My husband has been annoyingly videoing every part of the process of digging our well on the property we bought in San Juan del Sur. After finding water he made this amazing video documenting the journey in reverse order. He is now forgiven for my irritation.
We liked the idea of an easy office/storage shed by using a container. We had heard there was a surplus of them in Nicaragua so you could get one cheaper than constructing a regular building. We asked around San Juan del Sur and randomly stopped by places we saw containers while on trips away from town, but the quoted prices were much bigger than what we had planned for until a friend of ours came back into town and hooked us up with his contact. We ended up paying about $4,000 for the container with delivery.
After living in San Juan del Sur for a year and a half and spending about 3 months looking at land, we’ve finally found our piece of Nicaragua.
We are unlike the clients I experienced during my brief stent as a Real Estate Agent in Nicaragua. We were interested in a much larger lot than most, what is called a “manzana” which equals 1.74 acres. We are also forgoing the pricier option with ocean views, and instead want to create our own oasis with lush green valley views off the road to the Southern beaches, called Las Delicias.
We transferred our 401ks and IRAs into what is called a Self Directed IRA or Solo 401k . Our budget is not huge, so we had to spend extra time looking for property and utilizing all our Nicaraguan connections in order to find the best price we could in the area we wanted to buy. The less we spent on the land, the more money we will have to build our vacation rental.
We met with the seller thinking he was just going to meet to talk about what piece and shape of his large 320 manzana plot we wanted and to finalize pricing. Instead we walked through the boundaries of our potential parcel with a team of 2 men leading the way, cutting through the tall grass & bush with machetes. We worked as a team with a surveyors tape measure, marking off where our boundary posts will go and hammering temporary markers made out of freshly cut trees. Once back at our car, the seller asked if we could pay half of the total sales price that day. Taken by surprise, we told him we were unable to pull that amount of money out of an ATM in one day.
We headed back to our office to discuss further the next step towards ownership of the land. The seller was very persistent about moving forward without an attorney, plot map, etc. Luckily, in the midst of all of this, we spoke to our friend Gaspar at Century21 and he coached us that it was in our best interest to sign a “promesa de venta” (a contract where the seller agrees to sell and the buyer agrees to buy) with an attorney later that week.
The next morning, possibly with our heads a little more refreshed and feeling less rushed, we realized that we had measured our plot incorrectly. A manzana is 6988.96 square meters, and we had measured 35 x 140 meters which equals only 4,900 square meters! What is amazing is how huge it had already seemed and we were still getting 2,088 more square meters! With this new piece of knowledge we called the seller and discussed meeting his workers again and marking the property correctly, then meeting him at an attorney to sign a promesa de venta. He agreed and we were quickly able to get that done. We paid $200 for the attorney to write up the promesa de venta and 10% of the sales price as a deposit to the seller, receiving a receipt for each. This gave us 30 days for the seller to obtain some needed paper work, find out if any taxes were over due, and have a surveyor come out to do a plot map.
Living in Nicaragua inspires you to invest in this developing country. There seems to be an abundance of opportunities to fill the gaps of what doesn’t already exist. Even living mostly paycheck to paycheck, we still have dreams of owning something in Nicaragua. We want to build a home that we can come visit and rent out when we are not here.
After working in the real estate business briefly, I heard there was a loophole that allowed you to “self invest” your 401k or IRA. This intrigued both Kharron & I since we had some money in our retirement funds that didn’t seem to be invested well. Using the money in our IRAs to invest in Nicaraguan real estate sounded too good to be true!
Let me explain: We quickly learned that using a 401k verses an IRA is much more flexible when buying real estate. First off, with a 401k Plan, when you make a real estate investment it does not trigger the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax (IRC 514). However, this exception does not apply to IRAs. In other words, using a “Self-Directed IRA” to make a real estate investment would trigger the UBTI tax. Secondly, traditional IRA’s only allows an individual to contribute $5,500 annually ($6,500 if the person is over 50 years old). A Solo 401k plan allows for contributions up to $59,000 per year. Since we’re planning on building a vacation rental, being able to reinvest the profits back into our retirement fund was important to us.
There is one catch, the typical 401k plan does not usually allow for investing in real estate, so most people form a “Solo 401k Plan”. This is a traditional plan, but covers only one employee (and spouse), and allows you to bypass some regulations. If you have or create a Sole Proprietorship, your business can obtain a Solo 401k Plan. Since a 401k Plan is a trust, the trustee on behalf of the trust can take title to a real estate asset.
Don’t let all this mumbo jumbo fool you, after a lot of research we were still thoroughly confused on how to proceed. Luckily we found the company IRA Financial Group. For a small fee of $1,500, they did all the work for us. They set up the Sole Proprietorship, created The Reid Dynasty 401k Trust, and helped us figure out how to roll our existing retirement funds into a the new Solo 401k Plan. We decided to use Fidelity Financial for our Solo 401k since they have a product called a “Non-Prototype Retirement Account” for Solo 401k’s & I already had my IRA with them so in theory the rollover would be easier.
Everything was set up after a couple months and we started looking at land we wanted to buy.