Guys In The Zone: Costa Rica Real Estate

In this episode, we start with a Q&A session and share a few tips for those retiring to the southern Pacific zone of Costa Rica. We also share specific ideas about property features that may not be on a buyer’s radar. Whether you are ready to relocate and retire or, like many of our Canadian clients, simply want a warm and sunny place to escape to when the weather turns cold, this Talk Show provides basic information and (hopefully) stimulates your desire to visit. Pura vida.

The inspiration for this post came from a recent article fed from LinkedIn.  The title was “38% of Homes Purchased in 2011 Bought with Cash.”  I thought to myself, 38%?!  That number seemed high, so I did I little more research.  According to another article in USA Today, that number was as low as 12% just three years ago thus confirming a significant jump in cash purchases. According to the article, investors in the U.S. are keenly tuned into yield or ROI.  That return on investment is realized through improving and flipping properties or some variation of a rental/income strategy.  The latter has become increasingly popular for those foreign retirees and families who are looking to relocate here.

Got Financing?

All of that got me thinking about our Costa Rica real estate market.  Land purchases financed through a Costa Rican bank (at least in The Zone) was virtually unheard of when I started back in 2006. For a variety of reasons, most buyers had cash before the downturn.  Four+ years later, the picture is very clear.  Property values around the world decreased (dramatically in some areas), and buyers couldn’t use the equity in their homes, not to mention the banks tight grip in their purse strings.

Recently (think- the past two years), we’ve seen an increase in the number of buyers who only have a portion of the purchase price.  These new buyers, typically foreign investors, need the seller to carry paper.  For those new to real estate investing, carry paper means the seller is willing to finance part of the purchase price and receive payment (often with interest) over time.  This legal arrangement is completed by a lawyer in the form of a trust or a mortgage here in Costa Rica. If the buyer defaults on the terms of deal (e.g., misses payments), a legal process can be initiated by the seller… just like a bank in a foreclosure process, although quicker. For more information on this topic, check out our article on Seller Financing Opens The Door To Home Buyers.

I don’t have a number, but I’d bet the number of non-Tico bank-financed purchases in the area is less than 1%.  Interest rates on Costa Rican bank loans, when you can get them, are more than double what you currently find in the States.  There are various reasons for it, but I’ll leave that for another article.

The good news is… buyers need financing and some sellers need to sell, so seller financing continues to increase in The Zone.  Some deals don’t even include interest, simple an extended term to complete the sale.  When there is interest and an extended term involved, the number of years almost always tops out at 5 years.  There are real estate transactions taking place in The Zone primarily because (1) land values are now around half of peak values and (2) both parties are getting creative, as described above.

There are a select few (and I mean few) who are flipping houses here in The Zone, however, many investors are looking for income generating properties, both hotels and vacation rentals.  The yield varies greatly, but there is opportunity to make a nice living in the hospitality here in The Zone.

But, What Does All Cash Mean For Buyers?

It means you need to think of Costa Rica, at least for the time being, as a place to land bank or move your cash. There are economies and currency (think- Europe and the Euro) with a cloudy future.  The current wave of concern is so real, we have recently seen an uptick in European investors and relocators contact our office.  Without getting metaphysical, I also wonder how much 2012 is playing into people’s decisions. We call this group “End Of The World Buyers.”  Good and abundant water sources, good environments for growing crops, and pleasant temperatures throughout the year draw these type of buyers to Costa Rica and our area in particular.

Whether this trend continues or declines remains to be seen.  Simple put, Costa Rica, especially the Costa Ballena, is a wonderful place to relocate for both economic and lifestyle reasons.  There are many, happy foreigners living either full time or part time in Costa Rica.  If you are interested in why so many expats are buying and relocating to The Zone, this article Why Buy Property In The Zone offers a few of the top reasons.

I just received some questions from a connection that I made in the Social Media site LinkedIn. I am reprinting these here due to the increase in these types of questions lately. I’m sure that these questions, and their answers, will be of help to a number of our readers.

One of many developments above Dominical.

Location In The Zone:

1. We don’t want to feel like we’re living in the middle of nowhere, but we’re not looking to live in a large city like Seattle!  What is The Zone like?

As a starting point, you picked a good one. The Zone, as we like to call it down here in the southern pacific zone of Costa Rica, is definitely a bit removed from things.  The developments are typically more spread out than North American developments, so in most cases your neighbor will not be right on top of you.  Access to The Zone is possible via two regional airports (both approx.40 minutes from Uvita) and the Costanera Highway.  Thanks to the new San Jose-Caldera Highway, the trip to San Jose is now 3 hours.  That said, it is difficult to say if this area would appeal to you with this point, and I would recommend a visit before making that determination.

