Income-Producing Property Investment in Costa Rica

Costa Rica's Appeal to Global Investors

Costa Rica stands out as an investment location for foreign real estate investors looking to invest in income producing assets for several reasons. Costa Rica offers a unique combination of factors that other Central or South American countries don’t offer for investors, such as economic stability, political peace, and a large tourism industry, all of which contribute to a currently booming real estate market. Tourism has rebounded strongly after the Covid-19 pandemic, and has reached new all time highs for tourism arrivals in Q1 of 2024. This has created large demand for vacation rentals across the country. Tourists that visit Costa Rica stay an average of 12.9 nights according to the Instituto Costarricense de Turismo and stay in 3 different locations. Additionally the country has a favorable legal framework for foreign investors, making it easy for foreigners to acquire property, own the property hassle free and gain residency depending on the amount invested in the real estate. The quantity of vacation rentals on the market has increased every year since 2018 (when we started tracking this statistic), along with the average daily rate (ADR) and the average amount of time vacation rentals are listed on the market, suggesting more people are buying purely for investment purposes.

BOOK A CALL

Why Choose Costa Rica for Property Investment?

Costa Rica boasts a strong track record of economic stability and an investor-friendly climate, making it a popular destination for investors. The country's government, combined with legal framework that protects the owners property rights, provides a secure environment for investors. Costa Rica’s economy is diversified, with the majority of contributions coming from the tourism, agriculture, and the technology sector.

Costa Rica's core qualities attract investors, including a favorable climate, great lifestyle, and easy access to all necessary amenities. Costa Rica has a tropical climate, with its year-round warmth, sunshine, and biodiversity, mostly appeals to those seeking a comfortable and pleasant living environment, as well as a profitable investment. The lifestyle here is laid-back and centered around outdoor activities, from surfing and hiking to exploring the rich biodiversity of its national parks.

Costa Rica not only offers a great opportunity for investment and a solid investment environment, but also has excellent access to modern amenities, helping combine investment with lifestyle. The healthcare system is a good example of quality and affordability, making it easy for both residents and investors to gain access to doctors. The education system is also great, making Costa Rica a favorable location for both investors and lifestyle relocators. The country's reliable infrastructure, including good road networks and 2 international airports, facilitates easy travel and trade.

Purchase Options in Costa Rica

Income-producing properties in Costa Rica cover a variety of standard real estate options, all capable of generating a solid return. These include:

Vacation Rentals: Often entire and private properties, these range from condos and houses to entire “fincas” or small farms in English. Vacation rentals are becoming one of the most popular options for the growing number of tourists, mainly due to their availability (there are many more vacation rentals than hotels) and the uniqueness of the properties, such as Treehouse villas in Manuel Antonio.

Rental Properties: Residential homes, apartments, and purpose built vacation rentals are in high demand due to the country's huge tourism industry. Investors can benefit from both short-term vacation rentals and long-term residential leases.

Hospitality Properties: Hotels, resorts, and bed-and-breakfast properties cater to the ever-growing number of tourists visiting Costa Rica, providing substantial income potential.

Commercial Real Estate: Office spaces, retail stores, and mixed-use developments offer steady income opportunities, particularly in urban centers and tourist hotspots. Costa Rica has a growing technology sector with multiple industrial units being constructed currently.

Agricultural Land: Farms and plantations can be lucrative investments, especially those growing high-demand crops like Coffee, Cacao and tropical fruits.

Types of Property Investments in Costa Rica

There are many properties for sale in Costa Rica, and lots of great opportunities depending on your investment and lifestyle goals.

Villas: These often high-end properties, mostly located in exclusive communities, provide privacy, stunning views, and second to none amenities. Luxury villas often charge a very high average daily rate (ADR), and have a lower occupancy rate than many of the other investment properties available. This isn’t necessarily a problem as with the much higher ADR, their revenue is often very good and can achieve a reasonable return on investment. If these properties are Ocean View or beach front, there is a large premium on the ADR and the Occupancy.

Condos: Ideal for those looking to attract tourists, these properties offer direct access to the beach and are popular vacation rental choices. Most condominiums are located in large towns with a large number of tourists visiting every year. Condos are popular because of their often good location in relation to the town they’re in, amenities they offer (most have a pool), and their safety (most have 24/7 security and are in large blocks).

