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SunnySoleil

What to believe about buying real estate in Costa Rica?

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No where in the world do you get more money without assuming more risk. Other banks and credit unions "may" be safe. A private bank may fail from making poor investments. The national banks are very heavily regulated and less vulnerable to mismanagement. They pay less interest because of that. I have CD's at 6.45%. Last year I had some at 10%.

 

I'm satisfied with my CD's at BN.

 

T

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My question to you, David, is this: If you are getting a $5 return on your coffee plantings and that is half of the profit, then why does your neighbor continue to work the coffee farm for $5 a year? That doesn't make sense to me. I understand your part of it - you don't really need the income -- but what about Juan Carlos?

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My question to you, David, is this: If you are getting a $5 return on your coffee plantings and that is half of the profit, then why does your neighbor continue to work the coffee farm for $5 a year? That doesn't make sense to me. I understand your part of it - you don't really need the income -- but what about Juan Carlos?

I think he said that was the first year's profit and a lot of labor (Juan Carlos) has gone into improving the crop.

 

T

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Eleanor, you asked, "My question to you, David, is this: If you are getting a $5 return on your coffee plantings and that is half of the profit, then why does your neighbor continue to work the coffee farm for $5 a year? That doesn't make sense to me. I understand your part of it - you don't really need the income -- but what about Juan Carlos?"

 

First, the second and third pickings are always more abundant. The $5.25 (don't forget the quarter!) was merely the very first, and very worst, "take" we've ever experienced. I cite it for its amusement value.

 

Second, the labor to restore the productivity of our coffee has provided Juan Carlos and the neighbors he recruited to help immediate cash income. I pay my half as they accomplish one task or another. Several times each year, the men come to cut weeds, apply fertilizer, etc. There's a cash flow to them then apart from harvest times.

 

Third, that restoration also holds the promise of future, and much more rewarding, harvests for years to come. In fact, in recent years our share of the profit from the harvest, while still not supporting us, has been substantially more than that first time in 2005. We and Juan Carlos are in agreement that it makes sense to continue to invest in the coffee to the extent that we (well, he) not only maintain it, but we also plant as many as 1,000 or so new plants every year. As the plants age, it makes sense to replace them.

 

And remember, the plants are beautiful, and with roots that can extend as far as eight feet underground, they help hold the soil.

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Eleanor, you wrote, "Why do you think that buying a CD at Coopenae has "virtually no additional risk?" What is it about Coopenae that assures you that your money will be as safe as with a national bank?"

 

First, note that I wrote ". . . virtually no additional risk." I didn't say that there is literally no risk involved in investing in CDs at Coopenae versus in a national bank. Indeed, there may be some additional risk. The questions are, how much? and whether it's worth the exposure. What's the real likelihood of a failure?

 

That said, Coopenae's quarterly audit reports, performed by a rotating cadre of international auditing firms, reflect rock solid risk management. If you want to compare Coopenae's risk to that of a national bank, backed by the government, then you need to apply the same yardstick to them both. What is Banco Nacional's risk exposure? BCR's? And what about the government's real ability to stand behind them or any of the other national banks should one of them fail? What audit reports have you seen for the national banks and the government?

 

Coopenae has been around since the mid-1990s. It's the largest financial cooperative in Costa Rica with some 85,000 members and the fourth largest in Central America. Its size and track record say something, no? And it has yet to fail to perform as promised.

 

And whereas Banco Davivienda is paying around 7.5% (if I recall correctly) for a one-year CD denominated in colones, Coopenae is paying around 11% for one year and 12.75% for five years, also denominated in colones.

 

The interest rates paid by all the financial institutions in Costa Rica, national banks and cooperatives, are falling. That's important to bear in mind.

 

If I can lock in a 5.75% additional return for five years from an institution whose likelihood of failure is virtually (there's that word again) zero, I'm gonna go for it.

 

As always, your mileage may vary.

 

Edited by David C. Murray

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Eleanor, you wrote, "Why do you think that buying a CD at Coopenae has "virtually no additional risk?" What is it about Coopenae that assures you that your money will be as safe as with a national bank?"

 

First, note that I wrote ". . . virtually no additional risk." I didn't say that there is literally no risk involved in investing in CDs at Coopenae versus in a national bank. Indeed, there may be some additional risk. The questions are, how much? and whether it's worth the exposure. What's the real likelihood of a failure?

 

That said, Coopenae's quarterly audit reports, performed by a rotating cadre of international auditing firms, reflect rock solid risk management. If you want to compare Coopenae's risk to that of a national bank, backed by the government, then you need to apply the same yardstick to them both. What is Banco Nacional's risk exposure? BCR's? And what about the government's real ability to stand behind them or any of the other national banks should one of them fail? What audit reports have you seen for the national banks and the government?

 

Coopenae has been around since the mid-1990s. It's the largest financial cooperative in Costa Rica with some 85,000 members and the fourth largest in Central America. Its size and track record say something, no? And it has yet to fail to perform as promised.

 

And whereas Banco Davivienda is paying around 7.5% (if I recall correctly) for a one-year CD denominated in colones, Coopenae is paying around 11% for one year and 12.75% for five years, also denominated in colones.

 

The interest rates paid by all the financial institutions in Costa Rica, national banks and cooperatives, are falling. That's important to bear in mind.

 

If I can lock in a 5.75% additional return for five years from an institution whose likelihood of failure is virtually (there's that word again) zero, I'm gonna go for it.

 

As always, your mileage may vary.

 

David, aren't the rates you publish after taxes which are taken our before they give you the money in CR? I mention that because some folks might be comparing your numbers to the before tax rate they see in the US.

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Jim, you asked, "David, aren't the rates you publish after taxes which are taken our before they give you the money in CR? I mention that because some folks might be comparing your numbers to the before tax rate they see in the US."

 

Costa Rica imposes an 8% tax on the interest earned on CDs purchased at both national and private banks. The rates that banks quote are net rates after that tax has been withheld. If (say) BNCR quotes (say) 7.5% on a one-year CD denominated in colones, that's what you'll be paid -- 7.5%. In order to give you that 7.5% net return, they actually have to pay around 8.1% before the tax is withheld.
Costa Rica does not tax the interest earned on CDs purchased at non-profit cooperatives. The rates they quote are net rates, as well. If (say) Coopenae quotes (say) 10.5% on one-year CDs denominated in colones, that's what you'll get -- 10.5%. And that's what they pay -- 10.5%.
Interest paid to U.S. citizens on CDs (or from other sources) by banks in the U.S., by banks in Costa Rica, and by non-profit cooperatives in Costa Rica is all taxable under the U.S. I.R.S. Code. The "foreign earned income tax exemption" in the I.R.S. Code is just that, an exemption from tax on income you earn from actual, active work, but not from passive endeavors like investments, rent, profits from sales, etc.

 

 

Edited by David C. Murray

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I loved Marsrox comment, and from what I see and have experienced, feel the same way. My rent is about 4% annual return of what the owner is asking as a sale price. But with no real capital gains to speak of. I feel this was a good place years ago but has thoroughly been exploited by rich western people making a quick buck in the real estate. I still enjoy it here and it gives my kids a chance to have a relationship with their uncles and grandparents. But i can see the sense in not tying up your cash in a very slow market, and in my opinion unimpressive returns. Of course each to their own, what works for me may sound ludicrous to others. The above comments are only my opinions.

cheers

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