Ecuador has been referred to as one of the lowest-priced retirement havens on Earth. So why do it seem like a lot of people moving here are overqualified? Judging by what we are seeing, there are a lot of people coming to Cuenca Ecuador who could easily be going to a lot of other places, why go to the least expensive retirement haven in the retirement press sales pitch? Well duh, it’s cheaper, I hear you say. Or is that it? Follow me on this.
The 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, it came out in the 1950s. That was a long time ago, so forgive me if I don’t remember correctly, but it seems that back then in the book it was talking about relationships between income and real estate, and I think that it was 25%.That is, if someone made $25,000 a year, they could theoretically afford a $100,000 house.
Eventually, people got deeper and deeper in debt, and the amount of home they could buy was only three times their income. Research shows that the historical average median affordability for the US has been 2.7 times median income. that is, multiply the annual household income by 2.7 and that is the maximum affordability ratio under secure lending practices. This is only 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 who really couldn’t afford housing were put into super-expensive new housing with virtually no money of their own. Affordability indices were fairly skewed upwards during that period.
Relating this information to Cuenca Ecuador, my son was yesterday in a newspaper in Cuenca Ecuador, reviewing the jobs section. He tells me that there are job offers for Ecuadorians with accounting degrees starting at $1000 a month. Some of the highest paying jobs were $1500 a month. This is obviously the higher end of the country scales for the well educated.
If you wanted to assume two people with higher incomes, say $2500 per month of family income, I don’t think you could call that “middle income” here in Ecuador. I guess that would be the upper end of the income population. A local told us that the salary of a doctor here in Cuenca is $2000 a month. So let’s play with this for a moment: $2,500 a month is $30,000 a year times 2.7 = $81,000.
That’s the most higher-income families would spend on housing based on this example. Remember friends, that’s the maximum affordability for higher income households here in Cuenca. This article doesn’t even begin to address “median” income households, although we’ve written about some of those numbers earlier on this blog. Also, professionals like doctors and accountants aren’t going to live in mediocre housing, so I have to believe you can get a nice house for that.
A couple of weeks ago I received an email from a reader requesting contacts to view houses up to $150,000. I had never set foot in Cuenca Ecuador before. I hope you’re starting to see an image here.
Can anyone spell BUBBLE? It looks like this, GRINGO. This article is not intended to offend or demean. He intends to inform, and if just a few gringos avoid getting locked into real estate that they can’t sell to some older chump, then I’ve done my job. Oh, I realize that some who get in early enough can make some money on their real estate when they sell. But that is speculation. Are you an experienced speculator? Or are you just gambling?
Do you remember when we were in Salinas and we asked the real estate agent (gringo) to show us the penthouse facing the sea? Well guess what, she was also promoting (because we didn’t ask to see…) some “other” used condos owned by gringos who needed to get off their high-priced real estate. You have to love these gringos.