Rent v. owning: A couple of case studies in Ecuador

Posted: November 30, 2012 in Life, Money
Tags: , ,

ecuador map

If you’ve been reading the last few posts focused on my recent trip to Ecuador, you know one of my objectives was to take a look at property for sale both in Cuenca and in and around Bahia on the coast.  I like looking at property, it is an excellent way to get a feel for a place and we are seriously considering relocating in a couple of years.  All good reasons, and the fact that it gives me material for this post is just icing.

Back in February of this year I presented my way of running the numbers in the rent v. own analysis:  I like this approach better than others because it is simpler and it focuses on evaluating the choice you are actually making rather than some academic exercise designed to prove a point.

If you haven’t already, you might take a moment to give it a read as it lays out the thinking behind the analysis of a couple of Ecuadorian properties to follow.  Go ahead.  I’ll wait…

OK.  If I’ve learned anything from putting up that post it is that people have very strong emotions wrapped around their personal decision to rent or buy.  In it I was candid about my own inclinations.  I have a bias towards renting.  As soon as I can unload the house I own, I’ll happily go back to the carefree and blissful renter’s life.

But I’ve also owned at various times in my life, so I’m not unsympathetic to the appeals of having a place you can call your own.  While we were raising our daughter the school system, lifestyle and neighborhood we wanted were all most easily accessed by owning.  Now those days are past and my wandering spirit is getting antsy.   I’m not a putting down roots kinda guy so the flexibly of renting has an outsized appeal.  For others putting down roots is vitally important and so owning has, for them, its own outsized appeal.

Regardless of where your personal inclinations lie, I think it is vitally important to run the numbers.  At least if achieving wealth is important to you.  If you are going to own a house, or not, it behooves you to know what the financial implications are.

For instance, in my case, running the numbers tells me that owning my house costs a $5-8000 annual premium to renting the apartment I have my eye on.  That’s steep by any measure.  Given that the apartment is the far more appealing living arrangement to me, my path is clear.  But so far, the market has kept me trapped.  This, too, is an important lesson:  It is almost always far easier to buy than to sell.  Houses, cars, appliances….just about anything. Something to keep in mind when the buying siren’s song is calling.

While renting holds more appeal for me than owning, and my guess is that once this house is sold I’ll never buy again, never say never.  I am first and foremost a financial guy.  If running the numbers in some future situation points to a fiscal owning advantage, I may yet again pull the trigger.  Living in Ecuador may present just such a scenario.  For the purposes of the analysis below I’ve used the asking price for both sales and rental.  Negotiations would lower both, but we can assume in proportion.  Let’s take a look.

Property #1.  Cuenca Condo: 2-bedrooms, 2.5 baths.  Veranda.  ~1500 square feet.  $162,000 to buy/$800 per month to rent.

tomebamba river

Tomebamba River View

This is a beautiful property in a solid brick building about two years old.  Finishes are top quality and it comes furnished, also to a top quality level.  Needs nothing, as they say.  It is on the second floor and the veranda provides a lovely view across the street to the river and the park that runs along side it.  Using the formula from my February post:

— $5670 opportunity cost. This is the 3.5% dividend our 162k could be earning in VGSLX.  Opportunity cost is frequently overlooked and is often the largest cost of all.  If you really want to know what the numbers have to tell you, its inclusion is critical.  What it is and why I use VGSLX as my proxy are both explained the February post.

— $1252 in annual cash expenses comes from these:

  • Heat and AC costs: 0.  Buildings in Ecuador don’t have heat or AC.  Neither are needed.
  • $1128 HOA (home owner’s association) fees @ $94 per month.
  • $124 real estate taxes per year.  No, I didn’t omit any zeros.

–$6922 total annual cost of owning and operating the condo.

v. $9600 annual rent @ $800 per month =

— $2678 annual premium to rent.  Advantage:  Owning.


Property #2 is in one of those tall white buildings above

Property #2.  Bahia Condo: 3-bedrooms, 3 baths.  Veranda.  ~1600 square feet.  $145,000 to buy + $10,000 to renovate/$800 per month to rent.

