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Realities of Real Estate: The cost of living in paradise

Earlier this month we took a trip to Aruba. Although it’s been quite a while since our last trip to the islands, in that the luxury of such trips tend to follow the ups and downs of the real estate market, we’ve had the opportunity to visit much of the Caribbean. Aruba is pretty much like a lot of the other bits of paradise dotting that part of the world, beautiful beaches, with a turquoise ocean, lined by swanky all-inclusive resorts. As you sit by the sea sipping a Pina Colada, it’s easy to fantasize about what it would be like to take up permanent residence in such a place. Knowing that we’d soon be headed back to the dreary damp cold of a Maryland winter, it was fun to contemplate life on an exotic island.

So, being real estate junkies, we took a break from the Riu Palace buffet and got off the reservation a bit to see what everyday life might be like on the island. As with every trip we take, the first question we always ask is, “What do houses cost around here?” and could someone actually make enough off a successful snowball stand to pay the rent in a place like Aruba?

Aruba, which is just off the coast of Venezuela, isn’t very big. It’s barely 4 miles wide and about 20 miles long. Consequently, it doesn’t take much time to get the lay of the land. Beyond the resorts, there’s the same mix of housing that you might find anywhere, everything from modest in-land homes to luxurious waterfront estates. Our driver grew up on the island, and he gave us a rough idea of what different homes might cost. Surprisingly, the prices weren’t much different than what you might find on our home turf of Annapolis.

Fixer-uppers can be had for around $100,000; a starter home (a little on the tired side) goes for around $200,000; nice in-land homes or waterfront condos are about $500,000 to $750,000; and just like in the Annapolis area, you’ll have to shell out a million-plus if you want to look out your window at the blue azure of the Caribbean Sea. For about $2.5 million you can get new construction with a nice view of the ocean.

 The other costs

So, let’s say the snowball stand you opened is doing a banner business with the Old Bay smoothies becoming all the rage, and you set your sights on that $2.5 million villa. What are the closing costs for a house in Aruba? Here in Maryland, both buyers and sellers would split the Documentary Stamps and Transfer Taxes, and on a $2.5 million home, the buyer’s half would be $27,500. That’s pretty hefty, but what do you expect: It’s Maryland. Nevertheless, closing costs in Maryland are a bargain compared to Aruba. In Aruba, the buyer pays all the closing costs, which include a 6 percent transfer tax and 2 percent for notary fees. That comes to a cool $200,000 on your new villa. You better hope the Old Bay smoothies aren’t just a fad. But Aruba does go a little easier on you when it comes to property taxes. For the $2.5 million house, you’d pay about $10,000 a year. On the same house in Annapolis, your annual real estate taxes would be over three times that. And, finally, if you decide to opt for financing, mortgages in Aruba go for about 6.75 percent; better to pay cash.

Once the profits on your snowball stand start building, you’ll also need to factor in the cost of income taxes. Unlike a lot of islands in the Caribbean, Aruba isn’t the place to go if you want to shelter a sizable salary. Plus, Arubians are taxed on their worldwide income, so you can’t hide the windfall from your snowball stock options on some other island, like the Caymans. The top income tax rate in Aruba is 59 percent, and capital gains are taxed at the same rate as income!

Learning the language

Then, you need to know the cost of day-to-day stuff. There’s only one “normal” grocery store on the island, and it’s not cheap. A gallon of milk is 10 bucks. There are countless smaller food stores, but for some odd reason, they’re all run by Chinese. As a result, they’re not the kind of places where you can pick up some Frito’s or a frozen pizza. Cars and gas are also expensive, but on an island that’s only 20 by 4 miles, we’re not sure why you would need one.

All the financial considerations aside, the biggest problem associated with living in Aruba would be learning the local lingo. Aruba is a Dutch territory, but they speak something called Papiamento, which is a Portuguese-based Creole mix of five different languages. Our driver told us that in grade school they are taught five languages. So, communicating in Aruba is a little more complicated than it is on most island vacations, where hola and gracias will pretty much get you by.

In sum, a snowball stand probably won’t be sufficient to pay the monthly bills in Aruba. To live a fairly comfortable life in retirement, you’ll most likely need something around $6,000 to $8,000 a month. Plus, we’re concerned that the Old Bay smoothies won’t catch on, so we came back to Maryland. The West River water outside our window isn’t quite the same color as the Caribbean Sea, and my snow blower probably won’t start again this season, but it’s still paradise to us.