Thursday, May 2, 2013

Real Estate - Purchase or Rent?

Real Estate
Purchase or Rent? 
          This chapter was included in our ebook, Thriving in Ecuador (see sidebar), but I should have added it to the blog last year.
Most expats rent for six months to a year before considering the purchase of a home or departmento.   Many expats begin looking for a home to buy as soon as they arrive, the risk may be that they later decide Cuenca is not for them.  If this happens, there can be a problem selling quickly, especially if they paid too much (with fees) for the property in the first place, or if it is a rural property.  Rural properties take longer to sell.
          We rented a furnished casa with a yard for our dog for four months while learning the city. We were on the outskirts on a bus line by the river. The number 16 bus became our friend as we observed the city and its inhabitants daily.
          Our decision to purchase an apartment was based on several personal factors:
1.     To lock the price during inflation. Homes are too great a value to wait long ($ 60 to $100/sq.ft). INFLATION MAY CONTINUE!

2.     For a permanent home and place for our cargo to arrive. We chose a close in rentable location in the event our needs change.
3.     Apartments are more secure than homes. Our trips to the US last for a month.

4.     We have 24 hour guards and an elevator.

5.     Close to Centro, but away from bus fumes, traffic and most noise. Beautiful walking neighborhood.

6.     Property taxes are quite low.  Our taxes on the apartment we purchased are $120 per year.

Some folks chose to rent for many reasons.
1.     To avoid tying up available capital. Mortgages are rare and expensive.  Mortgages are hard to quality for and typically, have terms like 30% down, 12% annual interest, and a 15 year term.

2.     Unsure of permanence of location within city or Ecuador.

3.     Rent is very low relative to purchase prices ($250 to $600 unfurnished; $350 to $1000 furnished) depending on location and size). Cuenca is the high end city!

4.     Waiting a year or two for their new apartment to be built. Pre—construction prices are very attractive. The savings may be 15-20%.

Investors note that resale and renting may be very different for gringos vs. Ecuadorans:
1.     Ecuadorans have their appliances, furniture and household items. And a car!

2.      They are willing to live further out from Centro

3.     Terraces and balconies are low priority. Interior space is of higher value.

4.     They may be more flexible about noise, dogs and location.

5.     Gringos may need everything; prefer appliances provided.

6.     They want close in, within walking distance of historic district (Centro), shopping, and bus lines.

7.     Terraces are wonderful. Most are accustomed to outdoor living spaces.

8.     A peaceful street is a must for most. Bus and truck pollution is avoided.

Realtors are frequently unlicensed, untrained and may lack North American standards:
1.     Commissions may be expected from both buyer and seller.

2.     Mark ups in asking prices, extra fees and hourly charges must be negotiated in advance.

3.     There is no MLS, appraisal system or formal inspections.

4.     Title insurance and mortgages are rare and expensive.

Potential Problems may surprise you:
1.     Attorney’s rates and procedures vary widely. Clarify in advance.

2.     Liens may be undisclosed.

3.     Titles may come slowly, be delayed, etc.  Titles are required for a home ownership residency Cedula. And the “tax value” (usually less than half the true value) must be at least $25,000.

4.     Notary services are required to certify everything. “Appointments “may mean stand in line, wait until someone returns, etc.  Allow lots of time!

5.     Have a Spanish speaker review Apartment Association minutes for the last couple of years. Who knows what problems were mentioned?

6.     Cuancanos may expect to remain in the apartment for 1-3 months after you own it. Be a little flexible, but negotiate a large deposit to insure the

premises are clean and vacated on time.  Be sure to hold back some money until the owner has turned over the keys and the title is completed with any agreed upon repair.  Otherwise, these things can be delayed indefinitely.  The same is true for paying Real Estate agents, lawyers, contractors, or anyone in Ecuador. 

7.     Finally, be sure to walk your new neighborhood at various hours, especially Saturday night, to discover its true character.  Ask a Cuencano friend to visit neighbors with you too.

Utilities are difficult to initiate and may require delays:
1.     Internet is essential, but usually requires multiple requests for installation. Service varies widely throughout the city in speed and availability. ETAPA is usually good, but may not be available in your building. Ditto cable. Verify before commitment!

2.     Electricity should be requested at their office on Ave.Max Uhle near Veinticuatro de Mayo. Monthly payments may be made at credit unions or pago services.

3.     Gas and water may be included in your condo fee. Propane tanks are also available for delivery for two dollars (government subsidized)!

4.      Cuenca water is wonderful. Coming from the Andes it is drinkable and tasteless (rated the best in S. America).  Many of us also order five gallon bottles from Pure or others for two bucks.

5.     On demand hot water is installed in most homes and apartments. Propane is much cheaper, but be mindful of venting. Also true of clothes dryers, which are usually gas powered, since electric rates are higher.

          Used furniture and household items may be shipped one time duty free within six months of obtaining your Cedula (residency). More details are in our chapter on cargo.