You can buy or build your dream home.

Buy or Build:

2. We are also trying to decide between building a home or buying existing… Do you have any suggestions?

This is one of the more common questions that we deal with. Here is an interesting data point: the majority of people that walk into our office want to buy an existing house. Yet, the majority of people that buy from us buy raw land & build.  Why is that?  Here in The Zone, we have been outside the main flow of tourism.  This was due to the bumpy, dirt road between Dominical and Quepos.  It is now paved, and we are more in the flow.  Historically, those visitors and relocators who found their way down here were a bit… well, let’s call it eccentric… might be the way to put it. These are truly individualistic individuals who built their house as an expression of that individuality. These houses are not easy to sell. Now, I should clarify that this building approach is ancient history.  There are very nice homes available in The Zone; however, there just aren’t that many of them.  The inventory continues to evolve, and home sales are up.  That said, I suspect that it’ll be a while before we hit the 50/50 mark of house/lots sales.  Our recommendation is to take your time and look at everything.  After you go through this process, you can compare those houses with what it would cost to buy & build on a similar piece of land, keeping in mind raw land is plentiful.  You might find that $450,000 house can be built for $350,000, and you’ll have it the way you want it.  Conversely, you might find a great house for less than what it would cost to buy and build.  In today’s market place, and with the economic crisis, you never know what you might find.  Building in Costa Rica can be a daunting and frustrating task.  For this reason alone, some people simply refuse to go through the process.  This question really is best served in a face to face consultation.

The ARCR is one of many sites with good info.

Groups and Associations:

3. I have heard to be very wary of some places being over priced for foreigners who don’t know any better. Any good groups or services to retain?

Hmmmm, well I am inclined to think that you’ve found all you need right here with me.  A not so self-serving answer would be, “yes.”  There are actually PLENTY of options for information, so many in fact that I wonder at how one can really know what the straight story is.  Residency, taxes, zoning, business and so on, in a foreign land, requires that one be on his toes. I like the Costa Rica Living news group at Yahoo groups. Also, the Association of Residents of Costa Rica (ARCR) have been a helpful residency and insurance resource for some of my clients.  Ultimately, I think that what you are doing is a good idea.  Talk with individuals who have done what you want to do.  When I get new clients in the Dominical and Uvita area, I set up lunches with my previous clients who have moved here, built, learned Spanish etc.  It seems that everyone is more than happy to share their experience, and from these tidbits you’ll get a very good idea of what to do and, often more importantly, not do.

Starting A Company:

4. Did you find it difficult to start a company there? I will be looking to work, but understand I will need to start my own business to get paid. At least until we were able to become residents.

Starting a business, or buying an income generating property, or both, used to be oh-so-easy in Costa Rica.  Business owners would only complete the necessary steps to get a business license if someone from the Municipality came and bugged them about it.  And, income generated by businesses or rental properties was reported even less.  In today’s Costa Rica it has become a bit more difficult, or maybe I should say involved, to operate without them.  For better or worse, Costa Rica is growing up and finding ways to enforce laws that they have had on the books for years, in some cases, decades.  The simple fact is, to do any kind of work in Costa Rica, you need to be a resident.  Otherwise, you run the risk of being deported.  We know people who can help with residency and setting up a business, among other services.

I hope these thoughts help to answer your questions, although it is my experience that they usually bring up new questions.  Safe to say, The Guys here to help.

I was excited to find the Poll functionality on LinkedIn a couple of weeks ago. The question I came up with “What is the top reason to buy land in Costa Rica’s southern Pacific zone?” seemed like a good jumping off point for this regular feature on the blog. Although the sample size was small, the responses were revealing.

Low Property Tax
Costa Rica’s property tax rate is .25% on registered value. That means if you buy a $400,000 house in Uvita, you will pay $1,000 in property tax, plus another $1,000 (or .25%) for the new Luxury Tax passed in 2010. Your total annual property tax bill will be $2,000 which is a third of what you will pay in Houston, Texas.

