land in the $10-60m2 range, now the average range goes starts more around $60-90m2 and up.  A close second to Montanita, there are now about 10 times more hotels and restaurants than in 2008.  Along the southern end of Canoa many foreigners have bought in and are building their own beachfront villas or condos.  Another place local Ecuadorians have just recently discovered and is a hot spot for weekend get aways.Heading north from Canoa, it gets very remote and very green very quick, as it did in 2008.Besides for a few small yet flourishing developments like Coco Beach near Jama with 1000m2 beachfront lots starting around $70 per m2 or totaling $70k, this whole stretch of coast until Pedernales as well as the rather rough-looking city of Pedernales with an unattractive beach still looks about the same as it did in 2008.

Heading north from Pedernales the towns of Cojimes, Mompiche, Muisne, Same and Sua all of whoch have expericed very little to no foreign investment nor significant move in prices since 2008.

Of course, with the exception of the newish 5 star all inclusive resort near Mompiche, Decameron, which didn´t exist in 2008.

But I was surprised to see how little spillover the new resort has affected the town of Mompiche, which still looks about the same as it did in 2008 (with very few tourists) before the resort went in.

Atacames, as it did in 2008, continues to have a thriving beachfront area and a seedy underbelly that caters almost exclusively to the Quito weekend get away crowd.  But there has been little noticeable new development.
Tonsupa, just to the north of Atacames, has really exploded, but it has followed the mold of Salinas in that the explosion is not meant for tourists but for the affluent Quito locals looking to have a trophy beach condo they can visit 2 or 3 times a year.  The number of condo highrises now rivals that of Salinas. In 2008 there were many less.

Esmeraldas hasn´t attracted much investment at all and is still the same seedy city you wouldnt want to walk around after dark.

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When to buy, rent or visit on the coast of Ecuador?

when to go to coast of Ecuador

Businesses close their doors.  Even hotels lock it up.

Not a soul in the streets except the occasion street dog.

It´s cloudy and a bit brisk… everyday.

Welcome to the low season on the coast of Ecuador.

It also happens to be the best time to search for and buy real estate.  You´ll find many more properties for sale and eager owners looking to sell at bargain prices. The low season for tourists is the best time for a potential buyer to make an offer in Ecudaor. So when is the low season?

Depends where you are on the coast.

Right now, in August, we´re right in the middle of low season on the southern coast, from Manta down to the Salinas/Playas area.  Low season on the southern coast or area south of Manta is generally from May to early December.

High season from Salinas to Manta is from late December to early April.  If you have a rental, take advantage and jack up the price, cause you´ll still be able to find a renter.

Its the sunniest time of the year with blue-bird days mixed in with the occasional rain storm.  It also happens to be when North Americans are looking to escape the dreadful northern winters.  It´s also when school children along the Ecuador coast have their summer break meaning Ecuadorian families are traveling in full force.

On the northern part of the coast, or from Manta to Esmeraldas, it´s different and more complicated.

The high season is from late June through August, when Quito and the highland people have off from school.  The immediate days around Christmas, New Years, easter week (semana santa, April) and Carnaval (in February) is also high season and very packed.

At least on the beaches in and around Esmeraldas the sunniest months of the year are August, November, March and February.  The rainy months are December, May, June, July and October.

So in the low season …buy… in the high season … sell (but you´re not going to want to, cause your place will probably be rented at a good price).

And for renters, I´d say no reservation is needed for low season stays, you can often find options simply upon arrival, but for the high season reserve months in advance!

And if you´re forced to look for sun in the middle of the year, go north my friend.

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The top beach in Ecuador to find cheap beachfront real estate right now?

