Buying Real Estate on Roatan
Or Chas’s blunt guide to what you need to know to be safe!
The changing situation that is Roatan
Buying real estate on Roatan has become somewhat more challenging since the advent of COVID-19. Oh, how COVID has transformed our lives! The world is markedly different from what it was just a few years ago. When people were finally allowed to travel after being confined to their homes, they flocked to Roatan like a swarm of locusts, quickly purchasing the majority of available properties. This surge in demand cleared out years’ worth of old and new inventory. There’s nothing like being held hostage in your own home to make you realize that you either want to make the most of your life or find a place where you wouldn’t mind being confined if such a situation were to occur again.
Additionally, the global economic situation has worsened for various reasons (without pointing fingers at political pundits or specific leaders or parties; inflation is a global phenomenon). We’ve gone from a period where 1-2% inflation was the norm in the first world to a current rate of 8%. Cash in bank accounts is losing its value as I write this, interest rates are rising, and what was true just last week may no longer hold true this week. In this environment, property becomes increasingly valuable, and the era of easily accessible low-interest or “free” money is fading into the past. I remember a time when mortgage rates were as high as 17%, so it’s a good thing if you’ve locked in your rates by now. 🙂
These factors are likely to lead to several outcomes in the coming years. Property prices in Roatan are likely to rise as the cost of borrowing money increases, and cash becomes less valuable. The limited inventory available will also contribute to rising prices as more people compete for a limited number of properties. Moreover, we can expect a substantial surge in development, as both mainland and foreign developers recognize the tremendous opportunity to develop and sell properties on Roatan. Any realtor who has been here can sense the difference. This is the first year I’ve ever had to say to a client, “I think we need to make an offer today if you want that property.” It’s a bit disconcerting but true. We’re witnessing the construction of well-designed new apartment complexes, with all the units being sold before they’re even finished. I’ve even seen competitive offers on a single property. Roatan is a different place than it was just a year or two ago.
Can I legally own land in Honduras?
Yes, as a foreigner, you are allowed to own up to 3,000 square meters of land, which is approximately ¾ of an acre for those from the USA. If you intend to acquire property exceeding this limit, you must establish a Honduran Corporation to facilitate the purchase. Initially, the corporation is formed by a Honduran citizen. Afterward, the corporation is transferred to you, and it is through this corporation that the property is acquired.
Can I buy direct? Should I use an Agent?
Honduras operates much like other countries when it comes to real estate transactions. You can indeed purchase property directly, especially if it’s not listed with a Roatan Realty Association (RRA) agent, but it’s crucial to have a thorough understanding of the process. You should also have a lawyer you completely trust and be proficient in reading Spanish.
In Honduras, anyone can become a real estate agent by paying a government fee, but only agents affiliated with the RRA are held to specific ethical standards. The RRA was established to provide both buyers and sellers with assurances that they are dealing with ethical and reputable agents and brokers. Any unethical behavior can result in expulsion from the RRA, which means losing access to property listings. When you work with an RRA agent, you can be confident that someone is overseeing their actions to ensure ethical and legal conduct.
The RRA ensures that properties listed through their agents are owned by the seller, and all documents are up-to-date and in legal order. They verify that there are no liens, problems, or issues with the property that could hinder or affect the sale.
If you choose to work with a non-RRA agent when purchasing a property, there is less assurance of ethical conduct. The RRA imposes strict ethical and professional guidelines, and members who act against the best interests of their clients, add extra fees or kickbacks, or behave unprofessionally risk facing violations and losing their RRA membership. It’s also worth noting that well-known names like REMAX have agents with international reputations that you can rely on.
Should I buy in my name or Honduran Corporation?
It is slightly more expensive to purchase property through a corporation, but I generally advise people to consider this option regardless of the property’s size. You will need to cover the cost of incorporating the corporation, but there are several advantages to doing so.
Firstly, when you purchase property through a corporation, the identity of the shareholders remains confidential. This level of privacy can be appealing to many buyers.
Secondly, in the unfortunate event of the corporation owners’ passing, a letter can be left in the care of an attorney to facilitate the direct transfer of the corporation to another party, such as immediate relatives. Without this provision, your property would have to go through probate, which can be a less comprehensive legal process. In such cases, property often goes to the first relative who stakes a claim, and it’s essential to have a Honduran will, as foreign wills are not recognized in Honduras.
Why should I choose you as an Agent Chas Watkins?
