The Costa Rican real estate market is booming. The cost of living in Costa Rica is lower than in most other Central American countries, making it a more affordable place to live. Furthermore, the country has a growing economy, with tourism being one of the main drivers of growth. This means that vacation rental properties may very well increase in value over time.
For those looking to generate a passive income stream from short-term rentals, purchasing a vacation rental property in Costa Rica is a great option. With proper research and planning, investors can expect to make a healthy profit from their vacation rental investment while enjoying all that Costa Rica has to offer.
According to the Global Association of REALTORS®, approximately 20% of international home buyers purchase their homes as vacation or investment properties. Costa Rica has become a very popular destination for vacation rental properties due to its natural beauty, diverse culture, year-round warm weather, and prolific rental market.
Foreigners and non-residents are allowed to buy property in Costa Rica and can enjoy a steady cash flow from their vacation rentals or long-term rentals. Property values have been increasing steadily in recent years, making it a wise investment. There are some restrictions on real estate purchases made by foreign citizens, but buying real estate in Costa Rica is a pretty straightforward process, especially if you’re working with licensed real estate experts, such as Costa Rica Christies’ team of professionals, who can ensure successful purchase of your dream vacation property.
How To Buy A Vacation Rental Property in Costa Rica
The real estate market in Costa Rica has been steadily growing over the past few years and is now a stable investment. According to the Global Property Guide, “The country has seen strong economic growth in recent years, supported by expanding tourism, agriculture and services sectors.” The sustained growth has driven up demand for Costa Rica real estate in the capital of San Jose, as well as in popular tourist destinations.
Costa Rica Christies has seen an increased demand for property, particularly in Playa Flamingo, due to the new Marina Flamingo, a luxury resort village ideal for vacation rental purchases, and Tamarindo. Furthermore, Papagayo/Playa Panama, Playa Del Coco, and Las Catalinas are also in demand, as are Nosara, Samara, and Santa Teresa/Mal Pais. We’ve also helped close significantly more real estate transactions on the Central Coast, including Jaco, Herradura, and Dominical, and the south to the Osa Peninsula and Golfito.
If you’re thinking of buying a vacation rental property in Costa Rica, there are a few things you need to know.
1. Budget for the purchase price and ongoing costs.
The first step in buying a vacation rental property in Costa Rica is to budget for the purchase price, as well as the ongoing costs of maintaining the property. The cost of real estate in Costa Rica varies depending on the location and size of the property.
Generally, you can expect to spend anywhere from $250,000 to $3,000,000, or even more, on a vacation rental property in Costa Rica. However, it’s important to remember that purchasing property in Costa Rica also requires paying a number of fees and taxes, which can add up to an additional 10-15% of the purchase price. Additionally, you’ll need to factor in the cost of any necessary renovations or repairs that may be required in order to get the property rent-ready.
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2. Choose the right location.
The next step in buying a vacation rental property in Costa Rica is to choose the right location. When it comes to choosing a location for your vacation rental property, consider the climate, proximity to amenities, and the type of activities that guests will be interested in.
For instance, if you’re looking to attract families with young children, you’ll want to choose a location that’s close to beaches and other family-friendly activities. On the other hand, if you’re targeting adventure seekers, you might want to look for a property located near hiking trails, zip-lining, or other outdoor activities.
3. Find a reputable real estate agent.
Once you’ve chosen the perfect location for your vacation rental property, it’s time to start working with a reputable real estate agent who can help you find the right property and negotiate the best price.
Costa Rica Christies specializes in helping foreigners buy property in Costa Rica and can take care of the purchase process from A to Z. Working with our licensed real estate agents will ensure a successful transaction.
4. Get financing in order.
If you’re planning to finance your vacation rental property purchase, get your financing in order before you start looking at properties. This way you’ll know how much you can afford to spend and avoid falling in love with property out of your budget.
It is useful to know that the Costa Rica real estate market is mostly all cash and financing options are limited. You could look into bank loans or private financing options but your safest choice will always be cash.
5. Know the fees and taxes involved.
Purchasing property in Costa Rica comes with taxes and fees. These include the stamp tax (0.5% of the purchase price), the transfer tax (1.5% of the purchase price), and the legal fees associated with the sale (which are typically around 1-2% of the purchase price).
