Ecuador has been referred to as one of the lower priced retirement havens on Earth. So then, why does it appear that a lot of people that are moving here are overqualified? Judging by what we’re seeing there’s a lot of people coming to Cuenca Ecuador that could easily be going to a lot of other places, why go to the least expensive retirement haven on the sales pitch of the retirement press? Well duh, it’s cheaper, I hear you saying. Or is it? Please follow me on this.
The very first real estate book I ever read (are we talking about real estate again?) was William Nickerson’s “How I turned $1000 into a million in three years” and if memory serves me right, it came out in the fifties. That was a long time ago, so forgive me if I don’t remember correctly, but it seems that back then in the book he spoke of income to real estate ratios, and I think it was 25%. That is, if someone was making $25,000 a year they could theoretically afford a $100,000 house. Those figures changed through the decades and the amount of indebtedness that North American families took responsibility for.
Eventually people took on more and more debt and the amount of house they could buy was only three times their incomes. Research shows that the historical average median affordability number for the U.S. has been 2.7 times income as an average. i.e. multiply household yearly income by 2.7 and that’s the maximum affordability ratio under safe lending practices. This is just a median figure, so Donald Trump types don’t fit into this equation. This was before all the recent banking scandals of course, where people that really couldn’t afford the housing were put into brand new super expensive housing with practically no money of their own. The affordability ratios were quite skewed to the upside during that period.
Relating this information to Cuenca Ecuador, my son was on a Cuenca Ecuador newspaper yesterday, looking through the jobs section. He tells me there are job offers for Ecuadorians with accounting degrees starting at $1000 a month. Some of the higher paying jobs were for $1500 a month. This is obviously the higher end of the pay scales for the well educated folks.
If you wanted to assume two higher income earners, let’s say $2500 a month family income, I don’t think you could call that “median income” here in Ecuador. My guess is it would be the higher end of the earning population. A local told us that a doctor’s salary here in Cuenca is $2000 a month. So let’s just play along with this for a moment: $2500 a month is $30,000 a year multiplied by 2.7 = $81,000.
That’s the maximum that the higher earning families would be spending on housing according to this example. Remember folks, that’s the maximum affordability for the higher income earning households here in Cuenca. This article does not even begin to address the “median” income earning households, although we have written some such figures previously on this blog. Too, professionals such as doctors and accountants aren’t going to live in mediocre housing, so I have to believe that you can get a pretty nice house for that.
A couple of weeks ago I got an email from a reader asking for contacts to see houses up to $150,000. He had never set foot in Cuenca Ecuador before. I hope you’re starting to see a picture here.
Can anyone spell, BUBBLE? It looks like this, G-R-I-N-G-O. This article is in no way intended to offend or degrade. It is meant to inform, and if just a few gringos avoid getting stuck into real estate they can’t later sell to a greater fool, then I’ve done my job. Oh, I realize that some that get in early enough may make some money off their real estate when they sell. But that’s speculation. Are you a seasoned speculator? Or are you just gambling?
Remember when we were in Salinas and we were asking the (gringo) real estate agent to show us the beachfront penthouse condo? Well guess what, she was also touting (because we did not ask to see… ) a few “other” used condos owned by gringos that needed to get out of their high priced real estate. You gotta love these gringos.