Real Estate Investing in Costa Rica

VIP Member Jeff Hickcox

Attention real estate investors in the United States! Do you feel the foundation of your real estate investments cracking under your feet because of a sinking market? Are you wondering where to invest your capital to achieve a high return safely?

Back when you first started investing in real estate, reading Kiyosaki, Allen, or Trump you were on top up the world. You were armed with knowledge, excitement, and motivation to buy assets in a solid real estate market.

During the peak of the most recent up-cycle (2000 - 2005) in the United States it was easy to make money in all facets of real estate. Now we are feeling the pain of a declining market in the United States and strategies that have worked in the past to create profit simply no longer exist.

There are several reasons the US market will continue to falter: The supply of resale homes is the highest it has ever been, demand has all but disappeared, and foreclosure rates are also setting records. Everyone knows that a real estate market is cyclical and the United States has entered a down cycle.

The most concrete evidence of the start of a down cycle is when lenders pull capital out of the market. Currently, sub-prime lenders are collapsing, while prime lenders are tightening their reins in the United States. Lenders are beginning to require higher credit scores on lower loan-to-values (LTV). Clearly, this is not good for borderline house buyers and ultimately the overall market demand. After all, if there are fewer buyers there is less demand.

The capital that used to be in the real estate market doesn't just evaporate -- in other words it has to go somewhere. Therefore it is not surprising that the U.S. stock market has been steadily climbing despite declining growth and the shaky fundamentals of the U.S. economy.

In the first quarter of this year (2007) the GDP in the U.S. showed the slowest growth in four years. It appears this slow growth combined with the future affects of globalization doesn't guarantee success of the stock market either. Keeping in mind that real estate is still the safest and most profitable investment vehicle, it is essential to invest your capital in up-cycle markets -- like in Costa Rica.

Costa Rica offers a prosperous future for savvy real estate investors.

Costa Rica has the perfect fundamentals of an up-cycle. Capital is being invested at a blinding pace, demand is exploding, and supply is most areas is low. This peaceful country has a perfect climate, solid infrastructure, stunning beauty, low-cost of living, and affordable real estate. Costa Rica is also just a short flight from many cities in the U.S. and offshore capital is migrating here almost as fast as foreign retirees.

As 77 million baby boomers begin to seek out retirement areas, they quickly realize that they have been priced out of popular locales like Florida and Arizona. They are already seeking out foreign locations in less expensive areas like Central America. And when it comes to political stability, quality health care, and climate Costa Rica reigns supreme.

The preeminent benefit for an experienced real estate investor is that many of the same creative financing techniques you have learned also work in Costa Rica.

Using options, lease-options, owner financing, land splits and a variety of exit strategies will increase your leverage and profit potential. Tico sellers are beginning to better understand and accept creative terms. In fact, in recent months we have negotiated a lease-option, a 70% owner-financed sale, and a lease-sublet property.

More traditional financing is also available in Costa Rica however the market is not as competitive or as abundant as in the North America. Private mortgages, North American bank mortgages, local mortgages, and mortgage bonds are available here.

With the expectation of future growth in the Costa Rican real estate market many new lenders are expanding their products to Costa Rica. Although interest rates are a bit higher and the loan-to-values (LTV) are a bit lower, insurance and taxes are much lower than in the United States.

One of the biggest reasons Costa Rica offers such high profit potential is the low cost of construction. Building costs can be as low as $35/sf, and for a luxury construction, costs are around $70/sf. Much of the cost also depends on what part of the country you are looking to build and they seem to be rising daily.

All said a very comfortable 1,500 square foot house with a swimming pool and all of the bells and whistles will cost around $100,000 to build. The cheap end of pricing for builders in the US is around $200/sf. Imagine your development and rehab projects with this low cost of building.

There are many profitable investment strategies in Costa Rica although development and value-added rehabs are viewed as the most profitable. You can find wholesale deals on land or Tico homes (waiting for an upgrade) for very good prices. Couple that with the low cost of construction and the retail value of your finished product to foreign retirees and you have a handsome profit. To buy and hold a premium building lot or a nice American style vacation home can also yield a very nice return.

Many people have doubled their money on buying building lots and selling them after one year or so. There is, however, one strategy that I would avoid. With the Costa Rican landlord/tenancy laws heavily favoring the tenant I would not recommend a buy-hold-rent strategy.

Costa Rica law encourages foreign investment and ownership of real property. You can purchase real estate in your name or in the name of a corporation. Buying and selling property in corporate vehicles has many benefits. From liability protections to lower transfer fees corporations can be a great tool.

VIP Member Jeff Hickcox

However, there are some pitfalls when buying property from a corporation. For example, the corporation transferring the property may have other liabilities that they are transferring as well. This is one example of why it is important to retain a good real estate attorney in Costa Rica.

Although ownership rights are similar to what you are used to, the laws and bureaucracy create a labyrinth of red tape that must be navigated during a transaction. It is essential to learn as much as you can before investing in this tropical paradise. Reading Scott Oliver's book How to Buy Costa Rica Real Estate Without Losing Your Camisa is a must. The book will lay the foundation of knowledge that you need to begin your journey investing in Cost Rica.

Even more important is having a trustworthy team of professionals assisting you on your deals. Having a good team is important to your success in America as well, however in a foreign country with different laws, a different language, and a different culture your team can make or break you. Good Luck and Happy Investing!

Considering The Atenas Area For Your New Home In Costa Rica?

The AARP (American Association of Retired Persons) ranks Atenas as one of "The Best Places to Retire Abroad." For more information about homes and land for sale in the area please contact our Recommended Realtors in Atenas by using the simple form below: