Costa Rica History in knife metaphorI’d say that about 1/10th of my time spent with people looking to buy property in Costa Rica’s Southern Pacific zone is spent in the actual buying/selling of property. The other 9/10ths is a mix of conversations regarding what’s involved with living here, as well as discussing the business of real estate in Costa Rica.

At its core, the lack of an actual MLS (Multiple Listing Service) colors all aspects of the business here, and I’ll go into that later on in this series. To really understand the business of real estate here, I have found it helpful to go back in time and see the progression of events up to the present. This helps to not only understand the current market but also, to project what is to come.

Early days:
I got into real estate in Dominical in 2004. It felt like the day I got into real estate was the day that someone threw the on-off switch on the market. Since then I’ve heard some tales indicating that the market was already simmering and poised to boil.

I made a sale on my first day in the business. A $60,000 gorgeous ocean view property sized at around 2 acres.  The property featured Uvita’s Whales Tail front and center. That property has gone on to have a lovely home, guest house and pool built on it. It has been re-sold and enjoys a stellar vacation rental history (link to rental page on HomeAway)

Quick overview of The Zone:
The Zone is made up of a string of 3 towns with Dominical at its northern end. The northern boundary is not a hard line but is decidedly fuzzy, easily extending up to Hatillo and at times, up to Portalon. (link to Hills of Portalon Development).

From Dominical heading south on the coastal highway you get to Uvita and then further south, to Ojochal. The area between Dominical and Uvita has a nicely laid out mountain range that runs very parallel to the ocean. Hence the handle “coastal mountain range” This means that you can travel inland from the beach just a short way and get to elevation where it is breezy and cool and offers expansive views of the ocean and coastline, attributes which make this area extremely desirable to investors, relocators and migrators (part-of-the-year residents).

More History:
Before the incoming press of foreign interest in The Zone, the Ticos (Costa Ricans) owned all the land, and their land holdings were always in the multi-hectares (1 hectare = 2.48 acres. Think 2.5 to make it easy).

There was a time in the not too distant past when land in Costa Rica was nearly value-less. There were land-grant programs whereby a man simply had to be willing to take responsibility for a property and the government would “grant” him the land, with conditions.

At that time it was not known that “nature” had a lucrative aspect to it. Instead nature was largely viewed as “in the way” and needed to be tamed, subdued or eliminated. So, one of the conditions to receiving a land grant was to cut the trees down and raise cattle.

I suspect that this era may have coincided with the “McDonalds” explosion. This is an arguable point, so let’s just say it coincided with an extreme demand in the U. S. (and world) for beef.

After some time of cutting down enormous canopy trees and attempting to raise cattle in former rain-forest environs, there was a shift in our world’s appetites; nature became an important commodity. Granted, beef has continued to be an active commodity, but it was also learned that former rain forest land doesn’t necessarily make for the best pasture land.

Raising cattle in Costa Rica was a daunting struggle. The farmers found themselves up against nature. Having to maintain former rain forest jungle land in “pasture” condition presented its trials, as well as the fact that the beef business (exporting meat, bureaucratic inefficiencies, and 3rd world infrastructure or lack thereof) made a guy scratch his head and wonder if having all this land was such a good idea.

The Tico culture was/is multi-generational. These large, granted tracts of land, would end up being populated by the man who acquired the land, his now grown sons & daughters and their families, and the grand kids (soon to also have families.)

So despite having lots of land, a condition that in first-world countries equates to being wealthy, these farmers were subsistence. They lived off of what their land produced. As a child would grow to adulthood, Abuelo (abuelo = grandfather) would simply build them a house and apportion off some land (or not) and they would continue on contributing to the sustenance of the family. The land itself was not thought of in lucrative terms.

Abuelo just happened to acquire a land grant on, let’s say, 60 hectares of land that reaches from the inland side of the maritime zone on the coast up to the highest point of the coastal mountain ridge. He’s not thinking “oh boy! I’ve got some ocean view land here.” No, he’s thinking: “man I hope this land is fertile.”

Enter foreigner:
One day Bob, a tourist, is exploring the area and decides that he’d like to buy Abuelo’s property. Bob offers Abuelo $60,000 for the land. Abuelo has never even considered the remote possibility of maybe someday having such a sum. In fact, he’s never even seen that much money. He talks it over with his family and they (very understandably) feel that this would be a wonderful thing for them to do. So, they sell their land.

Bos is a visionary. He sees what is likely coming and so he stakes his early claim. Now, keep in mind that there is no electricity to this property, the access is horseback and the water is from a nearby spring that is bubbling out of the ground. Abuelo has run a pipe from the spring to an elevated storage tank near the family homes. Bob’s a visionary in that – what foreigner in their right mind would possibly want such a remote and forbidding piece of land?

