Start by realizing that buying property in Costa Rica is a lot different than buying property at home

Buying real estate is one of the most significant investments you can make. It can also be one of the most stressful. And any stress can be compounded when buying abroad – with additional complications such as language barriers and unfamiliarity with local laws and procedures. That said, you can legally and successfully purchase property in Costa Rica, but it must be approached differently than what you might be accustomed to.

Costa Rica is a relatively safe country with a stable government and a thriving economy. It offers a tropical climate, beautiful beaches and scenery. Tourism is increasing all the time. More and more flights from the US, Canada and Europe open up every year. For goodness sake, even Southwest flies there now. Property is still affordable, despite many rumors to the contrary. Financial returns on property can be robust. And, the government has made a sincere effort to encourage foreign investment.

You will find many amazing properties throughout Costa Rica. One of the great appeals of Costa Rica real estate are advantageous property laws. Property laws in Costa Rica are the same for nationals and foreigners. You don’t need to live in the country to own property, nor do you have to a legal resident.

Another advantage to owning in Costa Rica is the low property tax rate of 0.25% of the registered property value. For a home worth $200,000, that means $500 in annual taxes. Keep in mind that the assessed value of a home, determined by the local municipality, is often lower than the sales price. There is also a luxury home tax for higher-end properties, but even this higher rate is only 0.55%.

A further advantage is the potential for a robust return on investment. For example, my investor group has achieved a 186% return on the properties we have bought and sold over the last 15 years. That means, on average, we’ve almost doubled our money on every property we have purchased and then sold. In all fairness, we’ve more than doubled our money on some, while achieving less appreciation on others. But, this average is a healthy return on investment from most peoples’ perspectives.

Despite these advantages, buying property in Costa Rica can be more complicated and can afford some risk…it’s not the same as buying back home.

So, how are things different?

Below are some examples of how buying property in Costa Rica may be different than what it’s like at home:

There is no MLS system. This means it’s harder to locate and shop for properties. It also means it’s hard to “do comps”, or, figure out if the listing price makes sense based on what similar properties in the area are listed for, or have recently sold for.

Real estate as an industry isn’t tightly regulated. Realtors, attorneys, escrow agents, surveyors and other important resources aren’t regulated and monitored as closely as they are back home. This means there is a greater opportunity for loose selling practices and even fraud. And, if fraud occurs, it’s harder to get justice. My team and I have been buying and selling property in Costa Rica for almost 15 years and have never run into any significant issues. However, a friend tried to buy a property where the escrow agent basically stole his down payment. It took a lot of work to get it back. So, choose your team wisely. There are a lot of trustworthy, hardworking, capable and honest realtors, attorneys and escrow agents in Costa Rica, but some indeed are of dubious reputation. So, it’s important to work only with proven resources you know you can trust.

More due diligence is needed. Due to less regulation and oversight, a greater degree of due diligence is needed to ensure that there are no issues with the property. My investor team has always believed in doing more due diligence on properties than what appears to be needed. And, the principle of More Due Diligence Is Better has never hurt us. To the contrary, I once bought a small lot by myself in a nice development near a beach for $20,000. I intended to build a spec home and sell it for a healthy gain. I was getting a great deal on the lot, and had already been working on a home design that I was very excited about. However, in the midst of my excitement, I failed to have a survey done. Instead, I relied on the realtor to tell me where the property lot lines were. After the purchase, I realized that no one really knew where the property boundaries were – the neighbors all had different opinions regarding where my property started and stopped. I hired a surveyor after the sale, but he couldn’t figure it out. As a result, I had to sell the property at a loss. If I had followed my own tried-and-true principles of due diligence, one being always do a survey, I would have passed on this lot and found another.

Financing is different. Traditional mortgage financing from banks isn’t widely available in Costa Rica. As a result, owner financing is common. Also, all-cash purchases are common. This creates a nice opportunity for property owners in Costa Rica when it comes time for resale. If you are financially able, you as the seller can offer owner financing to the new buyer and add to your overall return on investment with the proceeds from the mortgage interest. I did this once on a property, charging almost 8% interest, and adding to my overall return.

Most properties are listed with multiple real estate agents vs one realtor “owning” the listing. That means multiple realtors will display an identical property on each of their respective listing pages, but the descriptions, measurements and other property facts may differ. In addition, it’s not uncommon for the property’s listing price to vary from one realtor to the next. So, that means a property “listing” may not be factually accurate or even display a price that makes sense.

