Investing in Costa Rica

We get it! Costa Rica is gorgeous, bio-diverse, affordable, and in a great location. It’s a popular blue zone destination and carbon free. The central valley has the best climate in the world year round with Spring like temps. All of this plus 100% ownership can be yours! That’s right, when you purchase property in Costa Rica, it is yours, free and clear. International real estate may be the best possible way for investors to amass a fortune over the coming decade, but beware because many countries do not allow full ownership of property by foreign investors. Not the case in Costa Rica. 100% ownership + low property taxes = stratospheric returns during times of great flux. They are not making anymore beachfront property. The need for Residential and Commercial space is always growing with population. Supply, you see, can’t be turned on like a tap. It’s finite in the case of land.

Here’s the Beat: with real estate, you retain control. You can buy, sell, rent, or develop, according to your schedule and your requirements.

Diversify your Portfolio: You can generate a cash flow in another currency. This is a great way to diversify your portfolio towards appreciating currencies such as the Costa Rican colón.
Inflation hedge: Real estate is better than just cash flow in another paper currency. It’s a hard asset. That means it retains a value independent of any paper currency’s nominal value.
Multiple Use: Land you buy can be used for agriculture or forestry while you wait for the people, the tourists or industry to come. You can rent out a residential home for long-term use to pay down your investment or mortgage. You can rent out holiday investments to turn immediate profits, not to mention you will always have a place to vacation.
Real estate investing is fun: Your real estate investment in Costa Rica can double as a personal retreat, part-time residence, or vacation getaway. You can enjoy it while it’s appreciating in value…generating rental returns…and safeguarding your net worth.

Sign me up! How do I invest in real estate as an expat?

  1. CASH is King – this is so true when it comes to buying property in Costa Rica. Not only will you be able to close the deal faster, but you will also likely get the best price, through discounts, upgrades – or both. However, we do not recommend paying cash for pre-construction. For obvious reasons, paying cash upfront for something that’s not built yet, leaves you at risk. The developer could run out of money or have some other problem that could either delay or prevent project completion. In these situations, it could be tough, or at least time consuming, to get your money back, especially if you do not speak Spanish.
  2. Developer Financing – Depending on your credit score, references and down payment, you may qualify for developer financing if you purchase a lot, home site or pre-construction property in a development. Another perk: sometimes developer financing is interest-free and usually little paperwork is required, speeding the process.
  3. Self-Directed IRA – If you have your sights set on a house overseas and plan on using it solely as a rental or investment property, you may be able to use funds from your self-directed IRA to make the purchase. The IRS does not specify which types of investments are allowed in a self-directed IRA and states only what is not allowed, including collectibles (e.g., artwork, stamps, and antiques), certain coins, and life insurance.
  4. Owner Financing – In some cases, the owner of the property is willing to owner finance a strong buyer. Usually this still requires a sizable down payment with comparable interest rates to the current bank lending rate. We highly recommend having your attorney authenticate any legal contract before signing. In Costa Rica, all documents must be translated into Spanish by an approved translator, then stamped by an abogado notorio, another word for Notarized by Attorney. Some owners are willing to finance, probably at 50% LTV (Loan To Value) or less, for a short period like 2 – 5 years. Bank interest rates vary between 6 – 8% annually. So, be ready to pay more or less the same as you would pay the bank. Which is why sellers like offering owner financing for a short term.
  5. Bank Mortgage – Shop around for a mortgage first and ask the attending loan officers to pre-qualify you and tell you what your purchase budget is before you start looking at properties you cannot afford. Also, there are different rules for different properties. Raw land will have different contracts as well as different financing options than a residential home or a commercial warehouse. If you have purchased real estate before, you probably have a good idea about what you can afford. Once you have filled out all the forms and given them your proof of income and the fixed monthly cost you have such as: car payments, credit card payments, other loans, and other fixed payments you have to make like life insurances, etc., the lender can pre-qualify you based on that information. Usually lenders in Costa Rica will allow for 30 percent of your net income to be used for mortgage payments. If you give the lender incorrect information it will show when you formally apply, so give them the correct information up front. Few banks in Costa Rica extend mortgages to non-residents. Private mortgages are available anywhere between 12 – 18 percent interest rate annually in dollars. Banks offer different mortgage packages, depending on the borrower.

If you obtain a mortgage in your home country, the mortgage document will have to be authenticated by the Costa Rican Consul. Alternatively you can consider applying for a mortgage hipoteca in Costa Rica. Mortgages can be denominated in Costa Rican Colones or in foreign currencies (US Dollar mortgages are the most common). Most banks require that you have a residency in Costa Rica and can show proof of a job and/or income via Social Security, pensions or investments. If you do not have a residency, there are still some foreign private that might be willing to lend you money. Keep in mind that it is customary in Costa Rica that the borrower pays for mortgage costs, such as legal drafting fees in the purchase contract. We also suggest a home inspection for systems and mechanics.