August 12, 2015
First of all, my enthusiasm was partly fueled by what is called the “margarita effect.” That’s usually applied to the phenomenon where people think they want to live in a place where they had a wonderful vacation and then find that living there is a completely different (and disappointing) experience from vacationing there.
After the excitement wore off, I realized that I would be stretching my finances too thin. My ability to buy one of the smallest lots was predicated on the developers agreeing to let me make a couple of payments. And the schedule I proposed assumed there would be no glitches in the income from the sports bar or the income from my day job and that I wouldn’t take any more big trips that would cost a lot of money for the rest of the year.
I also got advice from a man who has done a lot of foreign investing and real estate developments. He said that if the land I was buying was priced “as is”, then it was a good investment. However, if the price reflected its future value, based on a new road and other amenities being built, then it was a risky investment. Another way of saying this is that I should only pay what the land would be worth if no amenities were built and no new road was built.
I really don’t have anything to compare the price to so it’s hard for me to determine which situation applies.
I also did some soul searching about the fact that it would represent about 1/3 of my net worth. Regardless of the answer to the above question, it’s very risky to put that much of my net worth into any single investment.
Another factor was that it would be several years before I would have the funds to build a house on the land. Of course, I could just hold on to the lot until after the amenities and road were built and then sell it for a profit.
If I had invested all of my liquid assets in the land plus most of what I earn for the rest of the year, I would not have had anything left to start another sports bar with my brother. That option would no longer be on the table. I’d like to keep that option open at this point.
Normally, there is minimal cost to hold an empty lot. However, in this case, I would have had to start paying HOA fees once the amenities are built. I wouldn’t have a house to go stay in so I probably would not visit and use the amenities very often, if at all.
I really liked the idea of hanging out with some very interesting and influential people who would also be owners there. Again, if I didn’t have a house there, I would have to rent something in order to go spend time there. That’s probably not an economically feasible option for me at this time. It certainly wouldn’t happen very often.
In fact, a more viable option would be for me to rent one of the villas they’ll be building now that I’m not buying a lot. I can use some of the money I would have invested in the land to travel there and rent a villa! I just had that epiphany while writing this article.
Last but not least, I really intended for my Colombia excursion to be my first look at foreign real estate. I didn’t actually expect to buy something on this trip. I need to get a feel for property values, income opportunities, and risks before making a decision about where and what to buy. I need to look at a lot more opportunities before I have gathered the data needed for me to make an informed choice.