To understand this is to understand the element that is credited with making the world go round. We all have different likes and dislikes. I wonder at the likes of Steve Jobs, Bill Gates and Paul Allen’s level of focus on the personal home computing idea at the time that they had that focus. I’m not of this ilk and so my hat is off to such ones. I view the early investors here in The Zone as being made of the same stuff.

In looking back over the history of the first wave of investors here, I marvel at their foresight. My then wife and I looked at some Whales Tail view property in Uvita around 2002 and, despite its being gorgeous and nicely priced, I felt that it was simply too remote. This was in the same area where 2 years later I sold my first property.

Ok, so I said that to understand the real estate market here in Costa Rica, it helps one to know a bit of the history. Granted, we’ve gone back to what I call the first-wave of intrepid and visionary investors – the Mavericks. We’ll continue on in the next article with Bob’s next steps and incredible gains on his visionary act.

Wire Transfers, Escrow and an Investment Idea 2

When you buy a piece of property in Costa Rica, you will likely wire money from your home country bank to a Costa Rica escrow service. This can be quick and easy, or it can be a major pain in the neck. Life used to be so easy before terrorism… and drug running… and global economic crisis… and climate change and…

Funny thing, we used to find things to complain about, even before all this wonkiness in the world. Had we only known then what we know now.

It has gotten a bit dicey moving money around this planet. There is the off chance that you might be laundering some drug money, setting up to fund an attack of some kind, or generally not doing things just right, so there are safeguards.

For years we have used a rather casual system here in Costa Rica by which lots of land was bought & sold. Buyers generally put 10% of the purchase price of a piece of property into escrow while we real estate guys and the lawyers went about being duly diligent making sure that the property was what it claimed to be.  That money was put into what we called an “escrow” account.

Well, as it turns out, those escrow accounts were anything but actual escrow accounts.  They were simply the attorney’s business bank account and he held the money pending the closing when he would then disburse the funds. What can I say? We were told that they were escrow accounts. I didn’t ask the question for many years: “You do mean a bona fide, legitimate, registered and managed escrow account, right?”

Well, by the time that I asked the question, the accounts were becoming all of that – legitimate I mean. Now they are, and boy do I miss the good old days. I don’t know of one bad experience from the former program, but I’ve had some tough situations with the current one.  As we have grown up here in Costa Rica with respect to legit business practices, we have entered the world of complexity on an international scale.

When transferring a land buying sum of money into Costa Rica, you must also document where the money is from, how you got it, and what it is going to be used for.  Without this information, the escrow agent, for fear of severe fines, won’t accept the funds into their account.

I know, this doesn’t sound like that big of a deal, and I guess really it isn’t.  It’s just that it used to be so much easier, and it worked just fine. I suggested to my lawyer that we just ignore all this procedural hogwash and that we just use his account and let’s move on.  He said that if he were to do that he would get into trouble, so those days are gone.

A Great Investment Idea

My bank account bears silent witness to the fact that I’m no great investment advisor.  That’s my disclaimer.

Here’s my idea.  Actually, in addition to my disclaimer I probably ought to give credit where credit is due. My buddy, kick boxing partner and competing real estate agency owner John Weiland over at Coldwell Banker one morning shared what he thought was a great investment idea. “His” idea ran parallel to an idea that I had had percolating around my brain for some time.

Disclaimers and Credits Done, Here’s the Idea

Buy up some of these under $100k (U 1K) ocean view lots, build a reasonably nice, well designed house on it, and put the house on the market, squarely placed in our breadbasket market of $300 – $350k for a turnkey house.

Reasons Why It’s a Good Idea

  • Under $100k ocean view properties have an ocean view – duh! Ocean view is the #1 quality looked for in a property here in The Zone.
  • Most U 1K properties are under $100k for some motivating reason that makes them especially good deals. It is likely that the seller is motivated and so the price is below market.
  • Most of our buyers start off looking for houses, but end up with raw land – reason? There isn’t a good selection of houses in The Zone. Fill the need, make a buck.
  • With the costs of the land and building a house (see table below), you are providing “supply” for the “demand” that we are seeing here: houses in the $250,000 to $350,000 range (with ocean view).

Numbers Breakdown

Item Expense
Under $100k property $75,000
1,600 sq. foot house @ $100 per foot $160,000
Small pool $20,000
Total $255,000
Selling price $325,000
Profit $70,000
Projected Time span 18 months

As the Costa Rica real estate market continues to morph with the changing world conditions, we are talking with more and more people that are looking to Costa Rica as a possible place to make a new home. How to make a living in a foreign land is one of the hotter topics of the day. This one would work to support a family, providing a decent yearly income.

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