July 26, 2006

Going South for Alternative Investments

Costa Rica real estate offers another kind of diversification--Retirement Plan Advisor, July 2006

In 2003, Barry Strudwick, a financial advisor based in Baltimore, Maryland, put together a partnership of 10 of his clients and bought a $1.75 million, 350-acre swath of land on the Pacific coastline of Costa Rica.

Given the growing popularity of Costa Rica, often referred to as the "Switzerland of Central America," as a vacation destination for wealthy Americans, Strudwick's group planned to immediately flip the property to a developer. But realizing the great potential of their investment, they decided to develop the property themselves into a luxury town called Del Pacifico, a high-end enclave of condos that are up for sale for anyone who wishes to own property in Costa Rica.

Today, Strudwick says, the value of the property has grown exponentially, but more than that, so too has the number of wealthy American retirees who have realized the value of investing in real estate in Costa Rica.

"A large number of Baby Boomers these days want qualitative investments for retirement," Strudwick says. "I call these people the King Bees--they have achieved their financial goals and they are looking for something beyond that to add to their retirement assets. After spending 20 or 30 years building up their balance sheets, these kind of people want a more meaningful investment experience, and we can offer them that."

Strudwick believes that non-traditional, non-U.S. dollar-denominated assets such as Costa Rican real estate are really the future of investing for retirement. As the U.S. dollar continues to lose value, so too do the many investment options that are linked to the dollar, he says, and so it would be wise for those who can afford it to diversify away from dollar-denominated financial assets into non-dollar, hard assets.

Randy Flink, a financial advisor based in Dallas, agrees. Flink heard about Strudwick's initiative while trying to figure out ways to deal with the financial challenges facing his Baby Boomer clients invested in traditional assets, and the effects of climate change on traditional North American retirement areas. The relative value of North American property versus Mexico and Central America brought him to the conclusion that the latter would become very important travel and retirement destinations in the future, so after a period of due diligence, Flink decided to put some of his clients' money in Costa Reit, a partnership Strudwick put together based upon the success of his Del Pacifico project. Costa Reit plans to invest further in Costa Rica, and as time goes on, expand into parts of Panama, Nicaragua, and Belize.

"Costa Reit seemed to fit what I was looking for," Flink says (indeed, many of Strudwick's clients have come to him from other advisors, who, concerned about the weakening U.S. dollar and the spiraling deficit, believe that tangible assets such as real estate that are not denominated in dollars are the way to go). "In the case of Costa Rican real estate, you have a tangible asset with some qualitative features that are attractive to those who can afford to travel and interact with their investment."

Costa Reit is structured as a stock transaction, so its shares can be purchased inside an IRA account with pre-tax dollars, Strudwick says. The venture has already proved successful enough for Strudwick to close a first vehicle, Costa Reit I, and he is now raising funds for Costa Reit II. However, for those who do not want this level of commitment, Strudwick also offers the possibility for clients to simply purchase a condo unit in either the Del Pacifico property or in any upcoming projects that Costa Reit might build, he says.

From a macro perspective, Costa Rica offers many advantages, Strudwick says. In addition to its scenic beauty and abundance of natural resources, this is a country with great potential that boasts, among other attractions, a high literacy rate and an educated, English-speaking workforce. Major companies--Intel, Eddie Bauer and Maytag, to name a few--have regional headquarters in Costa Rica, and the U.S. Coast Guard ensures the nation's protection.

For clients familiar with investing in tangible assets such as real estate and foreign currency, Costa Rica makes for a good alternative, especially if they are willing to accept an investment with a long-term horizon, Flink says. Over the past few years, it has become easier to sell the idea of a non-traditional investment to U.S. clientele, Flink says, and a place like Costa Rica has great appeal.

At the same time, though, an asset like a Costa Rican real estate trust should be used more to enhance a balanced portfolio than form its core, Flink says. As such, Costa Rican real estate is truly an investment for those who really have the means and even then, Flink advises his clients to only keep a very small allocation to this or other non-U.S. property investments, and to actively diversify among the various tangible asset classes.

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