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
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Costa Rica Real Estate FAQ Index Catalog
Why Costa Rica Real Estate?
Investment Security
Insurable title/home:
Costa Rica provides home owner theft, liability and natural disaster coverage. Theft insurance applies to forcible entry. The annual premium is 1% to 2% of the sum value of the items insured, but depends upon the location and on the security of the insured grounds. It is necessary to insure all items within the premises except cash, securities and jewelry, which cannot be insured. You cannot select to insure only the high-risk items. In Costa Rica it is advisable to be insured for earthquake as well as fire, water damage and natural disaster. It is possible to insure the house, the house plus contents, or the contents alone. The cost for a comprehensive plan is roughly 0.25% of the value of the building per year. The estimated annual premium for an average household would be $200 to $300 per year. As Costa Rica is not a litigious country, this coverage is not so important for the common householder.
Title insurance is commonly sold in the United States for Costa Rican property. Title insurance is intended to protect the owner or the lender from financial loss in real property due to title defects and holes. It is pretty much universal in the United States because lending institutions require it to lend money, but it is not required in Costa Rica
Title insurance coverage can vary greatly and sometimes it can be confusing so it is important to work with an attorney. In Costa Rica, it is vitally important to have the seller of the title explain whether you have legal insurance to aid in paying the legal bills to protect the title of my property or does it pay me the full stated value of my property if I have a bad claim. If all it does is guaranteed payment of legal bills in court one can still LOOSE EVERYTHING if you loose in court. A true title guarantee in Costa Rica is really a bond of fulfillment and not an indemnification.
Tips: If the seller cannot provide you with clear cut understandable official English translation of the coverage do not buy it. Ask a qualified attorney for an explanation on the terms in all cases.
Why Costa Rica Real Estate?
Investment Security
Excellent Lending Market
Costa Rican real estate was transacted only on a cash basis until recently. About three years ago the lending market opened up in Costa Rica to foreigners interested in financing real estate purchases. Mortgage companies in Costa Rica now offer terms similar to traditional mortgage products offered by lenders in the United States.
Current terms that are typical to see at the major Costa Rica banks are 10% down and 5.75% to 7% annual interest. A weaker U.S. market resulting from the "Mortgage Meltdown" has lead many investors, speculators and winter/2nd home retirees will pump significant demand increases on top of the current factors increasing property prices and values in Costa Rica. With the supply constant and the demand rising, real estate values will continue on the rise. Increasing the ease of purchase with an enhanced lending market with "buyer friendly terms" coupled with the intrinsic value of the land will continue to push real estate investment in Costa Rica.
Conservative monetary policy has compassed Costa Rica away from the storm that is the speculative lending crisis in the United States. Costa Rica places careful limits and regulation on the sum of money banks can lend in proportion to their reserves. Costa Rica's federal reserves, for example, totals about $4.1 billion. This is the highest level that they have been at in over two years when they were at record highs.
Consolidations and M&A have been the recent trends in the banking industry as Costa Rica has been pushing to become a player in the global markets. Citicorp, Scotia Bank and HSBC have been acquiring and assimilating smaller banks throughout Costa Rica. U.S. real estate investors are relatively low risk in the Costa Rica market. Foreign assets are more and more easily leveraged by buyers to secure low fixed long term loans.
International acceptance of Costa Rica as a key opportunity market has helped bolster the lending market. Investment banks, private equity groups and hedge funds focused on fund offshore commercial real estate, are aggressively seeking to fund Costa Rica commercial real estate with both debt and equity as a noteworthy constituent of their asset allocation strategy.
These factors have lead all major financial analyst firms, mutual fund managers and investment firms in the U.S. to rate Costa Rica as a strong investment for international investment, aggressive growth and emerging market real estate investment.
Why Costa Rica Real Estate?
Investment Security
ROI
Consistent and supportive measures by the Costa Rican regulative bodies, the government and major banks have provided security and confidence to the international real estate buyer interested in Costa Rica. Listed in the top 5 among over 150 countries studied by several environmental agencies including the 2008 Environmental Performance Index (EPI), Costa Rica gives an admirable level of respect and consciousness to the value of their pristine beaches, jungles, rainforests and enormous bio-diversity. Low property prices, property taxes and an affordable lifestyle in a friendly and safe tropical country have been attracting US and European baby boomers in significant numbers. Due to its proximity to the equator, the affordable oceanfront real estate is hurricane-free.
