Investors have always found real estate to be a safe bet. Investing in housing markets in places like Canada, the US, and Western Europe have traditionally been one of the best ways to build a fortune. But some of today’s investors are looking for something extra and those who are willing to take on a bit more risk can look to markets further afield that hold a promise of a greater return on investment.
As a team of agents who have helped hundreds of clients find and manage property in South Pacific Costa Rica, here are our top tips for those investors who are searching to go a bit further into the potentially lucrative world of foreign real estate investment.
Consider a number of factors when deciding on the best location for your investment. Think of proximity and ease of access if you are looking to flip your investment in the near future, or if you are wanting to rent it to vacationers. You can always find renters who don’t mind being a bit further and more private, but they are a smaller market when it comes to short-term vacation rentals.
Costa Rica also has the added benefit of being somewhere that is an absolute pleasure to property owners to visit time and again. This is not the same experience as having a timeshare in Palm Beach, Florida. Enjoy peace, natural beauty, and fresh rejuvenation every time you visit.
Check on what needs to be maintained regularly, renovated (now or in the near future), as well as what the management and administrative tasks are. Be sure to visit the property before buying. While some buyers actively seek out fixer-upper properties, most home buyers prefer a house that is move-in ready – and they are willing to pay a reasonable premium for that comfort. A new roof, for example, generally recoups more than 80% of its value when the home is sold. According to the National Association of Realtors, upgraded kitchens and bathrooms are among the most important upgrades cited by homebuyers because they represent a major expense (and headache) if the buyer has to upgrade them. Whatever your preference, make yourself aware of what the costs for maintenance and repair will be before you budget.
The trends of the long-term real estate market in South Pacific Costa Rica have been mainly tied to the economic climate in the United States. Because the vastly largest group of investors into Costa Rica “luxury” real estate have traditionally been from the United States, when the US housing market went up, so did Costa Rica’s. The most recent booms in real estate were from 2004 until about 2007, which ended with the US housing market bubble bursting, and then again in 2013, after the 2012 US election year.
2018 has been an exceptional year in real estate in South Pacific Costa Rica. Many high-end US housing markets are weakening at the moment due to high property taxes, and American real estate investors are looking outside of the country for new real estate opportunities. Additionally, investment is increasing out of strong housing markets in Canada (like Toronto and Vancouver), and from the bigger European markets, like Germany and Switzerland, and especially in the case of France and the UK, which have been the targets of a multi-million dollar government advertising campaign aimed at promoting Costa Rica tourism to markets that also include Canada and Mexico.
Costa Rica’s popularity as an investment destination is undoubtedly linked to its reputation as a peace-loving country that abolished its national army in 1948, having no major political disturbances in the country since then. It is safe and open to foreign investment, with investors having the same rights to buying and selling property as Costa Rican nationals. Costa Rica is also leading the world in sustainable tourism initiatives, renewable energy production per capita, and lowering the carbon footprint of the nation.
Superior purchasing power is one of the most attractive elements in purchasing real estate abroad. In the case of Costa Rica’s local currency, the colon is tied to the American dollar, which has been trading fairly consistently over the last few years. Euro purchasing power continues to increase in Costa Rica, although the Canadian dollar has seen a decline recently. Whatever it is, always check before sending money or making any big purchases as a few days can make a difference when it comes to large sums. If you are savvy, take some time to calculate upper and lower exchange rates and your budget will be flexible enough to cover all of your expenses.
Although not a tax haven, Costa Rica has very low property taxes (0.25%) and no capital gains tax in Costa Rica for foreign investors who are non-residents. There are no special taxes for foreigners and no laws banning investment from abroad.
Comparable properties, referred to as “comps” in the real estate world, are properties that have sold in the area, which impact a home’s market value. Real estate agents look at recent sales of homes with similar features to use as a benchmark against a new listing’s potential price. Short sales often complicate things because they tend to sell at lower prices, decreasing the neighborhood’s overall average sales price.
Due to the nature of our emerging market, many current sellers are short selling their older homes as they are ready to return “home” after 5-10 years of living or owning abroad. This cycle is coming to a close as these old homes are selling quickly at a reduced price, and soon we will only be left with new homes of modern construction for sale at a premium price.
Return on Investment
To make this a true to form investment, Rich Dad Robert Kiyosaki will tell you that you need to use other people’s money! OTP agent, Marcia Oro, also a seasoned international real estate investor, says that she helps her clients manage their money when it comes to a long-term investment plan into Costa Rica.
“Bring your low equity loan from your home country,” says Marcia. “Rent your Costa Rica home while you are waiting to move here and use the rental income to pay for your 3% loan back home and use your investment to pay for itself.” Marcia says that if you try to get a loan in Costa Rica, you will be paying anywhere between 10-15%, sometimes more.
There is also the rare but real opportunity to find a gem in the market place – a property that is priced well below market value and is waiting to be discovered by the right buyer. These properties typically exist in the $500k+ price range, where the average buyer is not looking for ‘fixer upper’ opportunity, but a luxury turnkey home. The savvy investor can find such an opportunity right now in our Hot Listing of the Week.
Even though Costa Rica is a great place to invest, don’t be fooled into thinking that the process for purchasing real estate is the same as in your home country. You will absolutely find a different set of rules, regulations and bureaucratic red tape, but navigating this system can be easy with the right set of professionals. Our team’s experience in the local real estate market is extensive and we are here to help.