This condo is on the 4th floor of a solid brick building about 16 years old but the finishes are poor quality and showing their age. It comes serviceably furnished, but I’d want to upgrade were I to live in it.  As a rental you could get by, but upgrades would bring more rent and the rental figure I use below assumes the upgrades.  It faces the Pacific Ocean and the view from the veranda is pretty spectacular.

— $5425 opportunity cost. This is the 3.5% dividend our 145k purchase price and 10k estimated renovation cost could be earning in VGSLX.

— $1825 in annual cash expenses comes from these:

  • Heat and AC costs: 0.  Buildings in Ecuador don’t have heat or AC.  Neither are needed.  Temperatures in Cuenca range from about 60-80F and on the coast from 70-90F.
  • $1200 HOA (home owner’s association) fees @ $100 per month.
  • $500 special assessment for painting the building.  As this is a 16-year-old building my guess is these ‘special’ assessments will become a regular thing.  In Ecuador HOAs tend not to build contingency funds from the monthly dues.  Special expenses are a handled with special assessments.
  • $125 real estate taxes per year.

–$6750 total annual cost of owning and operating the condo.

v. $9600 annual rent @ $800 per month =

— $2350 annual premium to rent.  Advantage:  Owning.

Two things immediately leap out to me:  The lack of HVAC costs and the super low real estate taxes.  Looking at the numbers we ran last time on my house v. renting, these alone go a long way toward tipping the rent v. own balance. My real estate taxes in NH are over $8000 annually and heating oil runs over $2500 a year.

So clearly the first thing you should do upon arrival in Ecuador is buy yourself a home, right?  Well, lots of gringos do exactly that, but your pal jlcollinsnh is going to suggest you carefully consider a few things first.

1.  The “gringo tax.”  Like many overseas retirement havens, the gringo tax in Ecuador is a very real, if unofficial, thing.  Now, if we are talking a $2 taxi ride and the driver is asking for 50 cents more than he’d charge a local, my advice is don’t sweat it.  Pay the man and feel good he has a bit more to bring home to his family.  If we are talking about a 150k house, I get a bit more hard-nosed.

2.  There is no MLS (Multiple Listing Service) in Ecuador.  You’ll get no listing sheet with the price clearly shown. The price is whatever the realtor or owner tells you it is and that number may be, in fact very likely is, different than what they told the last person or will tell the next.  In my short time looking I’ve had one realtor tell me an apartment cost 145k and another 90k for the same place.  With a couple of new American friends I looked at a rental for $750 per month.  It had been offered to friends of theirs two weeks earlier for $950.  One gringo owner told our realtor he was only interested in selling at “the gringo price, not the local price.”   Purchase price or rent, it is very difficult to determine the actual market value and very easy to overpay.  Of course, a mistake made renting is lots easier and cheaper to correct.

Cuenca apartment

Nicely furnished Cuenca Apartment.  $750 a month for us, $950 for the people who saw it before us.

3.  There is no set way or commission percent realtors get paid.  It depends on the deal they strike with their seller and/or buyer.  Maybe the seller pays the commission.  Maybe the buyer.  Maybe both.  In some cases the seller will set the price and the realtor’s commission is whatever more she can sell the place for.  If the seller wants 100k and you can find a gringo just off the boat to pay 170k, 70k is your commission.  By the way, don’t think for a moment dealing with gringo sellers and gringo real estate people will avoid these situations.

4.  You shouldn’t be buying property in any market you don’t first understand.  Because there is no MLS, any given realtor will only be aware of the few properties available to which they are personally connected.   No one person can or will show you everything available at a given time.  To really understand this market takes much more time and effort than here in the USA.

5.  Ecuador is a 3rd world country.  As such dramatic political changes can come swiftly.  If push ever comes to shove, no politician will favor the needs and interests of expat property owners.  As one expat told me, “While things are great now, we are only ever one election away from a presidential order expelling all foreigners.”  From what I can tell, in Ecuador that’s highly unlikely.  But I’ve known enough people over the years, my wife included, who have fled revolutions with only the clothes on their back that I don’t  take it lightly either.

