May 15, 2005

Monthly cost of Maintenance & Utility Bills

As if the cash flow from rentals and the capital appreciation potential weren't enough, another amazing benefit is the monthly expenditures of owning a property here are extremely low. In fact, my company has been contacted by several REIT's (Real Estate Investment Trusts), corporations and individual investors throughout the world. Although my company initially specialized in purchasing real estate to use as short-term rentals for foreigners, these investors realized that my company is highly respected in the real estate community in Argentina. We understand the real estate market and are able to evaluate fair prices for a particular property. A realtor's goal is to get you to spend the most money possible. After all, they receive a percentage of the total purchase price. My goal is to help you save the most money possible.

Many investors and corporations that purchase real estate around the world are recently flocking to Argentina and purchasing real estate. These investors have made it clear to me they have no plans on purchasing expensive furniture and lighting and furnishing their apartments. They have no desire to rent them out. Their goal is to simply purchase the underlying property for the capital appreciation potential. They are just starting to see what I realized several years ago. The real estate market here has tremendous upside potential for capital appreciation. The beauty is that because the utility rates are so low and the property taxes are only 0.75% per year, they can simply buy and hold for a few short years and then sell at a tremendous profit.

I personally know several people that are buying and selling and making 10% - 20% profits after only a few months. I have publically posted on various messages boards that I believe real estate prices will continue to go up over the next decade. People in Argentina have called me a visionary for what I am doing. To me, it's very clear and so plain to see. No matter what problems or crises occurs (and Argentina seems to have one about every 10 years), real estate has always been a safe haven if it is purchased in the right areas and you are not overpaying for that piece of property. I believe that traditional mortgages will become available in the future. When this does, property prices are going to continue to escalate just as it has done all over the world. I have traveled all over South America and there is nothing like Argentina. Buenos Aires is a special city.

Add in the fact that investors from all over the world (especially the USA, UK, Europe and Asia) are coming to Argentina and driving up prices. Property owners in the USA and UK have experienced tremendous capital appreciation on real estate they bought several years ago in places like London, New York, California and other cities. They believe the upside potential is limited and have sold their properties and now are looking for the next good real estate play. It's no coincidence that they all are coming to Argentina. The British Sterling and the Euro are extremely strong right now. Consider that all property here in Argentina is priced in u$s and the property is extremely affordable for these Europeans.

Remember that all utility bills and monthly expenses are in Pesos. The exchange rate will NEVER go back 1:1 against the u$s. I believe it will never go 2:1. I publically posted back in 2002 that I believe a fair value was between 2.75 to 3.25 against the u$s. That has remained true. When the exchange rate went as high as 3.8 against the dollar I saw that the dollar was artificially too strong just as the peso had been artificially too strong for over 10 years. I took a significant portion of my savings and I started purchasing Pesos. That proved to be a good strategy. After I moved to Argentina in 2004, I converted all those Pesos back to u$s dollars at an exchange rate of less than 2.95. The exchange rate can't be artificially high with the dollar or the peso. A free floating currency system will always balance itself out over time.

All apartments in Buenos Aires have a monthly maintenance fee. A sort of "condo fee". The monthly fee covers any building repairs, security or doorman expenses, upkeep of the building or painting of general areas, cleaning of the building, insurance and any other general fees. The apartments are individually owned but the tenants all split the expenses based on how big their property is. If you own a garage, you will be expected to pay more than someone that doesn't have a garage. Condo fees range on average for a u$s 100,000 apartment from 125 pesos (u$s 43) to about 500 pesos (u$s 173) for a building with a lot of amenities like a pool, gym, jacuzzi, etc. The average range is around 300 pesos per month.

Some utility bills like the telephone, cable bill, and high-speed Internet bill (if you choose to get that service) come every month. Other utility bills like the water, gas and electric bill come every two months. There is something called an ABL tax that all property owners pay. It comes quarterly and on average it is about 350 pesos (u$s 121) per year for a property valued at $100,000. You have the option of paying it quarterly or yearly. There is also a property tax that I will go into in a separate section.

Make sure you buy property insurance immediately after signing the boleto. Property insurance is inexpensive and will cover you if there is a fire. The building maintains insurance to reconstruct the building but I still always purchase insurance on my apartments and the contents of my apartments. I spend about u$s 25,000 on average in each apartment so this is essential that insurance is purchased from a reliable company. We provide all of our consulting clients with referrals to dependable and affordable companies. The typical cost is about u$s 17 per month.

A phenomenom very strange here in Argentina is that many utility bills come in the name of the previous owner maybe 5, 10, 15 or 20 years ago. Since there is no credit system in Argentina, people aren't worried about leaving their name on their utility bills. If you don't pay for a utility bill, they simply shut it off. That simple. I have changed many utility bills in my name once I buy an apartment but several still don't have my name. Why? Because these utility companies make changing them a nightmare. You have to wait in line personally for up to hours. I can't send an employee to change some of them. I have to do it myself. I don't have time to wait in line hours. The system has been like this forever so people never bother to change their name on their utilitity bills.

These companies make it impossible sometimes. Case in point, dealing with the phone company is a frustrating process. When I first moved here, even though I had met some local friends that could do things for me, I purposely did everything myself so that I could learn how the system works here in Argentina. Simply doesn't work. The system is broken. Just to make a simple change like getting a controlled line you would think you could request that over the phone. That would be logical. Right? Very few things are logical in Argentina. You must go to the Telecom office where you don't even talk to a representative. You go to their office and guess what? They send you to stand in line so you can use their phone to call in to their office and request the change. YES, you heard that right. You can't call to request the change from your home/office but you must go to Telecom's office to get on a phone. Ridiculous but this is how many things are done here in Argentina. It's managable if you know how to deal with these companies and know what to expect. Many foreigners are deluded into thinking everything will be the same as their country. They couldn't be more wrong.

You will notice on almost all utility bills there is a code to pay electronically. Once you open a local bank account you can pay all your bills online instantly. Most people stand in line and pay their bills and it can take hours. It's a very primitive process. I am set up to pay all my clients bills online for them quickly and instantly. You can print a receipt to document that you paid the bill. It's advantageous to set up directly debit with you credit card or debit card with as many utilities as possible.

Several times I have received a notice they were going to shut off my electricity or gas within 24 hours. I never received the bills. It doesn't matter to these companies. In the beginning I did not know how it all worked out. Now I have employees whose only job is to pay bills. It can be a full-time job.

* All u$s price amounts are at the current exchange rate which is 2.89 : 1 with the u$s.


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