It’s also important to note that all property purchases in Costa Rica are subject to a capital gains tax of 15%, payable when the property is sold.
6. Understand the Costa Rican purchasing process.
The final step in buying a vacation rental property in Costa Rica is to familiarize yourself with the purchasing process. The first step is to sign a purchase agreement, a legally binding contract between the buyer and seller. This contract will outline the terms of the sale, including the purchase price, closing date, closing costs, and any other essential details.
Once the purchase agreement has been signed, a deposit (usually 10% of the purchase price) is paid into an escrow account and normally applied to the purchase price at closing. The buyer has a period of due diligence to conduct a title search, get a home inspection, and finalize their financing.
If everything goes according to plan, the sale will be finalized at the closing, at which time the balance of the purchase price will be paid to the seller, and the buyer will receive the keys to their new vacation rental property in Costa Rica!
What Are The Expenses Incurred By A Vacation Property Rental
The cost of owning a vacation rental property in Costa Rica is relatively low, but there are some expenses that should be considered. The most common expenses are property taxes, insurance, utilities, and maintenance costs.
1. Property taxes
The first expense property owners need to pay in Costa Rica is property taxes. Titled property taxes are. 25% of the registered property value.
2. Income taxes
When you own a vacation rental property in Costa Rica, you’ll be responsible for paying taxes on your income. The good news is that Costa Rica has a very favorable tax regime for foreigners. For example, the income tax rate is only 10%.There are also a few deductions and exemptions that can help you lower your tax bill. You can deduct the cost of repairs and maintenance on your property. You can also exempt up to $3000 of rental income if you use the property for personal use for more than 60 days per year.
3. Insurance
Another expense to be aware of is insurance. It’s crucial to have adequate insurance coverage for your vacation rental property, as it will protect you from potential damages or liabilities. There are a few different types of insurance policies that owners should consider:-
Property insurance: protects the property from damage or loss due to events like fires, storms, and theft.
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Casualty insurance: protects the property from liability claims arising from things like accidents or injuries that occur on the property.
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Business interruption insurance: covers lost income if the vacation rental property has to be closed due to a covered event, like a fire or hurricane.
- Workers’ compensation insurance: recommended if you have employees working on the property because it provides coverage if they are injured while working.
4. Maintenance
Maintenance costs depend on the type of property you own and how often it is used. For example, a beach condo in a popular tourist area will require more frequent cleaning and repairs than a house in a less popular area.
Costa Rica has many qualified and affordable property management companies that can take care of all the details for you, so you can relax and enjoy your vacation rental property. Property managers can provide reliable maintenance services regardless of the property type you own.
5. Utilities
Vacation rental owners in Costa Rica need to know that the country has a very stable electricity grid. This means you won’t have to worry about frequent power outages like some other countries in Latin America. The downside, however, is that electricity rates are relatively high. So, make sure to factor this into your monthly expenses.
As for water, most vacation rental properties in Costa Rica are on municipal water systems. The water is safe to drink, but it can be hard on your plumbing if there are any leaks. That’s why it’s always a good idea to have a backup plan in place, like a rainwater catchment system or water purification system.
6. Cleaning
Don’t forget to budget for the cost of cleaning. If you’re renting out your vacation rental property, working with a property manager is the best path to choose. They will take care of all labor, including daily cleaning or as needed.
How Much Money Can You Expect To Make From Your Vacation Rental Property in Costa Rica?
The biggest factor in determining your profit from renting out vacation homes in Costa Rica is the occupancy rate. A higher occupancy rate means more rental income, which results in a higher profit. The average occupancy rate in Costa Rica is 80%, but it can vary depending on the location and type of property.
Another factor that affects profitability is the length of stay. The average length of stay in Costa Rica is 7 nights, but some properties are able to command a premium for longer stays.
The amount of profit you can expect to make from your vacation rental property depends on a number of factors, including the location of your property, the type of property you own, and the prices you charge for rent.
When it comes to investing in Costa Rica real estate, there are many things to consider. But if you’re looking for a stable investment that will generate a healthy return, a vacation rental property is a great option. With the right location and pricing and the help of a Costa Rica Christies real estate broker, you can make a good profit each year from your Costa Rican vacation rental.
