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Owning a Vacation Rental Property as an Investment in Costa Rica

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Vacation rentals in Costa Rica are one of the most searched topics when it comes to real estate in our South Pacific region of the country. In 2019, over 50% of Osa Tropical Properties buyers purchased properties for use as tropical vacation rental homes. Those who buy vacation rentals in Costa Ballena tend to use the property themselves when they come to holiday. But during the rest of the year, they view it as an investment in their future and possibly somewhere that they will retire to one day. In the meantime, to offset some or all of the costs of ownership, they rent their Costa Rica property while they continue to live and work in their home country. Return on investment for vacation rentals in Costa Ballena appears to be so good that word is spreading to more annual property hunters from around the world. It seems that buyers are hot for investment properties in Costa Rica in 2020!

If you are beginning your own 5 year plan to retirement, or if you are looking to invest your money into something that you can also enjoy, it is worth considering purchasing the property of your dreams now while real estate prices are still growing in the burgeoning region of South Pacific Costa Rica. Many expats in Costa Ballena are choosing to put their savings to work while they also enjoy the fruits of their labor once or twice a year in the comfort and convenience of their own home away from home. Additionally, buyers from the US are choosing to use their IRA to purchase a purely investment property that they can take over in the future when they are ready to retire.

But before you take the leap and invest in a new market, we want to fill you in on some details about Costa Rica real estate that you may be curious to know. Below are some common questions that previous investors have asked us about the Costa Rica rentals market and our answers that we hope will help you make the decision on whether investing in a rental home in Costa Rica is right for you.

What can I expect as a return on my real estate investment in Costa Rica?

As a basic rule of thumb for South Pacific Costa Rica vacation rental properties in recent years, you can expect an annual net return of 4 – 6% on your investment.  According to local property managers, on average, a good rental property will rent for about 65% of the year.  But these figures can climb as high as a netting an 8 – 10% on investment if you build or buy the right kind of rental for the growing premium rentals market. 

Depending on the features of the property, the average rental home in the Costa Ballena can expect occupancy rates of:

  • 75 – 100% occupancy rate December – April, 
  • 25 – 50% May – July
  • 10 – 25% August – September, and November
  • 0 – 10% October

What should I look for when purchasing a potential rental property?

Purchasing a property within walking distance to the beach or one with great ocean views will typically see a better return than homes with a jungle view or one that’s far from tourist destinations. This is not always the case in South Pacific Costa Rica where the peace and tranquility of a beautiful jungle property can be a big draw for nature lovers who come here for our ecological reputation. Close proximity to a river, especially one with a waterfall, are highly preferred features for those wanting relaxing vibes and a multitude of animal sightings. Still, there is nothing like a jaw-dropping ocean view from the hillsides of the Costa Ballena. This mountainous region faces the Pacific Ocean and is fast becoming world-reknown for its powerful views of vivid green jungle leading out to the azure coastal waters.

Ideal qualities for a vacation rental in Costa Ballena:

  • Close proximity to the beach
  • Close proximity to amenities
  • Security and or gate
  • Clean and comfortable
  • Private

To be a great income property in Costa Rica, property managers will advise that you have some or all the following features:

  • At least 3 bedrooms for families; or a small, separate, private villa on your property for couples
  • En suite bathrooms in the main bedrooms
  • Ocean view
  • Pool
  • A/C (at least in the bedrooms)
  • Internet
  • Cell service capability
  • TV/Satellite
  • Wildlife and birdlife sightings

Additional features that will add to the success of a rental property are:

  • Microwave
  • TV with DVD player and movie DVDs
  • BBQ propane outdoor grill
  • Beach chairs
  • Guest information book with preferred tour companies, local eateries, etc
  • Pool/lounge chairs
  • Blow dryer for each bathroom
  • Blender for smoothies/drinks
  • Board games or playing cards
  • Books
  • Candles, flashlights
  • Flower vases, preferably the tall square variety made of thick glass
  • A large selection of good quality bath and beach towels
  • 2+ sheet sets and a comforter/shams for each bed
  • 2 sets of zippered covers for all pillows
  • 2 mattress covers for each bed

What are the best months to rent out my vacation home in Costa Rica and when is the best time for me to use my vacation rental?

Peak times for the Costa Ballena region of Costa Rica are as follows:

  • Christmas
  • New Years
  • Semana Santa (Easter week – generally from Thursday to Sunday)
  • Envision Festival (last weekend of February)
  • Whale’s and Dolphin’s Festival (the first and second weekends of September)

At peak times, vacation rental homes can expect to earn double the normal rental income. Don’t plan your private stay during these periods if you are focused on rental income and don’t forget to increase your rental prices to your premium rates for these times of year. This is also the time to avoid maintenance breaks unless absolutely necessary so plan ahead and do your biggest jobs in the low season.

