Which Is Better – To Rent Or Buy In Nicaragua?
North Americans, Europeans and a great many others are taught that ownership of real estate is one of the best ways to grow wealth. The rise in real estate value adds to one’s personal net worth. It also provides tax benefits that can be used to shield other sources of income.
However, in markets were rents are low and property values are high, such as they are in some Nicaragua real estate markets, purchasing a property may not be the most financially prudent approach. This is especially the case in commercial applications. Why invest hundreds of thousands of dollars to purchase a building when you can rent the same property for a few hundred dollars a month? True, there is no depreciation of the structure to offset profits, but the rent paid is a business expense and the cash saved by not having to purchase the property can be working for you elsewhere.
Why is this so? To understand why a building with a price tag in the hundreds of thousands to millions, such as a hotel property, can be rented for just a few hundred dollars a month, a few thousand at most, you need to understand the Nicaraguan mentality towards real estate investment.
Most Nicaraguans do not trust banks, and with just reason. Recent Nicaragua history is littered with instances of bank failures. Plus there are few trusted investment opportunities. So to safeguard inheritances and money earned, Nicaraguans will hold onto real estate they inherit and purchase real property whenever they can. The average Nicaraguan with land holdings is not a sophisticated investor and doesn’t need to be for a property to serve its purpose… safeguarding his or her money.
This mentality means that appreciation and even rental income is of secondary concern. In many cases Nicas will purchase acres of raw land for cash and make nothing at all from it. They’re happy knowing they have land that will never be worth nothing, as many bank savings turned out to be. Imagine being someone who inherited a property that was sold and the money banked or all of your savings was deposited in the bank, only to find you were left with nothing when the bank failed. Now you can appreciate the Nica mindset.
So it’s possible to find a property for farming, manufacturing or to use as a hotel, B&B, restaurant or retail outlet for very little per month. Offer the owner of a locked up colonial house, warehouse, commercial building or land a set amount for 5 to 10 years and in all likelihood they’ll agree to rent it to you.
The property owner continues to safeguard his or her savings and the tenant gets a property at an affordable monthly rental amount. In all likelihood the property will require some leasehold improvements, in which case the owner gets improvements made to his or her property. Plus he or she knows the property is being maintained. On the tenants end, he or she can write off leasehold improvements and the cost of maintaining the property as business expenses. It’s a win win…
To learn more about rental opportunities in Nicaragua, contact Nica Investments.
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