The Buying Process
Calculating Value
Asking Price
As in every other free market real estate transaction, the asking price will be the highest benchmark used for calculating the true value, for the asking price is the price that the seller would like to get! In Costa Rican culture, bargaining is the accepted means of reaching an agreement between buyers and sellers. It is not uncommon to offer properties at 200% to 300% of their true value.
For a savy real estate investor, do not feel ashamed to offer to buy at a significantly lower price should the other benchmarks guide you to. Many times the asking price is not used just as a high end sales price goal for the seller. Very often it is a stab at making a substantial profit and the seller will often be happy to sell at a more reasonable price. With property values increasing by 15% to 40% per year in most cases, selling for the true or assessed value of the property is still quite a payoff for the seller.
The Buying Process
Calculating Value
Investment Potential
Investment value is an appraisal made based on potential and future value and income capacity.
In a tropical or beach home. Does the government have a history of exercising expropriation rights? Does the beach or the rainforest have commercial potential? (safe swimming and recreation) Is there a push for future improvements in infrastructure. (new airports, roads, services) Is there access to a public bus route?
For developments, many individual investors buy plots of land pre construction. Do the developers have a track record of doing all of the legal leg work to ensure that they do not get shut down? What is the legal leg work that should be done? (Get a good lawyer with real estate experience for the transaction! They will ask the broker for all of the right things, titles, notaries and concessionary documentation) Is this land in a flood plain or susceptible to erosion? Are there the kinds of stores and resources in the region or on site that you require to consider a place livable?
Renting potential is important for a solid long-term investment. Does this region or specific building have a solid rental history? What is the going rate per week or per month? What is the distance from the main road?
For rentals, does it have the selling points to close consistent business and maintain healthy occupancy: internet, cable, piped water, hot water and local attractions.
Follow the big investors. If Warren Buffet invests in Costa Rican real estate, it is a good idea for you too. If your region is seeing significant resort and commercial development from the extremely successful international developers, it is probably a good place to be!
The Buying Process
Calculating Value
True Value
This is the value that you as the buyer are actually willing to pay for the property. All of the factors listed above should be factored in. The most important thing to understand is, what is my purpose?
If you are going to retire in ten years and would like to rent the property for income until then. Find out the short term earning potential of property in the region and understand how ready the property is for you to begin renting upon purchase.
If you will be spending your winter months there then you must make sure the quality of life suits you. Can I live here? Will I enjoy it? Can I do the things I need to do? Is it accessible for visitors from home?
If you are speculating on future value. What are the past trends? How do the enabling factors stack up in the property value forecast? Infrastructure improvements, stability of the region, other large investors, airports and other transportation?
Costa Rica Real Estate FAQ Index Catalog
The Buying Process
Calculating Value
Municipal
The municipal authority assesses property values. They calculate tax rates based on three parameters.
Voluntary declaration is done where the municipal government sends out a voluntary declaration form for the owner of the property to complete and send back to the municipal office. Many municipalities have automated databases for property prices in the region and they encourage the owners to adhere to the standard set by the market assessments done by collecting all voluntary declarations.
When property owners choose not to file the voluntary declaration, the municipal government usually sends out a professional real estate appraiser to survey and price the property.
The municipal government will also use the most recent transaction as a measuring stick for current property values. When a sale is made or a mortgage is placed on a property, the tax basis and the estimated value will be adjusted upwards to match the transfer deed or the mortgage. Any improvements or market trends over time can be used to further bump the value to match the current true value of a home, condo or parcel of land.
Everyone is allowed to visit the Registro Nacional (National Property Registry) to go through all registered tile deeds in order to obtain: accurate ownership information, property boundaries, liens and encumbrances information. This is a free service provided by the municipal authorities.
Why Costa Rica Real Estate
- Stable government; Currency,Infrastructure,Values foreign investment, Protects foreign investment
- Investment security; excellent lending market, ROI, low tax rate, intrinsic value, insurable title/home
- Healthcare; high-quality, high tech, inexpensive, easy access, insurance
- Economic; stability, foreign investment, government, investment potential
- No ownership restrictions; valued by government, no restrictions, same rights as natives
- Proximity to the U.S.; 10 major North American cities with a 3-5 hour direct flight to Costa Rica
- Culture; high standard of living, friendliness to foreigners, education, low crime rate
- Nature; beaches, rainforest, protected lands and species, eco-tourism, diversity
The Buying process
- Finding a broker; certified, experience, track record, language, area knowledge
- Calculating value; comparative value, asking price, investment potential, true value, municipal
- Purchasing; incorporation, appraisals, home inspections, attorneys, contracts, survey map, registration, notary, taxes, titles, closing
- Financing; mortgages, documentation, banks, property protection, using retirement fund
- Types of properties; stand-alone house, apartments, gated communities, condominiums, timeshare
- Building; land & title, permits, size, utility of land, civil engineer, architect, construction, contractors
- Protecting the investment; insurance, making claims, property management
- Oceanfront real estate; defined, taxes, usage, foreign ownership
- Common & avoidable problems; liens & encumbrances, expropriation, environmental & squatters
------------------------------------------------------------------------------------------------------------------------------------
The Buying Process
Calculating Value
Comparative Value
Figures on recently sold properties with like characteristics in similar regions are organized and analyzed to supply a measuring tool for working out an approximation of the comparative value. If there is a building, what do the materials and labor cost in the area for a similar structure? What are comparative properties being sold for?
It is important to recognize the value of one property versus another. You may choose a property as a comparative value property without recognizing that it is not a good bench mark. Is the property you are interested in unique or novel in a way that the other may not be? Is one harder to build on or to reach. Does one of them have a more central location or a better view?
Take advantage of how the municipal authority assesses property value in your comparative analysis. They factor in volunteer declarations or a municipal appraisal if the owner does not offer an appraisal. They also include the last property transfer or mortgage data. With this information at hand, you can look into how the market has changed based on local factors and the countries economic situation and about how much you should pay today.