Homes: From cozy bungalows in the mountains of the central valley to expansive oceanfront estates, residential properties are great for long-term rentals or personal use. Not so common for vacation rentals as they were built for locals, not tourists visiting. They often present a good redevelopment project turning these properties into viable vacation rentals.

Commercial: Office buildings, retail stores, and mixed-use properties in bustling areas provide steady rental income. Costa Rica is growing quickly and requires new businesses and locations for businesses to work presenting an opportunity for investors interested.

Development Land: Investors can purchase land to develop custom projects, from residential communities to eco-friendly resorts. It is also viable to purchase and hold the land depending on its location and wait for the towns around the land to develop, therefore increasing the value of the land.

BOOK A CALL

Guidance on Buying in Costa Rica

We take a different outlook to real estate where we represent YOU, the buyer. We use our 20+ years of experience in Costa Rica to help you find the right location and property.

LEARN ABOUT THE PROCESS

Build your Dream Home

With over 30 years of experience and many happy clients. We can help you find the land, choose your architect and guide you through the building process while managing and overseeing the build.

LEARN ABOUT DEVELOPMENTS

Casa Blanca Uvita

2 bedrooms & 2 bathrooms

Price:

$461,410

Return %:

5.6%

Sunset Heights 301

2 bedrooms & 2 bathrooms

Price:

$454,350

Return %:

5.5%

Los Altos

3 bedrooms & 3 bathrooms

Price:

$782,570

Return %:

5.8%

Santiago Multi-Fam

4 bedrooms & 4 bathrooms

Price:

$500,500

Return %:

9.0%

Curated Investment Opportunities

Tips on where to find the best real estate investment opportunities.

Research Locations: Popular areas like the Guanacaste Coast, the Arenal Volcano area, and the Southern Pacific Coast offer strong investment potential due to high demand and growing attractiveness.

Work with Local Experts: Engage reputable real estate agents, legal advisors, and property managers who understand the local market and can guide you through the process, such as Costa Rica Investments!

Visit the Property: Whenever possible, visit properties in person to assess their condition, location, and potential for income generation.

Consider Infrastructure: Ensure the property has access to essential amenities such as roads, water availability, electricity, schools and healthcare facilities, which are critical for both rental appeal and long-term value.

Foreign Investment in Costa Rica

Costa Rica is a welcoming and easy investing environment for potential foreign investors, granting them the same rights as Costa Rican citizens when it comes to property ownership. The country’s relatively stable government and straightforward legal framework protect homeowners, ensuring a transparent investment process. State laws are in place to safeguard property rights, making it a reliable destination for real estate investments. To manage properties effectively, foreign investors often hire local property managers who understand the intricacies of the market and can handle day-to-day operations.

Purchasing real estate in Costa Rica as a foreigner involves several important steps. It is crucial to verify property titles through the National Registry to ensure there are no mistakes. Conducting solid due diligence, including checking for squatters' rights, which are protected under Costa Rican law, is extremely important during the purchasing process to understand the possible issues with your investment. To prevent issues, have a clear contract with every tenant outlining the terms and conditions of their stay. Engaging a local lawyer specializing in real estate can facilitate a smooth transaction and provide legal protection.

Foreign investors have various options for financing real estate investments in Costa Rica. While public banks rarely provide loans to non-residents, private banks and private lenders are standard alternatives in the industry. Many investors decide on owner financing, where the seller finances the property purchase. Once you obtain residency, public financing options do become available, making it easier to secure loans from local banks. Navigating financial transactions in Costa Rica requires careful planning and working with experienced financial advisors, and understanding local banking practices can help the investment process.

BOOK A CALL

Strategies for Maximizing Returns on Costa Rican Properties

Property management is crucial for maximizing returns on your investment in Costa Rica. Hiring a trustworthy and known property management company can ensure your property is well-maintained, vacancies are minimized, and rental rates are competitive and in line with the current demand in the market and the season, local knowledge is very important. These companies can handle everything from marketing and guest services to maintenance and legal compliance, aiding investors in securing a higher ROI.

Selecting the right location, property type, and market timing are essential for maximizing returns. Properties with ocean views, close proximity to the beach, and access to local amenities such as restaurants, shops, and activities are particularly attractive to vacation renters and therefore make better investments than those without. These features set vacation rentals apart, allowing for premium pricing and higher occupancy rates. Investing in high-demand areas like Tamarindo, Nosara and Manuel Antonio to name a few can significantly boost rental income and property appreciation as markets expand.

