Why are expats buying rental property in Costa Rica in 2021? Read on to find out about income, future planning, and the other reasons why Costa Rica rental properties are hot this year!
A trend that we have seen in recent years is the rise of the income property. More often than not, Costa Rica property buyers are looking for something they can use for rentals. More than 50% of the buyers who have come through our real estate office this year are buying rental properties in Costa Rica that they can use for at least part of the year, or possibly live on the property and have rental cabins. Is this the right choice for you? Here is a list of questions that our rental property buyers ask us all the time.
“Can expats own property in Costa Rica?”
Can Americans and other foreigners legally buy property in Costa Rica? Absolutely! The great part about Costa Rica is that foreigners and locals have the same ownership rights when buying property. Foreigners can purchase property on a tourist visa without the need for residency or citizenship.
Any foreigner, resident, or non-resident has the same rights as a citizen in Costa Rica, except for voting rights in presidential and municipal elections and can, therefore, purchase and own Costa Rica real estate legally. However, the one exception is that a foreigner can only own 49% shares in a property in a Maritime Zone (within 200 meters of the high tide line).
“Who else is buying rental property in Costa Rica?”
In our experience of working with Costa Rica real estate buyers in 2021, this year, people are looking for a back-up plan. They have been thinking for some time about getting out of their current scenario of stress and overconsumption, and the Covid pandemic has presented a few new opportunities and reasons to want to branch out somewhere less crowded and more beautiful.
These people may be close to retirement age but the majority of rental investors in Costa Rica are still working and raising families. They are looking to secure a safe investment and a possible place to live outside of their country while they keep working. Those who are able to work remotely tend to look for properties with multiple housing options so that they can live on the premises and rent out the vacant spaces. Life coaches, yoga instructors and practitioners of all types of therapeutic modalities are finding that Costa Rica provides powerful settings to host healing retreats. Many have chosen properties where they can grow food and invite guests into a beautifully organic living experience.
There may not yet be any large, all-inclusive hotels in our South Pacific region of Costa Rica but there are an increasing number of investor groups who are scouting our region for income property opportunities to meet the growing demand.
“Where do most Americans buy rental property in Costa Rica?”
Expats generally want to be near other expats. This is not the case for everyone because there is a significant population of foreigners who move to Costa Rica to get away from everyone and enjoy living a simple life in a small Tico community. However, the majority of people want to live near people who are familiar to them in language and values. Towns that are populated with expats will attract more products and services that cater to expats, with international products, cuisines, and high-end services.
Coastal communities like the Costa Ballena towns of Dominical, Uvita, and Ojochal are popular with expats who love nature, adventure, and peaceful living. There is not much traffic here and life is generally slower, which brings in a growing amount of local and international tourism from people looking for that type of escape into nature.
“Who rents property in Costa Rica?”
Costa Rica is frequently ranked in the top 10 fastest growing tourism markets for a variety of reasons that include politics, environment, ease of travel, wildlife, and friendly people. All types of people are looking to spend time in this enlivening part of the world whose message of ‘pura vida’ (pure life) draws people in like magic.
Digital nomads are a growing group of visitors to Costa Rica. The country’s government has recently passed a new law that allows Digital nomads to stay in Costa Rica for up to two years if they earn a foreign income of at least $3000 USD per month. Young entrepreneurs and families love this part of Costa Rica because the individualized rental opportunities have many value adds that make renting here unique. Maybe it’s a yoga pavilion, a five-star ocean view from bed, or a private waterfall on the property – these extras wow guests into wanting to stay as long as possible.
“Is owning rental property in Costa Rica actually profitable?”
When people first start thinking about buying property in Costa Rica, they will typically book a trip to visit. Oftentimes, people will visit more than once before committing to a location and a property. And those who have been visiting in recent years will note that rental prices in Ballena have gone up and rental availability is more and more scarce.
Rental properties in Costa Rica can and do generate a net income but it is important to note that the return on investment doesn’t typically happen right away. Unless you are buying a turnkey rental property at a premium price, you can expect to spend money on renovating to your standards and taste as well as upgrading the property’s amenities to current rental standards.
“How much profit can I earn by owning a rental property in Costa Rica?”
We are in a strange time in the rentals market in Costa Rica because at a point in the year when it would normally be quiet, most rental homes in Costa Ballena are filled. They are, however, filled with long term tenants, most of whom are looking to stay for a while. Recent buyers who have purchased homes in Costa Rica are making 0.5% to 0.9% monthly return (6%-10% annual return on investment) on their purchase price at this time. One home recently bought for $450,000 is renting for $4000 per month to long-term renters. Another home purchased for $285,000 is charging $1500 to long-term renters.
These rentals would normally cater towards short-term renters but because the pandemic has put a damper on international travel, rental home owners are not counting on intermittent traffic and would rather secure long-term renters for a lesser monthly income. When borders finally open, many rental home owners are likely to switch back to focusing on short-term renters.
In recent years, rental property owners have netted an average return from long-term rentals. These figures can easily climb as high 8 – 10% ROI or more in the premium short-term rentals market.
“How much does it cost to buy a house in Costa Rica?”
