HOA Fees in Latin America – Too High or Too Low.

Dear Readers,

Over the past week people have asked me several times about home owners fees (HOA).  Specifically, HOA fees in Latin America. The unspoken premise of the question people asked me was, “How low are the fees?”   In reality, the question should be, “Are the fees high enough?” Stick with me please and hear me out…   

We consider HOA fees in Latin America one and the same as condo owner fees (COA) for this discussion.

You see, unscrupulous developers will set the HOA fees as low as they think necessary to create an artificially low price to appeal to the buyer. Don’t get me wrong, low fees are a good thing: low cost of ownership, less money.  Good thing.

But when we start to look at all the things that a Home Owner’s Association (HOA) in Latin America must cover, and even more so if it’s a Condo Owner’s Association (COA) fee, where there’s a building to maintain, you might start to see the tension between a developer who wants to sell you on low fees, versus the reality of taking care of a property or building that requires care and maintenance.

Therefore, the savvy buyer should be asking whether the fees are high enough. This is the key to knowing if you are getting set up for a reasonable assessment, and protecting yourself from a giant raise in the fees once the developer is out of the picture.

Let’s examine HOA fees in Latin America in more detail:

The first item to consider is, “We don’t know what we don’t know.”  In the US and Canada, once a developer builds the roads, sidewalks, and possibly water and sewer, this infrastructure is usually turned over to the municipal government and paid for through local taxes. In most cases South of the Border, the local government won’t take on the responsibility of costs associated with high end infrastructure. Therefore, maintenance remains the responsibility of the developer, short term, and ultimately the HOA long-term.

Know this. It costs money to maintain public infrastructure. Concrete, plastic pipe, steel, etc…. are all priced at a world market price. There’s no discount in Latin America for these products. Yes, labor is less expensive, but public infrastructure is “stuff” heavy and “people” light. Expect the costs in Latin America to maintain these types of infrastructure items to be 60-80% of the cost in the US and Canada (you’re still paying less than you would in the US or Canada).

What is Covered by HOA Fees in Latin America?

Next consideration.  “What else does an HOA fee cover south of the border that usually gets covered by taxes up north?”   Security is a big one. Police forces are stretched thin throughout Latin America. There simply aren’t enough tax revenues to maintain a large force, and the force they do have, will be concentrated to protect locals and citizens of the country. Security for a development will need to be provided privately in large measure… and usually around the clock.   To maintain 24/7 coverage requires 4 people.  Even with inexpensive labor, for every guard position that is manned full time, it requires significant staff.  Administration as well.   This all costs money.  Of course, keep in mind that private security has its advantages over municipality-provided public security. You will receive a security dedicated to your safety, and your safety alone. This is a huge plus.

The next questions are, “Is there a club house? Pool? Extensive landscaping? Street lights? What other elements of the public space are being cared for by the HOA?”   If it’s a condo, now add a building to maintain and insure. A roof to keep water tight.  If the property is on the beach, add the pressure of salt wear and tear and frequent staining and painting. Is there an elevator? Does the COA have a service contract for it? You can quickly see that an HOA / COA fee south of the border will look a lot like a those in North America.

But don’t be dissuaded. As you know, there are a ton of other reasons that make living in Latin America a bargain for the high quality of life you will receive.  But HOA / COA fees aren’t one of them. Any bargain here is just a set up for a trouble later.

A Legal HOA

Reputable developers have established a legal HOA separate from the developer.   When done right, the developer doesn’t get a penny of the HOA money unless contracted to provide a specific service by the HOA.   The money belongs to the home owners. Plain and simple, and as it should be. The HOA should be legally established, have its own bank account, and have accountability to a president and board of homeowners that will of course include the developer.    

Of course, no developer is going to cede development control to an HOA board. There is naturally tension inherent in the relationship.   This is a good thing.   When the developer has a stated long-term vision which home owners have bought into, then it’s the responsibility of the HOA and the developer to uphold that vision for all owners.    Homeowners absolutely want the developer involved to provide the growth, viability, and stability of the community that only a continuing economic engine can provide.

Better questions to ask

So people ask, “If the HOA fees in Latin America are similar to North American fees, what’s the advantage to lining overseas?”   

One way to answer this question is to make a cost comparison of ownership over a 10, 15, or 20-year period. Comparison of costs includes: HOA fees, taxes, recreation costs, food, utilities, medical, and other costs that are specifically related to where you live.

One factor that’s particularly hard to get your mind around is just how much your quality of life increases with domestic help. Having a maid and a gardener means no chores… ever. And it doesn’t cost very much to enjoy this freedom from the mundane tasks of life like cleaning, trimming, and washing dishes.

What is freedom worth? In the US and Canada, full time domestic help, depending on where you live, would be thousands of dollars per month. In most parts of Latin America, its several hundred per month.

What’s the value in being able to eat organic fruits and vegetables, meats and cheeses, and seafood so fresh it may still be flapping when you buy it? If you live on a tight budget in the US, you will probably have to eat a lot of foods that are generally inexpensive but highly processed. Organics are just out of range. But for the same money, and actually much less, residents of countries in the Latin American region do enjoy all manner of fresh wholesome foods far more affordably than we can eat schlock in the US.

Shopping basket:  Whole Foods vs. Just Off the Farm

So, we’ve wandered a little bit astray from the original question about HOA fees in Latin America. But that’s okay, because the hidden meaning behind the, “How much are the fees?” question is really, “How affordable is it to live in the region?”  

The reality is that a cost comparison is an individual thing. For each person or family, it’s going to be different. But in general, it costs far less to live in the Latin American region than in North America and the quality of life can be much higher.

We’ll explore this concept further in some articles coming up this month. The first will be a shopping basket test where we’ll compare Whole Foods and Krogers in the US, to La Colonia (a supermarket) and local markets in Nicaragua. Next, we’ll compare prices of that same shopping basket between Cayman Islands, Turks and Caicos, and Ambergris Caye, to get an “Island” cost of living comparison. If there are comparison items you’d like to check out, send us a list and we’ll collect up a bunch of your ideas and questions and write about that too in the future.

Steer Clear of Trouble

The thing to remember through all of this, however, is that looking for low HOA / COA fees is looking for trouble. Maybe not now, but down the road for sure. What you want is to look for is a developer with experience, one that knows what they’re doing, and that’s honest enough to communicate that to you. The next time you get drawn in by tantalizingly low HOA / COA fees, I would urge you to remember the time honored phrase, “If it looks too good to be true, it probably is.”

Don’t get duped by artificially low HOA / COA fees in Latin America.  Look at the bigger picture for a complete understanding of cost of living, costs of ownership, and quality of life.    Latin America delivers big on the quality of life issues that matter to most folks.

I hope I was able to answer some questions for those home buyers recently curious about our HOA / COA fees. And of course, check back in with our blog to see our up-coming cost comparisons of living in Latin America versus North America; I think you will be pleasantly surprised by what you see.