This is part 3 of 3 in this series on where’s the cheapest, undiscovered places to still find your own small piece of the beach in Ecuador in August of 2013… front-line beachfront lots for personal use preferibly under $15k or a beachfront house under $50k.  
Today’s pick might surprise you.
Chances are you’ve never seen it mentioned before now.
Actually, most Ecuadorians haven’t even heard of it, but it’s just minutes from one of the top tourist destinations on the coast… Atacames.Sua.Sua is a tiny, little village on the sea where most of the inhibitants work in agriculture or tourism (in the nearby town of Atacames).  There are only a couple hotels sprinkled through the town and barely a hint of tourists. There is a vast list of online shops for you to visit to, after that you can decide on which store can give you products and services at a very reasonable price. In this way, you can be sure that the amount you are paying for is equivalent to its value. The best way to evaluate the website, which you are planning to acquire specific materials, is through reading the customer reviews and product description. Through this, you have a cool way of comparing things, making you decide on what is better, what will give you long lasting materials and better results from the moment you involve yourself in water sport or any other boating experience. Visit https://www.merrittsupply.com/ for the best wholesale merritt supply.
But unlike many small, undeveloped towns on the coast of Ecuador it’s NOT a fishing village!  Meaning no ‘fishy’ smells, no hooks baried in the sand waiting to be embedded in your foot, nor ugly fishing boats docked just off the beach.We buy houses projects can offer advantages to battling mortgage holders. However, they can likewise cause more damage than anything else. At whatever point there is a chance to make cash, you can wager there will be con artists. With the current lodging market emergency, a lot of chances exist. On the off chance that you have to sell your home brisk, odds are you’re now in alarm mode. In the present recessed lodging market it is elusive a certified buyer. Also, the individuals who are buying need a low-ball cost on an over-esteemed home. The colorado springs real estate investor Bonnie Buys Houses fast.

real estate prices have dropped quite a bit, the potential commissions that real estate agents and brokers could earn have also dropped. But the drop in commissions can be more than offset by the amount of properties that can be sold. And getting quality real estate leads is one of the keys to making this a reality for real estate professionals. This is because there are so many more properties on the market now than there were before the bubble burst. Here you will get the everything about Ambergris Seaside Real Estate official website.

The rise in the number of homeowners who are underwater on their mortgages has increased so much that a very large number of them have decided that they cannot afford to stay in their homes. They would rather sell their home and buy a comparable home for a much lower price, and take the loss so that they can improve their cash flow situation by having a lower mortgage payment each month. And since there is no shortage of properties to buy, these people had no problem finding a suitable home for a good price.

And another result of the rise in available properties is that more and more people are becoming first-time homeowners. Since prices on homes are falling, more and more people are able to afford a home for the same amount they are currently paying in rent. So the logical choice for these people is to buy a house rather than continuing to rent.

And the beach is a beautiful little cove with white sand and sapphire-blue transparent water.And it is arguably the best beach for swimmers in all of Ecuador with table-top flat, still water and with little boat traffic.
And now as I sit here in August, the sun is out, which is a rarity for this month further south on the coast.
The locals are friendly, vibrant mulattos used to the sight of outsiders being just a 5 minute Tuk-tuk ride from Atacames.Food.  Forget about it!  Its amazing, you’ll love the Esmeraldas food, primarily seafoods marinated in coconut juice and other spices.  (Encocados)Both along the boardwalk in Sua and particularly in neighboring Atacames you’ll find plenty of good restaurants.  Hospitals and shopping centers can be found in neighboring Atacames or 25 minutes away in Esmeraldas.

And did I mention there are MANY smaller properties available right on the beach for sale by private owner… front-line beachfront.  Most have ‘for sale’ signs, some don’t.

One two-story house is asking $62k.  Another is asking less than half that but it is a tear-down, only the beachfront lot is worth something.  There is also a 14-room beachfront hotel for sale asking $200k (negotiable).

It’s a true buyers market, a low-priced hidden gem, which can’t be said for many beaches further south on the coast.

Did I mention, you’re also just a half hour from the nearest airport (in Esmeraldas)?

But is it safe being near Esmeraldas and so close to Colombia?

Well, this place is south of Esmeraldas, and Esmeraldas is actually much farther from Colombia than people realize, being several hours south of the border.  So in my experience, you’re fine.  Esmeraldas itself gets a bad rap but the locals are actually quite friendly and Sua is still a bit of a distance from the city itself.
One negative to buying beachfront here might be that for many of the properties there is a malecon or boardwalk between the property and the beach, but it does not have much traffic (if any) other than the occasional pedestrian.

Also, for most of the year it would be quiet but for Ecuadorian holidays it may get noisy towards the north end of the boardwalk when restaurants place boom boxes outside their storefront to attract Ecuadorian customers. They tried following examples of other big companies like Salesforce, which stress the importance of introducing chat bots to improve customer service.

But overall, I see real short-term potential for growth for Sua as the spill-over from beautiful Atacames has to go somewhere (and it can’t go north, so it must come south).

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