6.  Even the most adamant proponents of homeownership concede to have a chance of making it work financially you need to live in the place at least five years.   Ecuador is no different.  Yet I heard several stories of gringos who arrived, bought and three months later were back in the USA having decided the reality didn’t match their dream.  And stuck trying to sell.

7.  This is, for all practical purposes, a cash market.  Mortgages are tough to come by for locals and near impossible for expats.  Rates, assuming you have excellent credit, start at 15%.  If you have the cash, you are in a strong position.  Most American expats are renters.  Some because of point #5 but many others because they are living on Social Security month-to-month.  Something you can quite comfortably do here, BTW.  The other buyers are wealthy Ecuadorianos who also have cash.  But remember, this is still a poor country and those folks are few.

8.  You should never buy property without a clear understanding of how and to whom you’ll be selling.  It is well to remember that as attractively priced as stuff looks here, when the time comes those expats and locals with the cash to buy from you may be few and scarce.  In Ecuador, as in the USA, cash buyers are rare.  The difference is, in Ecuador they are virtually the only buyers.

That all sounds pretty grim, but the truth is the place calls to me.  If in a few years we make the move, here’s my approach:

1.  I’ll put our best and most treasured stuff in local storage here in NH; sell and dump the rest.

2.  We’ll move to Ecuador, probably Cuenca to start, with a couple of suitcases and set up month-to-month housekeeping in an apartment/hotel like Apartmentos Otorongo where I stayed for part of this past trip.

3.  From this base I’ll focus on finding a furnished rental like Condo #1 above.  This I’d rent for a year.

4.  During that year I’ll look at lots more property, both to rent and to buy.  I’ll talk to lots of expats about what they own/rent and how they found it.  By the end of this time I should have a very clear idea of what true market values look like.

5.  I’d also travel extensively in Ecuador this first year.  It’s a spectacular place and I want to see it all.  At each step I’d be evaluating where in the country to settle.  Cuenca and/or the coast look like the right places now, but who knows?

6.  At the end of this year+, I’ll also have a much clearer idea as to whether Ecuador itself is just a couple of year fling or the place I use as my traveling base for the rest of my days.

7. Based largely on the answer to #6, I’d make the rent/buy decision.

8.  Assuming we decide to stay for the long-term, the last decision is whether to pay to have our stuff shipped or to buy new furnishings locally.  Since I have little emotional attachment to the stuff I own, and since beautiful local art can be found and absolutely gorgeous wood furniture custom made for less than shipping costs, that looks like the path I’d take.

Despite all my cautionary points above, I love what I’ve seen of Ecuador.  I wouldn’t be so seriously considering relocating there otherwise.  I think the country’s future is very bright and they are on a strongly positive path.  My biggest dilemma really is where to settle.  I’m a city guy and I love Cuenca.  It’s small enough to be comfortable and large enough to have the amenities that make cities a joy.  Plus it is wonderfully walkable.

san-clemente beach

On the other hand, there are several beach towns up and down the coast with a very appealing laid back vibe.  Beautiful sandy shores that seem to stretch forever dotted with little beach shack restaurants serving seafood and local beer.  Not a bad way to while away some time.  One coastal expat described his town as what Cabo San Lucas used to be twenty years ago before it got overrun with yachts and multi-million dollar homes.  He hopes it doesn’t happen to the Ecuadorian coast but if it does he figures he’ll just cash out and find the next unspoiled place.  Not bad figuring seems to me.  Hmmm…..

Maybe I’ll rent in Cuenca and buy a little beach shack on the coast….

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  1. Jim says:

    Excellent post! May I ask why you chose Bahia over, say, Manta or Salinas? And did you compare Bahia and San Vicente?

    I’ve noticed there is a lot of “noise pollution” in Latin America. Did you have that experience in Bahia? I’m referring to a difference in tolerance to noise and indifference to neighbors when making noise: loud music everywhere and at any time and incessant barking of dogs were the two biggest annoyances. It was literally almost impossible to find peace and quiet in populated areas.

