Understanding risk and reward in Central America real estate investing

When researching property opportunities in Central America investors quickly come to realize that purchasing destinations lie at different points on a ‘development curve’ and have different mixes of reward and risk.  Choosing which area is right for you is about understanding your appetite for risk and heading to areas where the risk/reward balance feels comfortable for you.

In broad terms, property that has not been developed, (i.e. pre-construction or off-plan), located in an area with little or no infrastructure has the greatest potential for growth in future value, but also the highest risk.  It’s practically impossible to predict exactly when an area reaches a tipping point for a development boom or when utilities, good roads or amenities will arrive.  These variables are what ‘early in’ investors in emerging areas have to contend with.  And we all know that real estate vendors have a tendency to exaggerate about the ‘new road’ or the ‘new airport’ that is ‘just about to be built.’

Purchasing destinations that are more mature in nature are less likely to see steep capital appreciation over the short term.  As the infrastructure is already in place, amenities are ready and the offerings are mostly turnkey you are not investing ‘in the path of progress’.   But the inherent risks are lower - after all there already is a road, electricity, and water.  And you’ll normally see potential for income generation from rentals.

A middle road would be seeking out property in areas that are not quite emerging, but also not quite developed.  As an example, purchasing Boquete Panama real estate or real estate in Placencia, Belize would fall in this category.  Both areas are now on the real estate map, the basic infrastructure and services are available but more is being planned.  Both Placencia and David have international airports under construction; (at Riversdale in Placencia, and a runway extension for the existing domestic airport in David for Boquete.)

Do you have a speculator's stomach?  Do you prefer a slow and steady option?  These are the kind of questions you need to ask yourself when choosing between different areas in Central America.

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