The true cost of real estate

Dear Reader,

The real estate values in Ecuador are amazing: $50,000 (£31,304) buys you a penthouse suite in a colonial mountain town, or even a cabin in a private nature preserve. And $115,000 (£72,000) buys you a home of more than 1800 hundred square feet in a high-end gated community perched above a beautiful beach on Ecuador’s nicest stretch of coast.

But, as you know, the purchase price is only part of the true cost of a piece real estate. You also need to figure the costs of buying, selling and holding your dream home. Ecuador comes up trumps in this measure, too. In fact, I know of no other country in Latin America where the taxes and fees associated with your property are lower.

Here’s how it breaks down in Ecuador. Some fees can vary by municipality, so I’ve based my numbers on the coastal city of Manta. Regional differences, when they occur, are generally pretty small.

In Manta you will pay a purchase tax of 1.6% of the sale price. Legal fees average 1% of the sale price (although for lower priced units you might pay a flat fee of $1,500/£939).

That’s a total of $2,300 (£1,440) for one of those $50,000 condos.

Property taxes are paid on the assessed (municipal) value of the property rather than the sales price (as in the U.S). Again, in Manta, you’ll pay 0.15% of the property’s assessed value. In some municipalities, you can have an assessed value that’s far below the sales price, which reduces your annual taxes. In others, the assessed value can be closer to the actual sales price.

That’s an annual property tax bill of $75 (£47) or less on a $50,000 condo.

When you go to sell, you’ll pay 0.5% in capital gains tax. If your $50,000 condo doubles in value to $100,000 and you sell…the tax man will only take $250 (£157).

The condo fees for my penthouse in the mountain town of Cotacachi are $100 (£63) per month. Considering condo fees on an equivalent condo in the U.S. could run to several hundreds of dollars every month, this represents a major saving.

Of course we want to buy our real estate at the lowest price possible, but transaction costs can be an important a factor when deciding where and what to buy.

In Ecuador, investors don’t need to worry taxes eating up real estate profits. If you want to live in Ecuador you want to make sure your costs of ownership are manageable. And you will find that they are.

In fact, there are Americans living in Ecuador who’ll tell you their holding costs plus living expenses equal the holding costs of a nice condo in the U.S. It’s almost like they are living for free…and if they sell at a profit they will legally cut the taxman only a tiny check.

Source: Pathfinder International