These are some great enabling factors to a real estate investment with a high return on investment, but with respect to ROI the numbers, past, present and future, tell the full story. New developments in the Central and Southern Pacific coasts host lots that have yielded 15%-40% appreciation per year for the last ten years. Stand-alone homes and their lots have appreciated by 10%-30% during the same period. Improvements in infrastructure like paved roads, state electricity and high-speed internet have enabled quality of life to improve astronomically. In undeveloped areas and pre construction developments returns of 40% or more can be expected. Actual ROI depends upon the true value of the land and the price. Proximity to modern convenience, ease of travel, natural features and utility of the land factor into ROI potential. With enhancement of these categories as a major priority of the Costa Rican government, investors in Pacific Coast real estate are reaping the benefits and the long range forecast shows no deviation in this trend.
International hedge fund managers and economic experts project over 15% appreciation in the next five to ten years in many of the under-developed regions along the Pacific coast. The world economy, Costa Rican culture, and the demand for inexpensive tropical and beach front property will drive this trend in the future. Costa Rica is fourth in the world in foreign investment by percentage. A third international airport is under construction in southern Costa Rica. The forecast for ROI in Costa Rican real estate is favorable.
Why Costa Rica Real Estate?
Investment Security
Intrinsic Value
What does it mean to say that Costa Rica's land has a high level of intrinsic value?
Empirical studies should these elements to be factors in real estate value: Accessibility by road- Costa Rica has an expansive highway and rural track road system. Large investments are being made in extending several international highways throughout Costa Rica.
Location- Costa Rica, pound for pound, is the most bio-diverse nation in the world. Beautiful beaches and rainforest mountains are abundant. Costa Rica is highly rated in the location category for this reason.
Safety of community- Costa Rica has the lowest crime rate in Latin America and the highest literacy rate.
Security of nation- Costa Rica has been strongly allied with the U.S. Costa Rica is a beacon of freedom and prosperity as the longest standing democracy in the region. Protection and enforcement of the integrity of unique features- Over a quarter of Costa Rica is protected habitat. This is strictly enforced by the government. If you buy property in a naturally beautiful area, they guarantee that it will stay that way.
Land use classification- Costa Rica's government also actively enforces zoning laws and rules.
Size of parcel, site type, topography, climate, novel views, special usage capabilities- Costa Rica has many undeveloped regions with large plots available. The lay of the land allows for mountain/rainforest homes to be in the fresh elevated air and still be close to the beach front with unique Pacific and jungle views. The weather is warm all year long and the location allows for water recreation like scuba diving, deep sea fishing, boating, surfing and swimming. Hurricane free tropical real estate in a country with a strong economy has premium intrinsic value. Prospects of improvement for any of these areas- Costa Rica's heavy investment in infrastructure and providing a free market situation for many services has created a boom in the enhancement of real estate value.
Why Costa Rica Real Estate?
Investment Security
Low Tax Rate
The Costa Rica tax code strongly facilitates foreign purchasing on several levels. The first and most direct level is the extremely low annual property taxes. Property taxes range from 0.25% to 1.5% per year as based on the declared value of the property. Typically the rate is closer to 0.25%. This declared value is a common law practice in which a property's value, according to the government, is very low and is almost always lower than the sales price. Often two or three times lower.
For those who earn their money outside of Costa Rica or have retirement or fixed incomes based outside of Costa Rica, none of that money is taxable under Costa Rica law.
Transfer taxes are also low and non-inhibiting factors in real estate transactions. The rate was 3% based upon the registered value placed on the property transfer deed at the time of the sale, this rate was cut to 1.5% back in 1998 which is where it stands today.
HOW TO AVOID THE TRANSFER FEE: Incorporating in Costa Rica costs roughly $500. When a property is tied to a corporation and the corporation is sold, THERE IS NO TRANSFER FEE! This is common practice and a good broker will walk you through this process. The only thing to look out for is to make sure that there are no liens or encumbrances associated with the corporation being purchased.
