Three distinct statements will now follow.
“For that price…you can buy a place in Florida!”
“There are a multitude of reasons why relocating or retiring to Ecuador makes sense.”
“Detroit files for bankruptcy, in the largest city government failure in USA history!”
I know what you are thinking. Huh? What can these three things possibly have to do with one another. Nothing…yet everything. I know…believe me, I am reasonably sure that my editor has the exact same headache right now that most reader’s likely do. Bear with me. We are going to get there. It just may be a long and winding road.
In clear violation of all that is sacred in journalism, instead of writing 3 separate reports, which I could readily do, I am instead going to combine portions of the topics raised in my “three statements”, into one fluid piece. Why? Am I some kind of masochist…or…worse…sadist? Nope. Just really think it is time to play “connect the dots”, while time remains. If that last statement sounds “ominous”, well, let me throw out even one more curve. This article may be one of the rare occasions I cross the line to sound…dare I say it…alarmist. Let’s begin this journey.
Come on, with interest rates dirt cheap and the bottom dropping out of the USA real estate market in most regions, you know you have that friend who says, “Ecuador? Why Ecuador? For those prices you can buy a place in Florida!” Stop right there. No you can’t. Not an equivalent place, let alone under equivalent circumstances, even less so with equivalent prospects. Allow me to explain.
Buying real estate, if done correctly, is about a lot more than just looking at a price. Sure you can find a condo or run down single-family home in Florida and likely pay what you might in Ecuador, if you pay full retail in Ecuador. However, are you really getting the same thing for your money? Same ocean view? Same quality of construction and finishes? Same square footage? Same low real estate tax rates? Same low insurance costs – including no need for hurricane coverage, because the coast of Ecuador has no hurricanes? Same low condo assessment fees? Same freedom to enjoy your abode, without intrusive association policies? Same opportunity at property appreciation over the next year…5 years…10 years? Is what you are getting in Florida really the same as what you are getting in Ecuador.
Think on just a few bulleted points:
1) A posh 1,800 sf condo, on the oceanfront likely will carry a yearly property tax rate of somewhere near $180/year. No need to blink. You got it right the first time…per year! Going to pay that in Florida?
2) A normal HOA fee here will likely run you $125-$150/month for a well run building or HOA. There are some exceptions, mostly in gated communities, where the fees might run north of $200/mo. and, even ever so more rarely, north of $300/month…but rarely. I know run down condo complexes in Orlando right now charging $500 – $600/month in condo fees.
3) You might get 1,000 sf for $150,000 in Florida, but here on the Ecuador coast that same $150,000 will likely get you anywhere from 1,500 to 2,000 sf, depending on where along the coast you buy. Might that extra room not be more comfortable than “cramped quarters” in Florida?
4) Homeowners insurance costs? Post Katerina, from 2005-2007, insurance premiums costs in Florida rose 41%! In Ecuador, an all-perils coverage policy, plus reasonable content insurance coverage, might run you $1,200-$1,300/year from a reputable carrier, spec based on an 1,800 sf property.
5) Construction in Ecuador…solid concrete throughout. Construction in most USA homes built, especially in places like Florida which work under BOCA Code (one of the weakest in the USA), razor thin walls, where a child could likely drive a fist and make a dent.
6) Ecuador current economic outlook…more growth, real estate price appreciation, increased credit agency ratings and a manageable debt. The USA? Stagnant growth…real estate prices still facing a massive foreclosure overhang, credit agency downgrades and a debt standing at $17 trillion USD and counting. Still think that friend of yours makes sense, pushing Florida over Ecuador?
Now, let’s look at what Ecuador has to offer the expat and/or retiree, in the most concise manner possible. Some advantages over buying a condo or home in a place like Florida might well include things like living expenses can be cheaper, the relaxed lifestyle more satisfying, and cultural experiences more rewarding. More tangibly, one has to look at factors such as:
1) The cost of housing in Ecuador is far below the USA average and that of Canada and most European countries;
2) Ecuador’s property taxes are exceptionally low and homeowners over the age of 65 can get further discounts;
3) Ecuador doesn’t tax Social Security income or similar foreign government program payouts;
4) In Ecuador, quality healthcare is very affordable, particularly in comparison to costs in the USA;
5) Retirees in Ecuador, over 65 years of age, get 50% off cultural and sporting events;
6) Retirees in Ecuador, over 65 years of age, get 50% off electric and water bills;
7) Retirees in Ecuador, over 65 years of age, get 50% off airfare costs;
8) Retirees in Ecuador, over 65 years of age, get a significant portion of all sales taxes paid refunded;
9) Ecuador offers geographical and biodiversity like few countries on the planet, ranging from snow.capped mountains to tropical rain forests to idyllic beaches;
10) The people of Ecuador are welcoming and inviting, in sharing their native land with expats
The combined impact of all these factors could explain why in a country the size of Arizona, there are already a minimum of 10,000 expats permanently residing in Ecuador. Those numbers are growing, literally, by the day.
At this juncture, we are two-thirds of the way there. Hopefully, even if only a smidgen, we’ve gotten you to reconsider that a purchase in Florida (or similar) is not the same as buying in Ecuador. Hopefully, we’ve gotten you to consider some of the advantages of Ecuador discussed here (there are many, many more). Now…now comes the alarmist part. Here is why I think our readership should seriously consider the Ecuador option sooner, rather than later. While this is a broad statement, aimed at a global readership audience, I do think it is of particular urgency if you reside in the USA or certain parts of Europe. Frankly, Canada is not too far behind. The USA example will serve to illustrate the broader point.