Most people use an “SA corporation” to hold property. In Costa Rica, citizens and non-citizens alike usually hold property in a Costa Rican SA Corporation, vs in an individual or couple’s name. There are a number of advantages to owning property through an SA Corporation (which is kind of like a US LLC), such as making it easier to sell and transfer the property at closing. While this was a foreign and uncomfortable concept at first, our investor team always uses this method to hold property. The important thing here to realize is choosing a reputable, knowledgeable and trustworthy attorney is key, because SA Corporation management on behalf of the buyer lies in the Costa Rican attorney’s hands as long as you own the property.

There are no standardized legal documents. Most likely, wherever you call home, standardized legal documents exist for real estate purchases and sales. For example, in the USA, standardized purchase contracts exist which are sanctioned by the National Association of Realtors and almost all realtors use them. However, in Costa Rica, a purchase contract can be anything that the realtor, owner or developer dreams up. As a result, robust buyer protections usually are not built into the legal documents. Therefore, it’s imperative to work with a team that uses legal document templates which are tried-and-true, and afford the highest buyer protections.

So, that are 10 things you should consider doing before you buy?

Pick your team with great care – choose your realtor, attorney, escrow agent and other resources wisely

Pick a reliable and honest realtor who has a good work ethic. Back home, the only differences between realtors may be their work ethic, how many years of experience they’ve had and whether their personality or style matches with yours. However, in Costa Rica, additional critical differences exist, such as reputation, honesty and trustworthiness. As a result, only work with an agent who comes highly regarded and recommended from more than one source. Ask the realtor for references and check them.

Carefully inspect, verify and scrutinize the property before you buy

Get a home inspection. Don’t skip the survey. Make sure the property or development has an adequate water supply. And, determine if the water source is municipal water, or water coming from a private well on the property. Check out the water quality and pressure levels. How about sanitation – how will waste water be processed? How will the garbage from the development be disposed?

Also, check out the neighbors. Who are they? What do they do on their property? I once visited a beautiful development near the gorgeous town of Atenas. The grounds were exceptional, the home designs were superb, the views stunning, the prices great and the owners awesome. I was ready to buy. However, on my second visit, I noticed just one problem – the next door neighbors burned significant amounts of garbage on their farm every day. The stinky smoke from the garbage continuously drifted over into this beautiful development, causing the owners to not be able to sell most of their homes. So, yes, check out the neighbors carefully and learn what they do on their land.

Spend lots of time on property due diligence. Check the National Registry to verify who owns the property is actually the person who is selling it. And, don’t buy property you haven’t personally seen…at least twice. If you’re building, visit often.

Before my investor team purchased our first property, we made four trips to Costa Rica. We interviewed and met multiple realtors, attorneys and escrow agents. We visited numerous property developments. We did our homework and looked far and wide for a great deal. As a result of our hard work, we found a 12-acre parcel of land in a nice development on the Central Pacific Coast, where 8 lots had already been sub-divided and properly recorded with the National Registry. The property titles were clean and the location was fantastic. We purchased this 12-acre parcel for $220,000 and resold it 3 years later for $365,000. We also offered owner financing, charging the buyer 7.5% interest, achieving an additional return from the mortgage interest.

Most properties in Costa Rica are registered in a system called “Folio Real.” Before buying, or even before making an offer, do a title search in Folio Real.  The title search will show all data on the property, including area, ownership, boundaries, location, mortgages and other liens. Hire a reputable attorney to research the title for you, and make sure you personally review it in full. Title insurance is available in Costa Rica, and some believe it’s a worthy investment. My team’s opinion on title insurance, however, is that it’s situational…each unique property and buying situation will determine if title insurance is worth buying (note, it’s expensive).

The final price is everything – get a fantastic price or keep looking

Over the last 15 years, my investor team has averaged a 186% return on investment. That means we’ve almost doubled our money with our Costa Rica property investments. A huge contributor to this financial success has been ensuring that we have purchased every property at a great price. By great, I mean fantastic, and not just good. Also, of course, other factors are important, such as ensuring the property is of high quality, that there are no issues such as liens or title defects, and ensuring that both the development and the local community are safe and of high quality. But your final price will likely make or break your long-term financial success with the property.

For example, our investor team was made aware of a 750-acre parcel of land that two brothers from Texas wanted to sell for $711,000. They had owned the property for several years, and had paid around $400,000. They rightly thought that a $711,000 sale would give them a great return. And indeed it did. Our team went into quick due diligence mode. We figured that this price equated to 26 cents a square meter. And, we discovered that other properties in that area of that size and quality had recently sold for closer to 50 cents a square meter. As a result, the price was fantastic and we bought it. Today, we still own that property and it is now worth exponentially more.

