Our Dream: Run a $750,000 Hotel in Costa Rica
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Yessenia Cruz has dreamed of returning to Costa Rica ever since visiting there 15 years ago. This time she isn't looking for R&R. She and her husband, Roberto Garcia, want to relocate there at 55 to open a casita-style hotel by the beach.
Both say they'll be ready to leave their corporate careers -- she's a project manager; he's an architect -- and the fast pace of the Big Apple. "We love what we do but want a more balanced life," says Yessenia.
Though Roberto has never been to Costa Rica, he's just as excited: "I love what the city offers, but I love nature too."
At the same time they worry about whether packing for paradise will compromise their retirement security or put the college education of their 4-year-old son, Nathaniel, at risk.
THE REALITY
Since they want to be what the industry calls "lifestyle innkeepers" -- who open seasonally or settle for lower occupancy so that they can enjoy downtime -- they can't count on much income from the hotel. That means that in the next 15 years they're going to have to save for a long retirement while also amassing money to buy the business and pay fully for Nathaniel's tuition at a private college, as they'd like.
On the first goal, at least, Yessenia and Roberto are looking good.
They stash nearly $30,000 of their $202,000 annual income, putting them on track to have $2 million by age 55, says Colorado Springs financial planner Jane Young. Using a 4% withdrawal rate, they can take out $80,000 the first year, and adjust for inflation subsequently, for a very small chance of their money running out. That income will exceed their needs, since Costa Rica's cost of living is about half that of the U.S.
With plans to live at their inn, Yessenia and Roberto should do very well on $36,000 a year in today's dollars ($53,000 by the time they retire), says Jason Holland, Costa Rica editor for InternationalLiving.com, a site focused on how to live, work, and retire overseas. They'll need a nest egg that size should they ever move back to the U.S., plus it gives them a margin of error on the hotel.
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A greater challenge will be saving another $1.2 million to use for the hotel (which will cost about $750,000 by the time they retire, Holland says) and Nathaniel's education ($430,000, according to Young).
They also have a sharp learning curve ahead. As fluent Spanish speakers -- Yessenia grew up in Puerto Rico, and Roberto's family is from the Dominican Republic -- they have some advantages over other expat entrepreneurs. But neither has experience in hospitality or running a business.
THE PLAN
"If they keep up a steady savings pace, Roberto and Yessenia can make this work," Young says. Here's how:
Get cracking on college. They now sock away $800 a month for Nathaniel's schooling; they'll need to up it to $1,250.
Young advises putting two-thirds into a 529 college plan and the rest in a mutual fund that's 70% stocks and 30% bonds to give the couple flexibility to tap some of the money if needed. When Nathaniel turns 13, they should dial back the stock stake.
Start a hotel fund. The couple have $200,000 in cash for emergencies, almost double what they need.
Young advises putting $85,000 of this into a 70% stocks-30% bonds mutual fund as seed money for the inn, adding $270 a month, plus half of Yessenia's annual bonus (up to 10% of salary). Five years before moving, they should shift the funds to cash and short-term bonds.
Use the house for the balance. Roberto and Yessenia should refinance their 4.5% 30-year mortgage, which has a $240,000 balance, to a 15-year loan to build equity faster, Young says. At a 2.9% rate, their payment would be just $167 more, and if their home appreciates 3% a year, they'll net $400,000 at 55 to put toward the inn.
Get educated. To improve their odds of success, they should get training in hotel operations and hospitality through a group like the Professional Association of Innkeepers International (paii.org). Also, they can get hands-on practice running an inn by filling in for owners who are on vacation via the Interim Innkeeper program (inncaring.com; $750 per couple).
Start shopping. The family should visit Costa Rica ASAP to ensure that Roberto is really onboard with moving.
Five years out, they should start taking scouting trips to investigate locations and talk to local hotel owners, says Holland. Once they settle on an area, they can hire a broker to find turnkey operations. "Buying an existing hotel with a website, listings in guidebooks, and maybe even guests on the books will give them an easier start," says Jay Karen, CEO of the PAII.
Plan an exit strategy. "Will you close the inn in five years, or do you want to sell it for a profit?" asks Karen. The answer, he says, will drive how they run the business: To attract buyers, they'll need to be able to "show consistent occupancy rates and profitability."
For now, Yessenia and Roberto are focused on the entrance plan. As she says, "This confirms that Costa Rica isn't just a fantasy."
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