Wednesday, February 23, 2011

Fox Business interviews Vernon Martin about investor "fam tours"

Photo of Riviera Maya beach featured on Pathfinder International fam tour did a story last Friday entitled "What You Need to Know Before Buying Foreign Property" and interviewed three sources, including me.  The URL link is:

"Fam tours", short for "Familiarization tours", are sponsored, highly discounted travel for select individuals in order to promote interest in the host locations. They are most commonly offered to travel agents. Fam trips are also offered, though, to potential homebuyers and real estate investors, a phenomenon that I see happening worldwide.  

As for fam tours for North American investors, I’ve recently seen the most activity in Costa Rica, Nicaragua, Belize and Mexico’s Riviera Maya south of Playa del Carmen (such as Tulum in the above photo).  New highways and airports are making these regions suddenly more accessible to tourists, allowing residential development in areas previously considered too remote.
Vice versa, I have seen fam tours to the U.S. for Chinese investors seeking residential properties, something I discovered in my Asian travels last year.  Unfortunately, some fam tours for Chinese investors seem to be focused on the most overbuilt vacation condo communities in the U.S., particularly the Florida Disney World market.  Many of these condos are described as being “just 3 exits from Disney World”, encompassing thousands of newly built but unsold condos. I haven’t seen a more overbuilt vacation condo market within the U.S.  This makes me skeptical about fam tours in general.

Africa is another place offering a growing number of fam tours for European investors.  Ghana, for instance, is trying to attract European investors, while Gambia has been offering fam tours to Nigerian investors, creating some local controversy, as Gambians perceive Nigerians much the same way North Americans perceive them.

A healthy dose of skepticism needs to be exercised by anyone invited on a fam tour.  In choosing among fam tours, I would suggest making the following choices:

  1. Choose a fam tour organized by the local equivalent of a Realtors Association, as many different properties will be presented, as opposed to a fam tour operated by just one developer’s project.  Nicaragua, for instance, has been offering such comprehensive fam tours in an effort to create awareness of Nicaragua as a viable vacation or retirement destination (as compared to Costa Rica next door). The more sponsors there are, the less your trip will feel like an abduction.
  2. One dirty little secret of marketing vacation residences to foreigners is that many projects have not been built yet.  They cannot get built without financing (which is where I get involved), and they cannot get financing without substantial presales accompanied by substantial cash deposits.  The biggest discounts are offered on the unbuilt properties, but herein lies the greatest risk that the property may not ever get built.  The deposits are often said to be “completely refundable” but may not be, and it is difficult for the foreign investors to negotiate the local legal system to get his or her money back; the “impartial escrow officers” can be the paid stooges of the real estate developers.  One should choose a project that is already close to completion, as this will show the project is viable and that title should be clear.
  3. The market for overseas or retirement residences was much stronger a few years ago, and many landowners have jumped on the bandwagon to offer luxury residences or residential lots for foreigners before they have even developed their land.   Beware of a fam tour for a project that is unbuilt and has nothing more to show than artists’ renderings and a piece of raw land with a view of the ocean.  Only a small fraction of these projects will ever be built, as the potential supply greatly exceeds demand.  There is no shortage of raw land with pretty views in the developing countries of Latin America and the rest of the world.
  4. Investors should choose fam tours that give them enough free time to “comparison shop”.  Some fam tours are overscheduled to the point where the investor cannot get away to find better deals nearby.  The fam tour may be to a destination where there are no rental cars available, but consider that real estate agents in that area may be willing to drive you to other properties, particularly completed properties.  If you are already at a completed project, independent real estate agents can alert you to resale opportunities in the same development which may be available at lower prices. In Latin America, by the way, you can depend upon real estate agents to be fluent in English; many are former Americans.
Some fam tours may offer to reimburse airfare, but the fine print might say that the airfare will only be reimbursed if a real estate purchase is made.  The fam tours I am familiar with, however, just offer a short stay for a discounted price, say $200 to $400 per person for a quality hotel and meals and transportation over a 3 or 4-day period.

For freeloaders who just want a discounted vacation trip, consider the loss of time and freedom while on the fam tour.  Is it worth it?  Have you ever been invited to a free breakfast in Hawaii in exchange for your attention to a 90-minute time-share sales presentation?  Was it worth it?  Only you, the reader, can truthfully answer this question for yourself.