Realize what you buy is what you see today – avoid buying on promises of things that aren’t there

Buy only based what exists today, and not based on what a developer or real estate agent may promise for the future. For example, most developers will talk about plans for new roads, clubhouses, golf courses or marinas. But a lot can go wrong, even with the best developments. To protect yourself, don’t figure tomorrow’s features into the price you offer today.

However, don’t let this cause undue hesitation. I once purchased a condo with two other investors. The condo was the second unit under construction…only one had been built that we could tour. And, nothing else existed on the property. The developer showed us the master plan for the development, and it was fantastic…pools, a clubhouse, more units, beautiful landscaping, luxury homes on some of the best lots. And, it all came to pass several years after we purchased. We were not disappointed in the least. In fact, the development turned out even better than what the early architectural renderings depicted.

Make an informed decision regarding how to hold your property

The most efficient way to buy property in Costa Rica is with an “SA Corporation”. Doing so simplifies the buying and selling process. When creating an SA Corporation, you must choose a unique name that cannot be similar to any existing corporate name. We have had fun with this, coming up with SA Corporation names such as “Hot Dawg Holdings SA”, or “What’s Mine is Yours SA”. Our investor team uses SA Corporations exclusively to buy and hold our properties. It’s easy and simple to do if you work with a Costa Rican attorney who understands how to set them up and manage them.

Use legal documents with robust buyer protections built in

Since realtors, attorneys and escrow agents don’t use one standardized set of legal documents sanctioned by some type of oversight entity which governs real estate purchases, work with someone who uses a set of tested, tried-and-true documents which have multiple buyer protections built in (or review multiple document sets from many different attorneys and realtors to create your own).

Think ahead to ownership – choose partners now that you’ll need after the purchase

Once you purchase your property, you’ll want to use it, rent it, improve it or maybe even build a new structure. These activities will require finding reputable, honest and trustworthy property managers, remodeling companies, interior designers, builders and the like. This task isn’t easy. Similar to finding a good realtor and attorney, it will take some work. So, prior to the purchase, start the search for reputable post-purchase partners to ensure you’ll be able to find them in your local area. Some properties in Costa Rica are extremely remote, and that can make the task of finding solid post-purchase resources challenging. Figure out if this is going to be an issue before you buy, instead of realizing it afterwards.

Avoid concession property

Concession property is where the government gives an individual the right to use the land for a specific period of time vs owning it outright. So, a concession is similar to a lease. Concession land is not common, but it’s possible you may run into it during your property search. No matter how attractive someone makes it out to be, don’t spend a minute thinking about it. Move on and find a property that you can own outright (known as “fee simple ownership”). The concept of fee simple ownership is the same in Costa Rica as in the US and other countries. Basically, fee simple ownership gives the owner of the property the absolute right to materially own the property, use it, enjoy it, sell it, lease it, improve it – subject only to conditions outlined in Costa Rican Law.

Note, 95% of beachfront property is considered concession property. So, this means that if you ever run into beachfront property that is NOT concession, strongly consider buying it, because it will be a great investment (given that your purchase price is great and other factors check out). Once, my investor group ran into a beachfront property that was not concession. We knew this was like finding the Hope Diamond, so we bought it the next day. Three months later, with a few improvements, we sold it for double our original investment.

Don’t rush it, but rush it when you need to

As a general rule, don’t delay in making an offer once you find the property you want to buy, as truly exceptional properties are hard to find anywhere in the world. However, don’t buy property you haven’t actually visited. No matter how much research you do – talking with knowledgeable friends, looking at pictures, getting information from the internet – never buy unless you’ve actually visited the condo, house, or land. And be sure to do your due diligence to ensure the property and title are clean. So, if you find a great property at an exceptional price, do your homework, but move fast.

Due to these differences, be an Engaged Buyer. You as the buyer must drive and understand the process. You must own your property search in earnest. So, get educated. Owning property in Costa Rica can be a satisfying, enjoyable and rewarding experience, but purchasing must be approached differently than buying property at home.

Summary

Buying property in Costa Rica does not need be intimidating or confusing. But, it needs to be done in a way that minimizes risk and maximizes return. That’s why we formed MyPlace Costa Rica – to provide an easier, safer way to buy property in Costa Rica, with a Trusted Team by Your Side. Visit www.myplacecostarica.com to learn more.

2016-11-19T10:14:30+00:00