Foreign investment in Costa Rica is increasing for four main economic reasons:
No capital gains tax – any income you make on your Costa Rica investment is not taxed when you sell and move your money over the border
Low property taxes – annual taxes are only 0.25% of your property’s current valuation
No selling stipulations – as easily as foreigners can buy in Costa Rica, they can sell under the same terms as a Costa Rican national
Low property value fluctuations – Costa Rica is a stable economy, and property prices have remained consistent in the last decade
Savvy advice for investing in Costa Rica
For our American clients, you can use your IRA
An Individual Retirement Account can be used for offshore investments with limitations on how you can and cannot use the investment. You many need to transfer to a self-directed IRA that allows for real estate investments.
The same restrictions apply in Costa Rica as in the US, meaning that the property must be used for investment purposes only – as a rental unit or for speculative purposes. You may take over the property when you retire.
If you are choosing a property to purchase for your eventual retirement, it is advised that you consider a home in an area already showing a good ROI in case you decide to sell for any reason. An area or development with good property management services are also recommended.
Those with a keen business sense will use their property for their personal enjoyment during the rainy season, which is slower with rentals. They will rent their property during the high season or peak rental time, thus receiving great ROI in two ways: income and personal enjoyment.
Buying in a popular vacation area is important if you are going to be dependent on rental income. Costa Rica is a great choice overall, however properties in a secluded beach or mountain area will limit your rental options. Choosing an area within reasonably close proximity to tourist activities will increase your chances at for a high yield ROI. The Southern Zone has something for every kind of tourist, making it easy to cater your investment to the enjoyment of others.
Think comfort, security, location, convenience and price. Owning within a residential community will have these advantages, with less need to be dependent on a concierge service.
Common costs associated with rental properties
- Property management fees
- Annual maintenance costs
- Home insurance
- Property tax
- Corporation tax
- Luxury home tax
- Home Owner’s Association fees (for condominiums and gated communities)
The current economic climate in Costa Rica has created favorable conditions for homes to be built for the purpose of sale. Raw land prices are lower than average and at near recession levels, yet the primary demand is for finished homes. Adding together these two factors amounts to a good investment strategy.
The best way to capitalize on this equation is to design your spec home project for the market. Your objective should be to build something irresistible. Three of the most promising trends for the region are:
- 3-bedroom family homes
- Vacation rentals
Final thoughts on your investment
Before falling in love with an idea on paper, ask yourself these obvious but nonetheless important questions:
- Does the ocean view contribute to the quality of life on the property? A great view is not enough of a redeeming quality if the living space is lacking.
- Is the access four-wheel drive? If you are primarily renting your property, easy access and proximity to the highway is valued.
- Are the water features on your property year round? Buying a place with a waterfall on the property or nearby is great only if this feature is present during the height of the dry season.
- How is the air motion on the property? Taking advantage of breezes is crucial to mitigating high temperatures.
- What is the distance to the nearest neighbor? Privacy is valued in the Southern Zone, which is characteristic of pristine nature and ability to spot wildlife
By Alex Swift