Although there are a few ambitious property buyers who want to build their dream property, most foreigners wanting an income property in Costa Rica are looking to buy something that they can use right away. A lot of homes on the market in the $200,000 – $400,000 USD price bracket will be looking at some renovations but you can still find ocean view homes with a pool in this price range if you are willing to put in some elbow grease. Simple cabina properties without too many frills can also be found in that bracket.
When you move into the $400,000 – $600,000 USD bracket, you will find the conventional family vacation rentals that have a decent view, large and airy rooms, and a nice terrace with a pool. These types of homes are the bread and butter of our market today.
From $600,000 USD and up, you start to get into the luxury property market. These are the fully-equipped homes with lavish amenities like a spa bath, infinity pool, gorgeous floral landscaping, and ocean views from every room. As you scale up the price ladder, the finishes become more refined, the spaces more grand, and the sky’s the limit for how much luxury you can pack into a Costa Rica property.
Most turnkey hotel properties start at over $1 million USD in Costa Ballena.
“What are the common expenses when owning a rental in Costa Rica?”
Vacation rentals in Costa Rica come with many common expenditures that are important to take into consideration when investing.
- Maintenance: General property upkeep is important in a jungle environment where plants and water are significant forces on construction.
- Gardening and landscaping: A bi-monthly expense that includes mowing, trimming, clearing leaves and other garden waste.
- Pool maintenance: Cleaning the pool as well as paying higher electricity and water bills to run the pool pump regularly.
- Cleaning: Regular maid service.
- Guest amenities
“Do expats pay taxes in Costa Rica?”
When it comes to Costa Rica taxes for Expats, both residents and non-residents are subject to taxation on the income they earn within the country. This means that any rental income you earn from a rental property in Costa Rica is subject to a 13% VAT tax. You will also have to declare your income in Costa Rica to the IRS or any other foreign revenue body that you are subject to.
Income from foreign sources is not subject to Costa Rican taxes. Annual taxation on a property in Costa Rica includes the not high payment of property tax which is calculated at only 0.025% of property value. To learn more about taxes in Costa Rica for U.S. citizens, click here.
“What regular tasks need to be done when owning a rental property in Costa Rica?”
Owners will quickly discover there are two roles that need to be filled—the property manager and the rental manager. Often, they are one in the same. The property manager deals with daily life on-site. They coordinate with the cleaning crew, the gardener, the pool service, the maintenance man, and everything else house related and local. The rental manager deals with the online listing across various vacation rental websites, the inquiries (the most important component), booking reservations, receiving funds, and potentially offering luxury services like organizing a personal chef and a masseuse. They may also arrange shuttle services and book excursions and tours.
Many semi-retired owners or remote workers manage their own rentals in Costa Rica. It is easy to live comfortably on a Costa Ballena property and share it with renters and many people opt for this style of living to earn additional income.
“Should I buy a condo in Costa Rica or a house to use as a rental?”
Those who choose to own a condo over a private residence in Costa Rica are looking for ease of ownership. They want to minimize maintenance costs and to have increased security. Many renters enjoy staying in a condo; however, this type of property is less popular with buyers who envision themselves eventually moving into the property. Condos simply are not representative of what makes life in Costa Rica extra special, which is primarily about living surrounded by nature.
“What are my options for residency if I buy a rental property in Costa Rica?”
Costa Rica offers a program that grants residency through overseas investment, whether or not you plan to live here full-time. With an investment of at least $150,000 in local assets (this number decreased from $200,000 in 2021), foreigners can easily qualify for residency. This investor status also allows you to import up to two cars and a one-time shipment of household goods tax free.
“Can I get financing to buy property in Costa Rica?”
The short answer is no. The long answer is yes, but it’s not as straightforward as people are used to. Savvy investors will use a cash-out refinance, which involves pulling money from other investments they own to buy property in Costa Rica property. Others choose to use self-directed IRAs. These options are not available to everyone and require a large amount of preparation but they are successful.
“Is it hard to buy and own property in Costa Rica?”
You may be anxious about not knowing the local culture and the language. But when you work with a great real estate team, you can expect that the process will be smooth and easy and that all of the most challenging parts will be explained thoroughly by your realtor who will guide you through the entire process.
“Is investing in Costa Rica vacation property a good idea?”
Buying property in Costa Rica is not the best kind of investment for highly leveraged and cash poor buyers. However, it can be a very good long and medium term investment for a more experienced and economically-stable buyer looking for rental income, long term price appreciation, and a lovely tropical family getaway or retirement home to sweeten the deal.
Costa Rica is a very credit poor country and real estate therefore favors cash deals. Cash buyers with patience have access to rewarding investment opportunities with potentially high yields and value appreciation through renovation and remodeling.
“What are the pros and cons of owning rental property in Costa Rica?”
- Living in one of the most biodiverse countries in the world
- Owning property in a less expensive place taking the pressure off future living expenses
- Spending more time abroad
- International diversification for your investment portfolio
- Ticking boxes on wish list
- Good return on investment
- Interest in Costa Ballena real estate market is still growing
- Less privacy
- More wear and tear on the property
- Can’t enjoy the property whenever you want