Market timing is also vital, buying property during market dips or before significant infrastructure developments can lead to better gains, this would be difficult in Costa Rica as many of these projects take a long time to complete. Keeping an eye on local market trends, tourism statistics, and economic indicators will help you make a better investment decision, but talking to local experts, such as the ones at Costa Rica Investments, will provide unbiased, true facts about what we believe the current climate is like currently. An example of infrastructure increasing property value would be the recent addition of the Flamingo Bay marina. Property and land in that area has been in much higher demand. By focusing on prime locations, desirable property types, and market timing, investors can maximize their returns and make the most out of their investments in Costa Rica.

BOOK A CALL

Best Areas for Real Estate Investment in Costa Rica

The best areas to invest in Costa Rica from a vacation rental point of view include the Guanacaste Coast, the Arenal Volcano area, and the Southern Zone, along with its national parks. Each offers unique opportunities for lucrative property investments.

The Guanacaste Coast, home to great beach towns like Tamarindo, Nosara, Flamingo, Potrero and Papagayo, is renowned for its stunning beaches, surfing culture, and eco-friendly vibe, making it ideal for vacation rentals and hospitality investments. With an international airport only an hour from most of those locations, Guanacaste is the most popular destination in Costa Rica. The most expensive real estate in the entire country is on the Papagayo Peninsula, and the vacation rentals there will cost an average of over $2,000 a night. Tamarindo is one of the biggest vacation rental markets in the whole country, along with Nosara.

The Arenal Volcano area, with towns like La Fortuna and the cloud forest town of Montverde, attracts adventure tourists looking to experience the natural hot springs, see wild animals, waterfalls, and other outdoor activities. La Fortuna has seen rapid growth over the last four years and is one of the fastest-growing vacation rental markets in the country. Monteverde also has one of the highest occupancy rates for AIRBnBs in the country.

The Southern Zone, featuring Manuel Antonio, Uvita, Dominical, and Ojochal, is a hotspot for eco-tourism. It offers opportunities in boutique hotels, eco-lodges, and well thought out vacation rentals. Amongst dense rainforests and diverse wildlife, the southern zone has been growing in popularity as tourism has grows, and is increasing market share year on year. The Manuel Antonio National Park is the most popular national park in the whole country and receives more than a million tourists a year. These regions, with their well-developed infrastructure and high tourist demand, can bring solid returns on investment and are currently undersupplied in terms of certain vacation rentals.

Investment Challenges in Costa Rica

Investing in Costa Rica offers many profitable opportunities, but it also comes with its fair share of challenges. Common obstacles for foreign investors often include navigating the local legal and regulatory environment, understanding property ownership laws, dealing with bureaucracy, and adapting language barriers. Additionally, investors might face issues with property maintenance and management as well as fluctuating rental demand depending on the season.

Legal and Regulatory Guidance: Hire a well known local lawyer who specializes in real estate to help navigate the legal and regulatory landscape. This ensures compliance with all local laws and regulations and helps prevent legal issues. Realtors often don’t look out for your best interest so it is best to hire a local expert such as Costa Rica Investments who only acts on behalf of the buyer.

Thorough Due Diligence: Conduct solid due diligence before purchasing property. This includes verifying property titles, checking for any encumbrances, and understanding zoning laws, squatters and building regulations. Again, Costa Rica Investments will aid our client throughout the whole due diligence process.

Professional Property Management: Hire a reliable property management company to handle maintenance, tenant relations, and day-to-day operations. This ensures the property is well-maintained and rental income is optimized.

Insurance and Risk Mitigation:Purchase property insurance that covers natural disasters, theft, and liability. Additionally, consider the location's risk factors and take preventive measures, such as building with resilient materials.

Market Research and Analysis: Stay informed about local market trends, tourism statistics, and economic indicators. This helps in making informed investment decisions and timing your property purchase and sale to maximize returns. Investors often don’t consider their exit, and should be thought out before purchase. Costa Rica Investments is one of the leading companies in this market in this area.

Cultural and Language: Learn about the local culture, find a location that fits with your pace of life. Although your purchase is an investment, you may also want to use the property and enjoy where you stay when you do.

Success Stories: Profiting from Real Estate in Costa Rica

A success story of one of Costa Rica Investments clients comes from John B. John B was looking to Invest in a property in Costa Rica with the intention of purchasing the property and renting it as a vacation rental and potentially exiting in the future.