Detroit, Michigan – Ford – The auto industry – The heartbeat of the industrial age and USA global dominance. The same Detroit, Michigan, which as of July 18, 2013 filed for bankruptcy. Yes, the entire city, making Detroit the largest city government failure in USA history! How did we get there? Honestly, long…complicated, way beyond the scope of this basic report. What you need to know is that in the USA and quite probably in many other parts of the world, other “Detroits” are waiting to implode.
What you also need to know is that Detroit’s financial insolvency and plea for subsequent bankruptcy protection means that , if granted, the city will wipe its slate clean of all financial obligations. All of them…including…retiree pensions. Of all the debt held by Detroit, the $3.5 billion in retiree pensions, both current and future debt, represents its largest single debt obligation. Detroit simply didn’t have the $3.5 billion to pay the pensions. It didn’t exist. Long squandered and reduced to a ledger entry in an accounting book.
The bankruptcy trial is over, but the judicial decree is pending. Will Detroit be allowed to default on its debt obligations or not? You may have the answer, before you read this report. However, there is something worse. The answer doesn’t matter. Detroit submitted a “work out” proposal offering to pay pension holders $0.16 on the USD. That’s right, 16% of the value of what pensioners were counting on receiving would be the proposed settlement. Imaging breaking your back your whole life, slaving, scrimping…all in the hopes of enjoying a few retirement years and…bam…gone. You might get $0.16 per USD owed. What can be worse? Easy. What I just described is a best case scenario.
If the judge rules in favor of the bankruptcy plea, they may allow the “work out” or determine that Detroit is not even responsible for $0.16 per USD. If the judge rules against Detroit’s plea and suggests full restitution for pensioners is required…Detroit still doesn’t have the money with which to pay. None of it.
So, we’ve reached bottom here, right? Not so fast. Not even close. Chicago owes $19 billion in pension payments alone and, by most accounts, could be in worse financial shape than Detroit. Like our Federal Government, too many USA states and USA cities are borrowing from Peter to pay Paul. You don’t know how bad the hand held is, until the check kiting scheme ends. By all projections, Chicago may be holding a losing hand worse than Detroit.
However, this is not a midwest USA problem. Los Angeles is more than $30 billion in the hole for pension fund debt obligations. It’s an across the country issue. Some of the worst culprits include Philadelphia, deemed in worst shape by most, because its unfunded $9 billion liability indicates that in one year, pension accounts will be empty (I still think Chicago is in worse shape, just the walk to the gallows will take longer). Cities such as Boston, Cincinnati, Jacksonville, St.Paul, New York, Seattle, Baltimore and Fort Worth, are all awaiting the hangman’s noose, merely jockeying for position, not to be next after Detroit.
If you have been waiting on your pension funds to serve you in retirement years, how safe is that bet? Instead of more funds, you might wind up with less…or…none. In the meantime, prices in Ecuador and throughout the world, where high demand exists, tend to trend higher. Not exactly a rosy picture.
The best Detroit and other cities can hope for is a Federal Government bailout of pensions, whereby the debt of the mismanaged cities will be passed on as further debt obligations to USA taxpayers? But where is a Federal Government, already $17 trillion in debt, going to come up with the funds to pay? Crank up the printing presses and watch the value of the USD further corrode, leaving all of us with less purchasing power. Even worse, this “solution” will send a ripple effect across ever state in the Union and every city that says, “No worries about financial mismanagement, Uncle Sam is here to bail you out.” No repercussions for bad decisions and poor fiscal behavior. Politicians will buy the vote and leave the USA taxpayer the bill.
Sure, most folks can sympathize, but those in the private sector, in a barely audible whisper, will simply shrug and say, “That’s a problem for public pension funds.” Not so fast. Just two words. Stroh’s Brewing.
Yes, Stroh’s was a Detroit-based beer maker, but not for a long time. It sold beer operations to Miller Brewing back in 1999 and converted the new funds into a bevy of real estate assets. Probably not the wisest choice to follow beer, with real estate. Sort of like setting up a real estate operation, out of a pub. Long story short, as Detroit decayed so did the new Stroh’s Corporation. The result should have been predictable: On November 8, 2013, Stroh’s announced that it can’t afford the pensions for 3,000 former Stroh’s Brewery employees. Stroh’s has asked for a Federal Government bail out. Ominous is the first word that comes to mind. As more cities crumble under the weight of pension fund obligations, the companies that rely on those cities for a client base, or for production or investments, may well follow suit. Not a public pension disaster, but a true “public-private partnership” into the decadence of uncontrolled excesses.
Now…for sure…things can’t get worse, correct? Not so fast. Not by a long shot. As bad as unfunded pension obligations are, they pale in comparison to unfunded healthcare liabilities. The latter is far worse. Try a hole ten times deeper than the pension fund fiasco. Yes, ten times worse!
To all our loyal readers, your individual situation may turn out much better or much worse. No way to tell. Every individual situation is different, therefore, every outcome will be different. However, to say that alarming trends are not “in the wind” would be irresponsible. If one believes that this is a “USA-only” problem, just consider that unemployment rates in Southern Europe are even higher than real unemployment rates in the USA. Just consider that nations, like the UK, on a per-capita basis, actually have a higher debt load than the USA. Many of the former dynamic capitalist economies have seen years of fiscal mismanagement and excessive debt weigh down their progress and push them to the brink of financial collapse. So, how safe are your retirement funds? How wise is it to put off tomorrow, what you can buy more cheaply today?
It may be time to look at hard assets in Ecuador. The time might be more fleeting than any of us would like to think. If nothing else, the diversification into a strong growth, low value economy like Ecuador can’t hurt. Alarmist is not something I like to be, but irresponsible is something I like to be labeled even less. Analyze carefully and choose wisely. Maybe you should enjoy the Ecuador lifestyle now. This is one instance, where time may not be on anyone’s side.