Who am I? I have now spent 17 years on the island, so I know it well. I have worked in sales and been a sales manager in the USA and Australia. I have started multiple companies and been involved in technology in Silicon Valley. I have even worked as a life coach and written an award-winning scientific/philosophical book with thoughts on how to live life. The book, based on Roatan, is titled “To Hold The Sun.”
I am a buyers-only agent, which means I have no listings. My primary role is to find the ideal property for you at the best possible price, regardless of who is selling it. My sole interest is ensuring your happiness.
I firmly believe that we all have subconscious biases, and it’s challenging to remain impartial if you are a listing agent. Listing agents often have a financial incentive to sell properties they have listed, whether consciously or unconsciously. Some agents may claim to act with a fiduciary duty or impartiality, but in my opinion, this can still lead to a focus on completing the transaction rather than getting the best possible deal for the buyer. My approach is to be honest, open, and dedicated to achieving the best outcome for you, the buyer.
Furthermore, if we cannot find the property you are looking for on the MLS (Multiple Listing Service), I can also approach property owners on your behalf who may not have their properties listed on the MLS. In cases where we cannot immediately locate what you desire, I will set up notifications to ensure you are regularly informed of any new listings that match your criteria.
Is that the only reason you are only a buyer’s agent?
No, I came here to Roatan, just like you, with the aim of living a fun and interesting life on this beautiful island. I genuinely enjoy guiding people around and sharing this wonderful place with new acquaintances. By working as a buyers agent, I can manage my time more efficiently, explore, travel, and even engage in some writing. I never claimed to be a saint; my point is that doing what’s best for you aligns with what’s best for me as well. It’s about creating a mutually beneficial arrangement where everyone involved can enjoy the benefits of the process.
How do I look at property while I am not there?
The RRA operates the MLS, which includes listings for almost all types of properties on the island, including land, houses, businesses, and resorts. To quickly locate properties on the MLS, you can visit my website at www.LifeOnRoatan.com. The site functions better if you create your own login, allowing you to save listings and searches that pique your interest and review them later.
Additionally, my website features a button highlighting the properties on the island that I find the most interesting or consider the best value at the moment. It also provides an analysis of sales data from the last few months. You’ll find a wealth of information on my site, ranging from guidance on moving to the island to details on becoming a resident if that’s something you’re considering.
I am planning a trip and want to see properties!
Neither of us wants to waste your time by visiting properties that don’t align with your preferences. That’s why I prefer to have multiple phone meetings with you before your visit. During these calls, I’ll take the time to understand your desires and address any questions or concerns you may have about specific properties. If you’ve never been to Roatan before, I can assist you in gaining a better understanding of the different areas on the island and the lifestyles associated with them.
Are safety considerations your top priority? Are you looking to be close to nightlife, restaurants, and bars? Or perhaps you have a preference for being on a secluded stretch of beach? I will work with you to narrow down your options to create a shortlist of available properties that meet your criteria. By the time your trip to Roatan arrives, we’ll already have a selection of your favorite properties to visit. These properties may be spread across the island, which is not a problem, as I like to provide people, if time allows, with a comprehensive tour of the island, offering a well-rounded overview of what each area has to offer.
I hear inventory is low and it is difficult to see some properties.
Yes, our current inventory is exceptionally low. In all my years here, I have never witnessed properties selling so rapidly, often at or very close to their asking prices, and in some cases, even above the asking price. COVID-19 brought about a significant shift in people’s mindsets, and as soon as countries started reopening, there was a surge of individuals eager to embrace a new way of life.
Previously, properties on the island would sometimes be overpriced and sit on the market for months, if not years. However, now, some properties don’t even make it to the MLS before they are sold. Prices are on the rise, and there’s a notable increase in new developments across the island.
To view properties, we typically need to provide 24 hours’ notice. It’s different from the USA, where you might leave your house with a lockbox and the scent of freshly baked chocolate cookies. Here, many properties are vacation rentals with tourists staying in them. As you can imagine, these vacationers aren’t always thrilled about having an agent and potential buyers inspecting the property while their personal belongings are scattered around their temporary residence. So even with 24 hours’ notice, viewing a property is not guaranteed.
The least convenient time to search for property is during Easter, which is the island’s biggest holiday. All accommodations tend to be fully booked, and it can be challenging to gain access to properties. On the other hand, the rainy season can be an excellent time to explore properties. It’s cooler, and for some reason, there are fewer visitors. The weather is beautiful during that season when it’s not raining, of course! 😄
I have found a property and I want to buy it. What now?