Costa Rica Investments then found a colonial looking property with a whale tail view in Uvita for $1.7 million. Costa Rica Investments project management arm undertook a complete renovation, transforming the existing colonial house into a modern villa, this required $300,000 additional investment.

Costa Rica Investments also strategically subdivided the property into two lots, both with ocean views. One lot featured the newly renovated house, while the other remained as a plot of land with a great whale tail view valued at $1,000,000. The modern house was valued at $2,300,000 and is currently being rented as a vacation rental and a vacation home for John B.

Costa Rica Investments was part of the entire investment process, starting from the property search, acquisition, renovation bidding process, engineering the subdivision of the lot, project managing the renovation, helping make a decision on what to do with the new lot, and setting up John B with a property manager that operates in the Uvita area. All of this within 12 months.

In summary, the initial $1.7 million investment was effectively turned into a total return of $3.3 million within 12 months. Costa Rica Investments was part of every step and managed the investment while John B was able to live at home and visit the property as he pleased.

*Images attached.

Key Takeaways for Aspiring Real Estate Investors in Costa Rica

Investing in Costa Rican real estate offers many benefits, making it an attractive investment location for all investors. The country's stable economy, governmental stability, and understandable legal framework create a secure environment for foreign investors. High rental yields stemming from the tourism industry, as well as property appreciation can enhance long-term investment value and increase returns when it comes to the investments exit. Opportunities range from luxury villas and beachfront condos to commercial lots and eco-lodges. There is plenty of opportunity in Costa Rica and there is huge opportunity for lucrative investment. Costa Rica's tropical climate, beautiful landscapes, rich culture, and modern amenities ensure a high quality of life, attracting both tourists and expatriates. With great amount of tourists, vacation rentals are hugely popular amongst visitors. Because of the nature of vacation rentals, investments into Costa Rican real estate are often more than just return driven. If the investment is also lifestyle, it is best to choose a location where you enjoy staying, but will also provide you with solid rental returns. Effective property management, market research, and timing further optimize the potential rental income and property value of your investment, enabling investors to navigate the market successfully and achieve substantial returns.

If you would like to learn more, book a call with one of our experts with the button below:

BOOK A CALL

Common Questions

Q1: What are the tax implications for foreign investors in Costa Rican real estate?

Answer:

Investors in Costa Rica, especially real estate, must consider the tax they will pay on purchase, and a recurring tax every year, this includes a 1.5% property transfer tax at purchase and an annual property tax of 0.25% of the registered property value. Rental income is taxable and needs to be reported to the Costa Rican tax authorities, with rates established based on the income the investment returns as well as its possible deductions. However, Costa Rica offers some tax incentives such as no capital gains tax for individuals and specific exemptions for retirees and investors. This does depend on your specific situation and is best to hire a local tax lawyer or the Costa Rica Investments team to walk you through the whole process.

Q2: How can I verify the legitimacy of a property listing in Costa Rica?

Answer:

To verify the legitimacy of your property listing in Costa Rica, engage a real estate agent and get a copy of the property's title deed (escritura), which is verified through the National Registry. Conducting due diligence on the zoning laws (if it is leased to you by the government long-term (concession) or freehold land), building permits (Water is ESSENTIAL for your investment), and any legal issues such as squatters. Hiring a local real estate lawyer increases your chances of all the documents being reviewed and understood properly, and you can receive legal advice that is in your best interest throughout the process. Additionally, visiting the property in person helps verify its condition, location, and amenities. Costa Rica Investments strongly encourages investors to visit the property, and even rent the property before they buy to make sure they truly like the investment. This along with encouraging the client to visit multiple locations across the country that may not have been on their radar helps the client make the best decision.

Q3: What are the long-term prospects for real estate growth in Costa Rica?

Answer:

The long-term prospects for real estate growth in Costa Rica are promising, driven by the country's growing economy, political stability, and all-time high tourism statistics all play a part in the current success of the Costa Rican real estate market. The tourism industry is what really propels the real estate market in this country, and continually boosts demand for vacation rentals and hospitality properties. While the number of expatriates and retirees also grows as they seek a higher quality of life that Costa Rica offers, some of the less popular tourist destinations have become more popular with this demographic. Infrastructure improvements, such as new highways and airport expansions (especially in Guanacaste), enhance accessibility to key regions, further supporting real estate growth and making the market attractive for long-term investment. Smaller towns near popular tourist destinations such as Chachuagua have seen some of the fastest growth in the country as demand spills out from the tourist hotspots into neighboring and equally beautiful areas.