    Tip: make good friends with locals; they will turn you on to the best deals for rent or purchase. Make a concerted effort to speak Spanish–not learn it, speak it. Just take the plunge and speak it. Start with whatever and build on it. You’ll be amazed at your progress.

    • jlcollinsnh says:

      Thanks Jim….

      glad you liked it!


      I don’t actually recall how I chose Bahia. Might simply have been that’s were the real estate tour I took started.

      I preferred Bahia over San Vincente, which seemed to have lots of rough edges to it. But my time there was short, so that may be unfair.

      My time in San Clemente was also short, but that was my favorite coastal place. Can’t pinpoint exactly why, just had a nice laid-back beach vibe to it.

      I found Bahia to be a very quiet small town. Nice for my visit, but maybe too quiet for a lengthy stay. That said, there are places with the music and barking dogs you describe. It is important to note that there is little or no zoning. So even if today your place is a quiet refuge, an all-night disco could open up next-door tomorrow.

      Sounds like you’ve some first hand experience. Where are you?

      Oh, and +1 on both your tips!

  2. smedleyb says:

    jlc, awesome report. As an aspiring expat, I find stories such as yours incredibly enlightening and inspiring.

    Personally, I plan on dumping my home and using the interest earned on the principal to travel extensively in CA and SA, living in rental units paid for by said interest. See the world, no roots, pull up when its time to flesh out some new country or island. At least that’s the plan. Buying anything — even with the prospect of capital gains — is not high on my list.

    How integral is real estate ownership to your plan to retire in Ecuador? Even if the cash flow is a few hundred in your favor if you buy, wouldn’t the house/condo represent the same kind of albatross around your adventurous neck as the home in NH?

    • jlcollinsnh says:

      Thanks Smedley.,..

      sounds like you and I are kindred spirits. You plan and aspirations are a lot like mine.

      Real estate ownership is not at all integral to my plan. Once I unload this house, I will be slow to buy in Ecuador or anyplace else. If at all.

      That said, one of my motivations in moving to Ecuador is that with its lower cost of living it would free up more money to play with and could be a great base from which to travel and further explore the world.

      If I become convinced that it will be my long term base and assuming I can come to terms with the other issues I raised in the post and were I to find a compelling deal….

      …well, never say never. :)

  3. I have seen condos on the beach for $60,000! That won’t buy you much in Cuenca and the beach can be hot during high season when it is great in the mountains. I also would love a place on the beach for the non-hot season.
    You certainly are informed on things here in EC for not living here. Please let me know next time you are in Cuenca, love ot meet for coffee.

    Gracias, Gary

  4. Shilpan says:

    Taxes and even HOA fees are low. Nonetheless, I agree with you that buying a property in Ecuador may not be wise. I don’t know if you can even purchase title insurance; and my pal Jim will definitely pay more than what the house is worth simply because he is an American. Renting is the way to go!

  5. Great rundown of the numbers; considerations and your plan. The anal detail-oriented part of me loves it. I’ve thought about living abroad in early retirement, have you ever considered something like a long-term Home Exchange? I really like the idea of swapping houses for a year which would be relatively cost-free (you’d still be on the hook for your property taxes).

    Great picture of the Tomebamba River, I could dig that!

    • jlcollinsnh says:

      Thanks Mr. ED….

      …glad it appealed to your ‘higher nature.”

      Thought about the house swap idea but haven’t been able to get comfortable with the idea of strangers in my house while I’m gone. I am, however, completely comfortable with the idea of my being in their house while they’re gone…. ;)

  6. arebelspy says:

    Very fun post, JL. As a real estate investor, I wouldn’t buy either on those numbers, so on my analysis renting comes out ahead of buying in both the described scenarios. As always, your numbers may vary. :)

    • jlcollinsnh says:

      Thanks! Glad you liked it. I’d be interested in hearing more about your investor analysis of the numbers.