First and foremost, it’s essential to forget how real estate transactions are typically conducted in your home country when dealing with property purchases in Roatan. This is where having an RRA agent can be extremely valuable.
When a property is listed on the MLS, it provides assurance that the property is legally owned by the individual attempting to sell it, and the broker possesses all the necessary documents for the transfer. If you opt to work with a non-RRA agent, you may find yourself waiting a significant amount of time while your lawyer meticulously examines and verifies all the documents.
Secondly, we have standard contracts that are designed to protect both the buyer and the seller. These contracts are written in clear English and specify what each party needs to provide and when, particularly concerning Honduran legal documentation.
In the USA (depending on the specific area), it’s customary to make an offer, conduct a home inspection, and then create a punch list of items that must be addressed before the offer becomes valid. Both parties need to agree on the work to be completed, negotiate a discount, or reject the list altogether.
In contrast, here in Roatan, properties are typically sold “as is,” meaning there is no recourse once the deal is signed. It’s quite common for no inspection to be carried out. However, you can include conditions in the contract requiring an inspection, which you, as the buyer, will be responsible for paying. I can recommend some reputable inspectors if needed. The cost of an inspection can vary but is typically around $500, depending on the size and complexity of the property.
What price?
I will carefully review the contract with you to ensure you have a clear understanding of what you are signing. In essence, you’ll make an offer on the property for the amount you’re willing to pay and provide the owners with a couple of days to either accept your offer or present a counteroffer.
Determining the right offer price can be somewhat of an art form here. Unlike places with platforms like Zillow where you can easily find out what the house next door sold for and assess market values, Roatan’s real estate market is more nuanced. Most houses are individually designed and constructed, making it challenging to establish an exact market value. What one person considers their dream house might not align with someone else’s preferences. This is where the local knowledge of your agent becomes crucial. I’ve helped many clients save money on their offers because of my familiarity with the local market.
It’s worth noting that if your agent is also the seller, they are obligated to remain perfectly impartial, which means they won’t be able to provide preferential assistance to either party.
The offer
Once you have settled on a price that has been mutually accepted by the seller, all conditions have been met, and the contract bears all the required signatures, you have entered into a contract. As the buyer, you typically have approximately 5 business days to send a deposit via international wire transfer, which is usually equivalent to 10% of the agreed-upon price. It’s essential to comprehend that this money is sent to the seller’s broker, and it’s a critical point to grasp. Unless there is a blatant breach of the contract, it’s vital to understand that the 10% deposit is non-refundable.
Lawyers
As the buyer, you have the liberty to select your lawyer, and you will be responsible for covering their fees and all associated government charges. The seller typically bears the cost of any commissions related to the property sale. Generally, the buyer’s expenses amount to approximately 6 to 6.5% of the total property price. Therefore, when making an offer, it’s important to understand that for every 100K in the property’s price, you should budget for around 106.5K in total costs.
While the choice of a lawyer is ultimately yours, I do have my preferences based on years of experience working with certain lawyers. These preferences are rooted in their reputation for being meticulous, trustworthy, and competent.
It’s worth noting that there are two distinct types of lawyers in Honduras: regular lawyers and notaries. Notaries in Honduras are unlike notaries in other countries, where anyone can become one. In Honduras, a notary is a lawyer who has presented themselves to the Supreme Court of Honduras and undergone questioning on various legal matters. If they pass this rigorous process, they hold a distinguished status as some of the most senior lawyers in the country and are akin to walking judges. Every final real estate transaction must be witnessed by a notary to render it legally valid.
The closing process
The time it takes to complete the purchase, from the acceptance of the offer, can vary depending on several factors and may range from 30 to 90 days. Typically, I include a clause in my offers that specifies “90 days or before by both parties’ agreement.” This flexibility is essential because if you set a shorter timeframe, you might encounter challenges obtaining all parties’ signatures for extensions, particularly if the seller has reservations for any reason.
Numerous factors can potentially extend the closing process. Holidays are a significant factor; during Semana Santa (Holy Week) or Christmas, very little progress is made. However, during these periods, lawyers and brokers are often working diligently on the back-end legal processes to ensure everything is in order. If the land hasn’t had a survey conducted in the past year, the municipal authorities may need to inspect it. This step is crucial because their assessment dictates precisely what you are purchasing. If all is in order, the lawyer will draft the contract in Spanish and provide you with an English translation for your understanding.
