logo
What's a good property in Costa Rica for an SDIRA investment?

May 11, 2023 in Discover Costa Rica, Discover Costa Ballena, Buying Process, Tips for Buyers, Real Estate in Costa Rica

Buying a property in Costa Rica is one of the newest ways that Americans are investing their self-directed IRAs. They are seeing the value in Costa Rica real estate and they may even want to retire here in the future. But more importantly, they see the value in investing in a home or lot in South Pacific Costa Rica. Just in the last 6 months, we’ve had a number of new clients from the United States buying property in Costa Rica with their SDIRA and we have seen the ins and outs of how they did it and learned about what made them want to invest here in the first place. In this article, we are going to share with you a bit about what we’ve learned.

 

What is an SDIRA?

 

An IRA is a tax protected retirement savings account. The idea is to buy an IRA early, contribute over time, and to let your money sit there and grow. But IRAs are most often invested in expensive bonds or mutual funds with low returns. A self-directed IRA is not necessarily a stock-based investment. Both types of IRAs have tax benefits but with an SDIRA, you will have control over your investment money for your retirement. 

 

There are two types of SDIRAs that you can have: Traditional and Roth. With a Roth IRA, you invest with after-tax dollars. Everything that grows in that account is tax-free at 59.5 years of age.

 

In a traditional IRA, the government will not tax you in the current tax year. Instead, you will theoretically pay a lower tax rate as a retiree with no income. But if you are serious about investing, you will be in a high tax bracket even as a ‘retiree.’ For serious investors, it is better to invest with after-tax dollars in a Roth SDIRA and to let your real estate investment funds grow tax-free moving forward.

 

Rules for all IRA investments

 

An IRA is a retirement savings account. Therefore, if you use it before retirement, you will be fined and taxed on the full amount in your IRA (including your personal contributions to the investment).

 

Your real estate investment is bought through a legal custodian that is your corporation. Every transaction must be paid through the custodian and paid directly through the corporation’s bank account. This includes payment for any repairs, property management fees, taxes, etc.

 

  • Whatever the investment is, all returns must go back into the fund
  • You cannot invest in immediate family (descendants, ancestors, siblings)
  • You cannot invest in your private real estate assets unless you rent them out
  • You cannot invest in collectables

 

Is South Pacific Costa Rica a good investment for your SDIRA?

 

Looking to take hold of your financial freedom through earning passive income? South Pacific Costa Rica real estate has performing assets that are perfect for your SDIRA.

 

Since your SDIRA is an investment fund for your retirement, Costa Rica is already an ideal country to consider. Many online and print publications for expats regularly cite Costa Rica as a prime choice for retirement based on a number of factors. High quality health care, low cost of living, friendly locals, great amenities, spectacular views and nature, pleasant climate, fresh air, health food, good services, and stable politics are just a few of the many reasons that thousands of Americans have already chosen Costa Rica for their retirement destination. 

 

But if you are an investor and pre-retirement age, there are just as many reasons to consider Costa Rica for your future and present benefit. Real estate investing is a good form of protection against market volatility. Good properties are a natural hedge against inflation, growing steadily over time. 

 

South Pacific Costa Rica real estate returns are often 2-3x better than traditional US stock market’s returns. The market value of homes in the Costa Ballena has grown by up to 10% in the last year. This is a region popular with single home and condo luxury developers for its striking beauty and burgeoning popularity. We have seen a huge rise in the number of brand new modern homes coming on the local market and a growing number of buyers looking for luxury modern homes in Costa Rica. 

 

Rental income is booming alongside the rise in high-end luxury rental homes in South Pacific Costa Rica. Local property managers are reporting that their high-end clients consistently see returns of 6-8% on their real estate investments. This is a region that is still only growing in popularity with tourists who are already finding that there are not enough accommodations in the high season.

 

What types of properties are good for purchase with an SDIRA?

 

Naturally, properties with a good rental income or good potential rental income are ideal for an SDIRA. In the Costa Ballena, these would be luxury homes with at least three bedrooms, great views and amenities.

 

Another type of property that could be great for an SDIRA would be a commercial property like a hotel, restaurant, or a storage business. These passive income streams can be fruitful with the right staff and business plan, although some properties make far better investments than others.

 

An interesting SDIRA investment that a few buyers have explored successfully is buying a property that can be subdivided. Part of a property would be purchased with an SDIRA and the other part would be purchased through the buyer’s private funds. This means that a property in Costa Rica with two separate homes or two separate home sites can be owned by two different legal entities (the IRA and the person). This would allow for the person to live on one subdivision of the property while the IRA holds title over the other. A number of our buyers have chosen this option because it allows them to enjoy their Costa Rica investment now, before retirement.

 

If you want to know more about using your IRA to invest in Costa Rica real estate, get in touch with an agent on our team. We will be more than happy to answer any questions you have or to refer you to an expert in our extended legal team who has helped other Americans use their IRA to invest in property in Costa Rica. Contact us at sales@osatropicalproperties.com

 

Login or register to comment
Recent articles