Monday, October 04, 2010
Dear Reader,
Crisis investing means buying when everyone else wants or needs out. At an aggregate level, markets overreact and overshoot both on the up and downside. Assets become mispriced. Mispriced assets = profit opportunity. After years of massive growth, certain markets are in a state of crisis. Banks are squeezing failing developers. Something’s gotta give.
Over in Nicaragua, we are seeing firesales of larger land parcels, and development land— but not from banks. Along Central America’s Pacific coast, you’ll find rocky outcrops, world-class surf, and some of the most jaw-dropping views in the world. If it’s natural beauty you’re after, Nicaragua is the jewel of this stretch of coast. It’s more awesome than northern Costa Rica, which is directly to the south…or southern California, a 3.5-hour flight to the north.
Speculators raced in here in the first half of the last decade, snapping up the best pieces of beach and ocean front land. Some developed. Others sat on their land. Then the market here stalled. The US housing market imploded and buyers were nervous about the new Sandinista government.
Some projects kept their heads above water…a few are even thriving. Others have failed or are failing.
You can pick up a distressed project for a song. I wouldn’t buy one though. There’s just too much liability, and too many unknowns associated with a failed, failing or struggling project.
Undeveloped land on the other hand is still beautiful…same as it was at the peak of the boom. There are owners who need out. They need cash back home to shore up other holes. There are no buyers in Nicaragua right now. Everyone seems scared….either about the economic situation in the US, or the political situation in Nicaragua. There are deals to be done.
Someday the government will change. And someday we’ll say…remember when prices in Nicaragua were 1/10th (or less) of what they were across the border in northern Costa Rica. We’ll ask ourselves why land here was so cheap…because it’s nicer than the land across the border in Costa Rica.
As I say, there are deals. This deal crossed my desk early this week.
“This is a ready to go project, already subdivided into 70 lots. The master plan calls for lots, condos, casitas and a clubhouse. The approvals are in place, and the land title insured by First American Title Insurance. Sitting on a ridge overlooking the surf town of San Juan del Sur, in southern Nicaragua, the ocean views are spectacular. The land comes with renderings, environmental and soil studies.
The asking price of $700,000 is negotiable and owner financing might be available. Thirty minutes away in Costa Rica, you can pay up to $600,000 for a single half acre ocean view lot. You can buy this land for $10,000 per lot… and still have land left over to build condos or a little hotel”.
I know this area (and so do up to 13 million American TV viewers, thanks to the current series of “Survivor”, being filmed in the San Juan del Sur area). It’s stunning. I haven’t done any due diligence on this deal. But it’s just one of many deals currently on offer on Nicaragua’s Pacific coast. I’ve asked my contacts on the ground to keep me updated on any interesting properties that come their way, and I’m planning a scouting trip there early next year. I’ll bring you any deals that make sense…so stay tuned.
Ronan McMahon
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