The extended high season in Costa Ballena is from December to May. This is the dry season in our region; the hottest time of year in Costa Ballena and also the coldest time of year in the majority of the Northern Hemisphere. This is traditionally the time of year that Americans and Europeans prefer to travel to warm weather destinations like ours and it’s when we see the biggest swell of tourism in stores, restaurants, hotels, and in our office.

From May to November is the green season when the weather is still warm and nice but the heat is tempered by a refreshing rain that typically comes in the afternoons/evenings. This time of year is generally less popular with tourists although it holds its own appeals for those who prefer milder temperatures, lots of fresh fruit in season, and plenty more wildlife sightings. June to August can be popular months to visit while kids are out of school for the holidays and 2019 was a good example of this.

Are there local property managers who can help market my Costa Ballena property?

There are many local property management companies that can market, rent and manage your property and clients. They promote locally and internationally and manage questions and concerns, taking care of clients before and while they are renting. They handle billing and taking records for you and generally take a 20% commission for all of the above work. Contact our office for a qualified recommendation of local property managers who will meet your rental needs in the Costa Ballena region.

Often, rental properties in Costa Rica will be featured on VRBO and AirBNB as these are the top sources for acquiring vacation rental bookings worldwide. Positive reviews on any of the online rental platforms are the most helpful tool for positioning your property as a great rental in Costa Ballena and to receiving more bookings. Professional photos with great hospitality staging are common tools used by some of the most frequented property rentals in our area. If you want to manage your own rental property, especially if you live locally, it is easy enough to do when using the right tools for the job.

What makes the Costa Ballena region of Costa Rica a popular holiday destination?

Although the Costa Ballena is not the most popular region of Costa Rica when judging by number of visitors, there are many unique and remarkable qualities about this region that keep tourists coming back every year. These include:

  • Natural attractions like beaches, mountains, and waterfalls
  • Privacy and quiet solitude away from big parties and noise
  • The wildlife corridor for which this region is famous
  • Frequent animal sightings (sloths, monkeys, toucans, macaws, iguanas, etc)
  • Adventure tourism and many reputable companies that provide rentals and guides (mangrove tours, surfing, SUP, kayaking, zip lining, parasailing, paragliding, etc)
  • Great community (dining, entertainment, and welcoming locals and expats)

It has happened many times in our region that visitors will fall in love with the property they stay at and will put in an offer before leaving. Or they will drop into our office, or one of the other local real estate companies, and ask us what else is available on the market. It is always such a joy to have these people tell us how they were not expecting to fall so much in love with this area and that they never thought they’d want to buy a property now. These conversations really reaffirm for us why we are here, too!

What will my rental competition look like?

There are no hotel chains in the Costa Ballena area and the largest hotel in the Southern Zone of Costa Rica has less than 30 rooms. Most of our local accommodations are bed and breakfasts or home stays, which can range from budget to super-luxury. It would be difficult to guess how many properties in total are being used as vacation rentals in the Costa Ballena, but judging by the latest VRBO search results, there are at least 250 homes for rent in a 15-mile radius.

What are the typical vacation rental property ownership costs?

Up until recently, the only taxes to pay on Costa Rica vacation rental income were the national property taxes (0.25% of property value annually). This changed with the new IVA tax update in July 2019 which requires every local income stream in Costa Rica to be taxed up to 15%. This is not fully enforced on vacation rentals at the present time; however, accountants advise that these taxes be paid in case of future back taxes. This new tax has not halted the purchase of rental properties in Costa Ballena, which appear to be growing significantly year on year in our region.

Other operational expenses include:

  • Property insurance
  • HOA fees (if applicable to your development)
  • Utilities (water, electric, gas, cable)
  • Property insurance (weather damage, vandalism)
  • Pool maintenance
  • Cleaning services
  • Repairs and maintenance
  • Exterior landscaping

Should I buy a vacation rental in the Costa Ballena?

Anyone can be talked into or out of anything. In this scenario, the best thing that we can recommend is for interested buyers to come and stay in our region of Costa Rica to really get a feel for the quality of life. We have a dynamic international community of expats from around the world blending with local Costa Ricans in a beautiful, pura vida way that seems, time and again, to inspire many people to want more. Things like property taxes, maintenance fees, and utilities are technically minuses on a ledger; however, the pluses are on a slightly less tangible scale that needs to be felt to understand its power. 

So, to recap:

  • A vacation property can provide another source of supplemental income to offset homeownership and vacation expenses
  • You can use your IRA to purchase a purely rental property
  • Properties that are successful vacation rentals are valued by the real estate market when you want to sell your investment in the future
  • You can enjoy your vacation rental in Costa Rica, too
  • Living here and renting a part of your property can help ease financial stress and maintain a peaceful lifestyle

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