The close
The final funds for the closing must be sent at least a full week before the scheduled closing date. It’s crucial to ensure that a wiring issue doesn’t jeopardize the completion of the deal. As your agent, my brokerage, REMAX, holds the funds in our escrow account. The actual closing process is usually quite swift. All involved parties or their representatives must be present for the closing. If you cannot be physically present, you can grant legal authority for someone to sign on your behalf through a “Power of Attorney.” I’ve assisted many clients in creating these documents. However, the process can sometimes be cumbersome, depending on your country of residence, which is another reason for the 90-day timeframe.
During the closing, the notary reads through the contract to ensure that everyone understands the terms they are signing. After a thumbprint and signature, the transaction is complete, and the keys to the property are officially yours.
Taxes, Utilities, HOA, etc.
REMAX ensures that all outstanding bills, taxes, HOA fees, and other financial obligations are settled and prorated up to the day of the closing. From that day forward, you become responsible for all ongoing bills and expenses related to the property. We are here to assist you in changing the electricity service to your name and addressing any other issues that may arise.
Regarding property taxes, moving forward, you can anticipate an annual tax rate of approximately 0.4% of the total property price. In some cases, the Municipality may offer discounts for advance payment of property taxes, as they may require immediate funds.
Mortgages
The real estate market in Roatan and the rest of Honduras operates primarily on a cash basis. Typically, buyers are expected to provide the full purchase price at the time of closing. However, in some instances, for offers made at the full asking price, sellers might consider short-term private financing with interest rates ranging from 5% to 10%. This financing option is usually limited to one or two years.
I strongly advise my clients to exercise caution when considering such financing arrangements, especially if they are not absolutely certain they can repay the amount well before the agreed-upon timeframe expires. Failing to meet the repayment terms can result in the loss of the property and any payments made up to that point, with no refunds.
In some cases, sellers may be motivated to offer financing as a means to facilitate a sale, particularly if the property has been difficult to sell. In such scenarios, they may collect multiple deposits from different buyers and profit more from reselling the property than they would have from a straightforward cash sale.
The New World – New Construction
One significant shift in the real estate landscape over the past year has been the increase in new construction. Given the limited inventory and the arrival of skilled builders from the mainland, we are witnessing the construction of numerous small apartment complexes, each containing 2 to 8 apartments. These apartments are typically modern 1 to 2-bedroom units, equipped with essential appliances like stoves, refrigerators, and air conditioning systems. Many of them boast attractive locations and views, and they are priced competitively in the range of 100 to 200K.
These apartments often sell out quickly, even before the entire building is completed and ready for occupancy. A new approach has emerged around these properties, centered on the “Promesa de Venta” or promise to buy. The Promesa de Venta is a legally binding contract that obligates the seller to transfer the property to the buyer once specific conditions are met. Holders of a Promesa are often treated as the property owner in most interactions.
Here’s how the process typically unfolds:
Viewing and Decision: You are shown an apartment, both in its unfinished state with some time left until completion and an equivalent finished unit showcasing the final fittings and furnishings. If you like what you see and know that other unfinished units have already been sold, you understand the need to act quickly.
Off-Plan Purchase: You are essentially purchasing “off plan,” which means you are buying at a discounted price compared to what the property will be worth once it is finished. While there may be a slight price negotiation, there isn’t much room for adjustments. You may also request minor changes in the finishings, which could impact the final fit-out cost.
Contract Structure: Your agent will draft a contract with the following structure:
Your offer price and any requested changes.
A specified date for signing the Promesa de Venta, which should coincide with the unit’s completion.
Payment structure:
An initial 10% down payment within a few days to secure the contract.
Upon completion of the unit, a signing of the Promesa de Venta, where you can move in and pay 40%, bringing your total payment to 50%. Commissions are typically paid at this stage.
The final 50% and full closing, where the title is transferred, occur once the municipal has all the necessary paperwork ready for the apartment titles. This step is because the municipal’s pace cannot keep up with the fast construction. Once the paperwork is complete and stamped, you will be informed, and the final 50% must be paid within a few days. The notary oversees the final closing, and you become full owners, receiving the title when issued by the municipal, which hopefully happens within the next year.
This process is straightforward and benefits both the owner, who can move in promptly, and the seller/builder, who can collect funds to continue their work and potentially embark on the next project.