As the Costa Rican tourism sector continues to grow and attract all new types of people, vacation rentals are increasingly becoming a smart investment option for both local and international investors. In our August 2024 webinar, we looked into the factors that make Costa Rica a prime destination for all types of vacation rental investments. Here are the 6 key takeaways:
1. Costa Rica's Tourism Growth is Still Going Strong
Tourism numbers for 2024 have shown a 14% increase from 2019, what we consider to be the most recent year for 'normal' tourism, and the trend is expected to continue. The rise in international arrivals, coupled with more airlines serving the region, suggests that this growth will continue through 2025 and beyond. This is great news for anyone looking at a vacation rental investment, as tourism demand directly correlates with rental occupancy and revenue.
2. Key Factors for Rental Returns
Investing in a vacation rental in Costa Rica requires an understanding of a few variables, including occupancy rates, average daily rates (ADR), and the number of listings in the area (your competition). For example, high-demand areas like Playa Grande have seen a 9% increase in occupancy, while areas like Papagayo, though lower in occupancy, offer much higher ADR, sometimes reaching $2,000 per night. Finding the right balance between occupancy and ADR is crucial for maximising returns. Your property manager should be using technology to make sure this is being optimised.
3. Location Matters
Popular regions like Tamarindo, Flamingo, and Manuel Antonio continue to be attractive for vacation rental investments. However, emerging areas like Playa Grande and Punta Islita are also showing strong potential with increased demand and growing occupancy rates, possibly due to their proximity to an airport, infrastructure and demand leaking out of Tamarindo. Investors looking for long-term growth should keep an eye on these up-and-coming destinations where property prices are still relatively affordable, such as the beaches south of Tamarindo and north of Nosara.
4. The Role of Property Management
Property management can make or break your vacation rental investment. With management fees ranging from 20% to 40% of revenue, along with a fixed fee, choosing the right company is very important. Investors should look for managers with a proven track record, who use tech tools, and can drive occupancy while maintaining high ADRs. Good property management can significantly boost your ROI by optimising rental pricing and ensuring a great guest experience, which in the end of the day, is most important.
5. Smart Investment Strategies
The formula for successful investment in Costa Rican vacation rentals is simple: 365 days × occupancy rate × ADR = revenue. But there is more at play, analysis of each property’s potential expenses, like utilities, maintenance, and property management fees are key to calculating realistic returns. Our data suggests that well-managed properties in prime areas can yield annual returns between 7% and 9%, with luxury properties reaching even higher.
6. What’s Next for Costa Rica?
The future looks good for Costa Rican vacation rentals. New luxury brands such as Ritz Carlton and Waldorf Astoria are setting up shop, and Liberia, in the north, is growing as a major tourism hub. As more tourists head to the Pacific coast, vacation rentals are increasingly competing with traditional hotels by offering similar services like private chefs, concierge services, and daily cleaning.
Conclusion:
Costa Rica is a growing market for vacation rental investments. With a strong and continually growing tourism sector, rising demand in key established areas, and unique property opportunities, investors can find excellent returns if they look hard enough. As always, due diligence is crucial. Working with the right property management team and choosing a location with strong demand are the keys to a successful investment.
Insightful!