      Say, have I mentioned this Retreat….. ;)

      • arebelspy says:

        Hah. Thanks for joking about that; I’m glad you didn’t take offense. :)

        Essentially both properties fail basic rules of thumbs (1% of purchase price in rent per month, preferably closer to 2%, 50% of gross rent going to expenses, maintenance, vacancy, etc. meaning negative cash flow on leveraged, or quite low cash on cash returns if bought outright).

        I think if actual numbers were run it’d look like this:
        800 gross rent – 1 mo/yr vacancy – ~300 to clean up the place between vacancies (usually just 100 cleaning fee, but occasional repaint / carpet) – standard maintenance stuff (appliances, plumbing, etc.). Capital repairs (such as a roof replacement) are mostly covered due to them being condos, but that will likely be reflected in special assessments on the HOA fees. Maybe a few hundred a year on insurance? Assume tenants pay all utilities. Possibly some advertising fees. Property management at, say 10%? Not sure what the going rate there is. Plus the HOA.

        I’d project ~4900 net rent, and that’s being generous. Considering financing is tough down there, and at very high rates, you’d be paying cash, meaning you’d be getting a 3% return on your money (162k). That’s a lot of work and risk for 3% return. (And cash flow negative if leveraged.)

        I’d rather invest that 162k in something else, and rent.

        Lots of the above are rough guesses (I have more accurate numbers on my own local market), but I feel are more likely accurate (that is, you just forgot some expenses. When you are a landlord, turnover is a bitch.)

        My latest property is my cheapest rent, at 800, same as both of these condos. It cost me 58k. That’s much more reasonable than these 150k and 160k to get 800 rent. My expenses are about 42% of gross rent, so I get ~5600/yr net, which is a cash on cash return of 9.6% on 58k. Much more reasonable than 3%.

        I do favor leverage (at current borrowing rates which I believe will be lower than inflation over the next decade or two), and the P&I of the mortgage comes to $224. On my cash invested (25% down, plus closing costs and minor rehab costs) I’m getting 12.81% cash on cash return, and 17.10% return counting equity paydown (i.e. the amount going to the principal of the loan). It’s actually higher because I do my own property management, but I don’t count that in my return. (And, of course, also doesn’t count any potential appreciation or tax benefits vis a vis depreciation and mortgage interest deduction, so gains may/will be even higher due to those.)

        All in all, the return on those Equador properties just aren’t enough. Basic rules of thumb to quickly assess, but a more thourough analysis will back it up. So many other places to invest that a 3% return just isn’t worth it, IMO.

        Yes, you need a place to live, so invest that 162k into a place returning 7% and pay the 800/mo to rent.

        Again, YMMV and as you and others have pointed out, owning versus renting often isn’t just a numbers thing, but personal and/or emotional. Just saying from an investment standpoint, I wouldn’t buy those.

  7. Renting vs. Buying I think is such a personal thing. Many will give away a lot of “lost gains” just because they like being able to do anything to their OWN house. At the same time though it can be a very “math” thing too depending on where you are living, what your finances are and so on. If you’re living in somewhere like Australia (eg., it makes a lot of sense to rent right now (when you do the math) however I know in the USA a lot of property is going cheap as chips, not to mention the ridiculously low interest rates so it’d be smarter to buy in that case.

    I think rather than definitively say “renting is better” or “buying is better” like a lot of finance people try to do, it’s better to acknowledge that it’s very dependant on a lot of factors and to instead give people a sort of “step by step guide” so they can plug their own details in and figure it out for themselves.

    • jlcollinsnh says:

      Agreed, MM! Too often these discussions and ‘analysis’ are focused on trying to prove a point.

      For most folks the Rent v. Buy decision is driven far more by emotion than finance. That’s fine. Life is more than just about money. Still, it is worth knowing what the numbers say. At least then we know what our particular biases are costing us. :)

  8. I’m also interested in moving somewhere international with a low cost-of-living, but rejected Ecuador because of the crime rate. It’s somewhere I’d be happy to visit, but at the moment I’m not sure I’d be comfortable moving there.

    Your thoughts?

