Buying Costa Rica Real Estate
How to Safely Buy Costa Rica Property
Investing in Costa Rica real estate is a fun and fairly transparent process that will seem familiar to many foreigners. That being said, as with any business transaction around the globe, you need to take some time to do your due diligence when buying real estate in Costa Rica. An important step in making the right decision as an investor is to work with a Costa Rica real estate professional who can educate you about local market and purchase process, and can also put you in touch with other reputable professionals like lawyers and property managers to keep your investment safe. Costa Rica real estate agent Chris Simmons, a Canadian CPA and Certified International Property Specialist (CIPS), wrote the below to answer common questions about buying property in Costa Rica. Not only is Chris and investor himself, he has bought and sold Costa Rica real estate for 20 years. He specializes in Tamarindo Real Estate and nearby properties on Guanacaste’s North Pacific Gold Coast such as Reserva Conchal, Hacienda Pinilla, Langosta, Flamingo and Potrero. Chris, is the co-owner of 3 Re/Max offices and belongs to the National Association of Realtors (NAR) and Costa Rica Guanacaste Real Estate Assocation (CRGAR). Chris is happy to answer your questions and assist you with a purchase should you decide to go ahead with an investment. Please feel free to contact him for more information.
Can I Invest in Costa Rica Real Estate as a Foreigner?
One of the reasons I personally chose to invest in Costa Rica real estate is that foreigners have the same rights when buying property as locals do. Due to the fee simple title, you are able to own property in your own name or in the name of your own company. You do not require a local partner, with some very rare exceptions such as beachfront concession or marina properties. Although there are no laws that prevent you from purchasing property in your own name, most foreign and local buyers buy property via a Costa Rican company – typically a Sociedad Anonima (S.A.) or Limitada (Ltda).
Forming a company is a simple process that generally costs under US$1000 and is achieved with the assistance of your lawyer. The potential benefits of owning your property in a company are that it may be more efficient to have your income from rentals or capital gains from the sale of the property taxed within a Costa Rican company. Of course, this depends on your personal circumstances including the tax laws from your country of origin. Another potential benefit of making your investment in Costa Rica via a company is that it facilitates estate planning since you can give or will shares of the corporation that owns the property to members of your family. Finally, if you ever decide to sell your property, closing costs are slightly lower (about .8%) in the case of a share transfer than they would be for a property transfer. Share transfers are more common in lot or land sales where there would be less chance of liabilities in the company.
How Do I Get Title to my Property?
Another reason I chose to invest in Costa Rica property was that it has a central, computerized land registry -known locally as the Registro- where property titles are recorded. Every titled and legal concession property has a number associated with it called its Folio. Using the Folio, your lawyer can search the Registro to check the title chain of the property and learn any important details such as restrictions on use or existence of liens.
Frequently the Buyer’s lawyer would also be responsible for doing the notarial work and recording the new owner in the Registro. Since your lawyer will be performing the title work in the transaction, a key step in your due diligence is finding a reputable lawyer who will look for your interests. Ask your agent and other property owners who they would recommend.
How Much are Closing Costs?
Investors always ask about the closing costs of a transaction. These are estimates and should be confirmed by your lawyer once the method of transfer (property versus share) and value of the transaction are established.
The split of closing costs between Buyer and Seller is negotiable in a property purchase and the costs usually total somewhere between 3 and 4% of the selling price depending on whether you’re buying as a property transfer or a share transfer. There are 2.4% government stamps and fees on a property transfer or 1.6% on a share transfer, 1.25% notarial fees, and escrow fees (approximately .35% depending on the transaction and escrow company). Since the Buyer’s lawyer often does the notarial work in a transaction, closing costs are sometimes split as follows:
- Buyer and Seller share equally the 2.4% property transfer or 1.6% share transfer fees
- Buyer pays the 1.25% notarial fees since this work is done primarily on his/her behalf
- Buyer and Seller share equally the escrow fees
- Seller pays for his own legal representation
One notable exception to the sharing of closing costs is when you buy Costa Rica real estate directly from a developer. In this case, the developer often expects you to pay all the closing costs.
How do I Choose a Professional Agent?
Choosing your agent is an important step in your due diligence since the Costa Rica real estate industry is largely unregulated, there is no official MLS operating in the country, and there is no national body that provides certification. That being said, there are several recognized national and international associations available to professional agents such as NAR (National Association of Realtors), CIPS (Certified International Property Specialist), CRGAR (Costa Rica Guanacaste Association of Real Estate) and CCBR (Costa Rica Real Estate Association). All of these associations have basic professional requirements and education that will be useful to you as a Buyer or Seller. Don’t be afraid to ask an agent if he belongs to one or more of these national or international associations.
Choosing an agent who works with a recognized company like RE/MAX and has experience selling Costa Rica property can also provide you with peace of mind, since franchises are governed by international rules and regulations and often provide training to agents in unregulated markets. Franchise owners in particular are subject to review and undergo an intensive education process.
Another important consideration is whether or not your Costa Rica agent actually lives in the community where you want to invest. How well does your agent know the local market? Is your agent an owner? These are key considerations since there are some prominent websites run by individuals that aren’t invested in Costa Rica themselves and some in fact don’t even live in the country. It is in your best interest to choose an agent who is an expert in the community where you want to invest and who can provide you with inside information on local pricing, reputation of developers, building restrictions and other issues specific to your location.
Work with a real estate agent who has a good reputation in the community where you want to buy Costa Rica real estate. Ask other owners who they would recommend. Since most communities are relatively small, finding an agent with a good reputation won’t take you long.
Can I Borrow from a Costa Rican Bank as a Foreigner?
Costa Rica primarily has a cash real estate market. Although some banks advertise loans for foreigners, I have only had two clients in twenty years successfully acquire a loan from a Costa Rican bank and these clients already owned property in the country. If you are a foreigner looking to buy property in Costa Rica and you need or want financing, your best option is to find a Seller who is willing to provide owner financing. There are several legal structures in place that make owner financing safe for both Buyer and Seller.
How do I Make an Offer on Costa Rica Real Estate
Once you have targeted a Costa Rica real estate property this is right for you, the first step is having your agent write an offer. The offer will be presented by your agent to the Seller, whether that is a developer or private owner. The Seller will either accept the offer or will counter. Negotiations will continue until the price and terms are agreed upon by both parties.
When the Buyer and Seller have come to an agreement and have both signed the Costa Rica real estate contract, an initial deposit (usually 10%) is expected, normally within two weeks. This deposit and all ensuing funds should be held in a third party SUGEF/government registered escrow account on behalf of both parties. The escrow agent should be specified in the contract, along with a due diligence period that allows your lawyer to confirm title and fulfill any other requirements you have for making the purchase. Final closing on your property would normally be anywhere from 15 – 30 days.
If you have any other questions about investing in Costa Rica that I can answer, please feel free to contact me.