This entry is part 1 of 1 in the series Understanding Costa Rica Real Estate

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 appropriately call the first-wave of intrepid and visionary investors – The Visionaries. We’ll continue on in the next article with Bob’s next steps and incredible gains on his visionary act.


How To Buy… And End Up Happy 1


We had an inquiry recently that concluded in a remarkable way. This gentleman said, “I will accept defective land due to lack of funds. (I was ripped off 5 times!).” I had to ask myself, how does one experience being “ripped off 5 times” in a country where the process of buying land it quite simple?

Sky's the limit... but buy smart.

The answer I came up with is… he didn’t have a good realtor.  I understand that there is this idea that you don’t need a realtor in Costa Rica.  It’s not a regulated industry.  The CCBR certification, which both Ben and I obtained in 2009, only means the agent is a resident and sat through four 8-hour days of Costa Rica real estate 101.  I understand the allure to buying direct– from a Tico, or from Craig’s List, or direct from a developer—as a way to save money.   In some cases that strategy works.  In other cases, like the original example above, it ends up costing you much more than the 6-8% a realtor earns in commission.

Your Purpose For Buying

You’d be surprised how many people don’t have a clear idea why they are investing in Costa Rica real estate.

The prospective buyer says, “We’re looking for a house.”

Ben and Rod ask, “Great.  Are you going to use it as a vacation rental?”

The prospective buyer responds, “Oh…. we didn’t consider that.”

The same clarity is required when looking for a raw land, be it residential or commercial.  I’m not going to talk specifically about commercial in this article, as most buyers are looking for a home or a lot to build a home. If you’re going to build a house, you should really have an idea of when you are going to build, and what the area and neighborhood will look like in 5-10 years.  And once again, are you planning on retiring in this new house or probably going to use it as a second home/vacation rental?  Are you going to have a caretaker/gardener/security guard?  Where is that valuable employee going to live?

Usually, these questions are asked and answered before our prospective buyer arrives in Costa Rica. Once they are here, we take them out to view property. I’m going to make a long story short and simply say, when buyers stand on the right property… it resonates with them.  Most of the time, they feel it even before they get out of the car.  This phenomenon is the product of clarity prior to driving around.

The Zone is small, and by that I mean it has a small town feel. News travels fast.  Like a few realtors in this area, we have accumulated a vast database of fact and fiction over our 20 years, collectively.  This is one of the biggest benefits to using an experienced realtor.  We know the history of X or Y development or property, and we disclose it. In fact, there are some developments that we simply do not represent and for good reasons. Also, we don’t over-hype things like the International Airport to get you to buy.

Contracts and Lawyers?

Ok, so you find your dream property. The next step is to write up an Offer to Purchase or a Letter of Intent.  These documents signify the buyer’s desire to purchase the property and outlines the price, deposit, due diligence period, escrow, and contingencies.  A contingency is the fulfillment of specific condition (e.g.- clear title, legal access to water, stable soil determined by a soil test, etc.). If a contingency cannot be satisfied or resolved, the buyer can get their deposit back.  The seller reviews the Offer Letter and often makes a Counter Offer.  Eventually you agree on a price, and we present the Offer Letter to your lawyer. Only problem is… you don’t have a lawyer yet.

This is one of the ways your realtor can save you money.  We recommend experienced, bilingual lawyers that actually return your email and/or phone call in a timely many. I sleep well at night knowing my clients are taken care of by one of these local legal professionals, because I have years of positive experience supporting this recommendation.

The lawyer then turns the Offer into a Purchase and Sale Agreement.  It is usually written in English, and then translated to Spanish to be submitted into the National Registry. All of the details are included in the document and it is reviewed by Ben and I, the seller’s lawyer, and seller.  Once the contract is signed, an escrow account is established.  I will be writing a separate article on escrow in the near future, but this is now required for all property transactions especially for those transferring monies from outside of Costa Rica.

Finally, the lawyer starts on the “due diligence” or discovery phase of the process.  If there is a problem with the title or an easement registered against the property, this is the point in which the lawyer will uncover it. Most of the time these discoveries are either acceptable or can be resolved by the seller.  (In the event that the problem is a deal-breaker, the buyer receives their deposit back.) Once everyone is clear and desirous to move forward, the final deposit (usually a wire transfer to the escrow account) is made. It usually takes 3-5 business days for monies to arrive in the escrow account.

A final closing statement is generated by the closing lawyer.  For more information on closing costs, click here.

Corporations

There is one intermediary step involved in the Costa Rica real estate process that is missing in a U.S.-Canadian-European real estate transaction– setting up a corporation. Virtually everyone owns their property (and automobile) in a corporation in Costa Rica. It’s a legal entity, recognized by the government, that stands on its own. There are two main types of corporations used for real estate in Costa Rica— the Sociedad Anonima (S.A.) and the Sociedad de Responsibilidad Limitada (SRL).  They are similar in function, but here are the main differences–

The S.A. has multiple uses and is a bit more flexible. It must have a Treasurer, Secretary, and President, who are separate people. It must have three registered directors and a controller, who is often the attorney who set the S.A. up and manages the associated protocol books.

The structure of a SRL is similar to the S.A except the shares cannot be transferred to a third party without the consent of the other shareholders who can have first right to buy those shares. An SRL can only have one manager administrator which is very appealing if you don’t want your name to appear in the registry, as it will on the S.A. This is the popular choice for investors who do not have more than 3 partners.

Our favorite part... the closing!

Closing

The last step in the process is my favorite part; the closing.  You, the buyer, fly down to Costa Rica and arrive at the lawyer’s office and sign the final deed and protocol book that gets logged into the National Registry.

Congratulations!  With your solid team of professionals supporting your clear desire, you are the proud owner of property in Costa Rica.

We have great deals in every property category, so please feel free to browse our listings.  The Guys… are here to help.


About Tigre

My first visit to Costa Rica was in 2002. I immediately fell in love with the warmth of the climate and people. After spending two weeks in San Jose, Puerto Viejo on the Caribbean side, and Tamarindo in Guanacaste, I knew there was a good chance I would return sooner than later. Sooner came just 6 months later when my uncle mentioned he was flying down to Costa Rica to close on a piece of property in the Southern Pacific Zone. On that trip I found my own piece of paradise above the small town of San Buenaventura, home to the San Buenas Golf Resort. Two years and 8 trips later, I decided to move to Costa Rica full time. Every day I am thankful for that decision.


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