    Here’s some research from my notes:

    “Crime is a severe problem in Ecuador. Crimes against U.S. citizens in the past year have ranged from petty theft to violent offenses, including armed robbery, home invasion, sexual assault, and several instances of murder and attempted murder. Very low rates of apprehension and conviction of criminals – due to limited police and judicial resources – contribute to Ecuador’s high crime rate.” — from

    Homicides per 100,000 population in Ecuador is 18.2. For comparison, in the US it’s 5 and in 0.9. — From

    Currently, my top choice is Chile.

    • Whoops. That was supposed to be:

      Homicides per 100,000 population in Ecuador is 18.2. For comparison, in the US it’s 5.0 and in Denmark it’s 0.9 — From

    • jlcollinsnh says:

      Welcome John…

      ..thanks for the caution. Scary stuff in those reports. My take is this….

      Ecuador, like just about every place, has safe areas and areas that require great caution. In all places you need to be “situationally aware.” That is, pay attention to what and who is around you. A little early detection goes a long way in avoiding trouble and/or positioning yourself to deal with it. Moving towards more people, better lighting ect.

      In the total of 2+ months I’ve spent in Ecuador I’ve never felt even a little threatened, but then I’m not the most attractive target for predators. Of the places I’ve been…

      Guayaquil is the most dangerous both by statistics and feel. There is also not all that much to see and so no real reason to visit. I’m glad we spent the time we did, but I’ve no inclination to return. While we were there we were repeatedly cautioned to be careful taking taxis. As your linked article points out sometimes they deliver you to bandits or worse. The one late night far from our hotel we had the restaurant call for us, as is the recommendation.

      This past summer in Peru we met a young man who was a victim of just such a taxi robbery in Lima. The driver took him and his friend to a bad neighborhood, the taxi was set upon by a gang and they were relieved of their expensive cameras (probably what made them targets) and other valuables. The driver then delivered them to their destination.

      Heavily armed police are everywhere in Guayaquil and from at least three different departments based on the uniforms I saw. Clearly the government knows of the problem and they are taking very aggressive steps. My guess is the quote in your comment about low apprehension and conviction rates is correct. Most of the effort seems to be focused on prevention instead. Since this is the opposite of the USA approach it can be unsettling to first time visitors.

      Quito also has a crime problem, as most any major city does, and it too has heavily armed police everywhere. One young woman we met shared with us her strategy of getting around at night. She’s spot a cop, walk quickly to him, spot another and repeat. Rarely were they more than a block apart. Short of that she’d find a big ugly gringo walking with his wife and tag along. That’s how we met.

      Outside of those two major cities, police presence is far less and my personal vigilance relaxed a bit. Cuenca is, as far as I could tell, about as safe a city as you’ll find. I commonly saw young women, usually in pairs, out and about at night.

      Bahia is a small town with a far slower pace. Everybody knows everybody. I intentionally took a late night stroll and the worse thing than happened was the drunk who called out a friendly greeting from his doorway.

      If you are flashing money about, drinking too much, dressing provocatively you are going to attract predators no matter where you are. A little attention to your personal behavior goes a long way.

      As for Chile, my experience is brief and limited to the far northern tip. It is a far wealthier country. I have a pal I ride motorbikes with who is planning to retire there and, in fact, has already bought land. He is fond of pointing out that it is more 1st world than 3rd and he is probably right. But that also means it is much more expensive.

      Personally, I’ve always been drawn to 3rd world countries and have enjoyed some of my best travels in them.

      One last thought. A week ago, in the prosperous New England town where I live, we had a home invasion. The doctor living there and his wife are both in hospital with serious injuries. The home is listed at 1.4 million dollars. About two years ago, a couple of towns over, a couple of local well-to-do teenage boys got it in their heads that murdering a few folks would be entertaining. Late one night they choose a house at random. They broke in and butchered the mother with machetes and left her little girl severely maimed.

  9. Decisions, decisions… Still, sounds like a very nice problem to have… Owning or renting, you are still in Ecuador… And if you realize that you miss snow after all, you can always come back :)

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