Investing in Nicaragua During a Pandemic?

What are the best investments in Nicaragua during the Pandemic? What are the most attractive options out there?

What are the best investments to make in Nicaragua during the Coronavirus?

The virus is going to take a big bite out of a number of industries in Central America. Hospitality related businesses are being forced to close. Long term prospects are for the industry is bleak. Many bars and restaurants in the region will simply close.

Commercial real estate vacancy rates will shoot up in the near future as tenants simply close up shop. Even when economies open up again after the crisis there will be a decreased demand for office space.

Many companies will realize that a lot of the work the do can be done remotely. A number of them will either move to work-from-home more often, or completely. As a result they will decrease the amount of square footage rented. Why use a big office if you can lease a smaller on and have employees flex in and out of the space?

New construction starts will decrease significantly.

Based on that hypothesis there will be a surplus of commercial real estate for rent in the major cities in Central America. That will put downward pressure on lease prices, which in turn will bring down sale values. So in the near future there will be heavily discounted commercial real estate.

The short term rental market is also going to take a major hit. All over Central America there are empty AirBnB’s. From Antigua, Guatemala to San Juan Del Sur, Nicaragua to Panama City units are sitting empty.

Many of these are often second or third properties with foreign owners. If they face a cash crunch back home the first thing they will sell is their rental unit.

So how can you take advantage of this?

There are two main strategies. The first is to pick up a fire sale property where the replacement value (land plus construction cost) is greater than asking price. Assuming the property is in an area desirable to foreigners, and can generate at lease enough income to cover expenses in the short term, you can invest and hold while things return to normal in the next year or two.

The second strategy to to invest in a property that has both local and foreign demand. For example this four unit apartment building in Granada, Nicaragua.

It would rent to a local market (or long term expats living in the country) for $250-$350 per unit per month. A gross of $1100/month or so, with renters paying their own bills. With a property manager at $200/month handling eventing remotely that a gross of $900. Taxes are low, and so are maintenance costs. Combined around $1000/year.

That would give a gross of $9800/year with full occupancy. Even at 75% occupancy it would still generate $6500 per year. At a $119,000 purchase price thats a 5.4% return. Given that purchase price is negotiable the rate of return could be higher.

That negotiable purchase price leads into the previous point from above. This property is listed well under replacement cost. The $119,000 asking price is about $60,000 less that the replacement value of $180,000. So at some point there will be appreciation to a point between those asking and replacement values.

There are no capital gains taxes in Nicaragua. Rental incomes private homes are generally not taxes, unless someone is running the property as a corporation.

Joel Stott-Jess

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