Investment Value
If we can agree that people want safe, beautiful, and affordable environments to live in, then the southern Pacific zone of Costa Rica has to make that list. Clearly, “affordable” is a relative term. Some clients have $50,000 for a house, some have $1.5 million; however, this market has dipped according to the simple dynamics of Supply and Demand. An ocean view property (only 8 minutes from Uvita) listed for $30,000 was unheard of five years ago, yet now we have it (Sunny Josecito). In fact, we have access to just about every type of investment in every property category.

Growth Potential
I can’t tell you how many times per week people ask me when the International Airport will be completed in Palmar. Given the fact that construction has not started, it is a difficult question to answer. Eventually, it will be constructed (for better or for worse), and the area and property values will grow as a result. I state this with a fair degree of conviction because I’ve seen what paving the Costanera (Coastal Highway) and re-paving the road between San Isidro and Dominical has done for the area. I believe if it weren’t for those two improvements, the downturn would have hit our area much harder.

Walking the dog on your favorite beach.

Weather and Beaches
Today (Sept. 29th, 2011) marks the middle of the rainy season, yet we had sun with its accompanying ocean breeze all day long. The evenings are typically cool, especially if your house is strategically located facing the Pacific Ocean and its beaches. Speaking of beaches, The Zone has something for every sun lover. You want to surf or watch surfing, go to Dominical. You want a good dog-walking beach, go to Playa Hermosa. You want to do some cave exploring, go to Playa Ventanas. I’ve spent more time on the ocean the past 4 years than in my entire life in California, because the water is warm, dare I say perfect, year round.

Relaxing Lifestyle
According to our voters, this is the top reason to buy land in Costa Rica. You don’t realize how stressful life is in the progressive Western world, until you move here. Both Ben and I came from Santa Cruz and Aspen, gorgeous towns in California and Colorado, respectively. We lived the typical cycle of working hard and playing hard, and then right back to working hard again. We were surrounded by friends, family and neighbors who were stressed by this same cycle and material pressures. It all added up to a simple yet consistent desire for change. Without question, Costa Rica presents an opportunity to slooooow down and simplify. Sometimes I surf in the morning, sometimes I walk a big farm. There’s no rushing to Starbucks on the way to pick up the dry cleaning. Here, we sit down and enjoy our coffee. We wear shorts and flip flops. If anything, life in The Zone is indeed relaxing.

So, yes there are many reasons to buy land in Costa Rica. Whether as an investment, as a relocation destination, or simply as a place to visit and unplug for a couple of weeks in the winter… The Zone will not disappoint.

“Houses that produce rental income” has become an increasingly popular Costa Rica real estate strategy in The Zone. In this video, The Guys explain WHY this investment strategy is smart and how it can be achieved in a fertile rental market.  We moved out of the office and shot the video “on location” at such a property above Dominical, Costa Rica.

Boredom... or relaxation?

“You can only walk the dog on the beach and read in the hammock so much.  I miss my work” – this from an expat who achieved “the dream”. He and his wife had retired from their successful business in the U. S. and had bought land and built a gorgeous ocean view home here in Costa Rica’s southern pacific zone.

Hearing this statement set my wheels to turning. I can’t remember the last time that I was bored. Natalie either, we both need to set time aside and make sure that we spend some time every week walking the dogs on the beach and reading in a hammock.  These activities are downright good for the soul. However, I can definitely see how there is a limit to how much one can do of these activities before they get to jonesing for some activity of a more productive nature.

I work with lots of people that are re-locating or who are looking to make a connection of some kind to the zone.  In the consultation phase, I focus on helping with understanding the various aspects of life here that are different from “back home”. How to buy property, how to open a bank account, a corporation, how to learn Spanish, how to get health insurance, where is there a decent dentist and so on. In my consultations, I try and touch on the various points that are a concern to all of us as we integrate with life here in The Zone.  Up till this point, I had never really thought about boredom-management being a line item on my consultation list.

One of my dearest friends is, well how to say… along in years. Yeah, that’s it. His life has been one of extraordinary and high achievement.  He’s at the point now where they won’t sell him life insurance, (well, they will but at the price its more realistic to say they won’t.)  He tells me that a “long term” investment to him is measured in months, not years.

This dear old friend and I started doing business together some time back.  I’ll never forget when he said to me “Ben, you’re keeping me alive”.

Here again, a man who had achieved what so many set out to achieve, and now his life is being enhanced by being included in what I do on a daily basis.  I find this fascinating.  Is there something missing from “the dream”?

I’ve got to work. I have financial obligations and am not in a position to retire. So I look for ways to do this while living in this foreign land. I truly believe that working here in Costa Rica is an act of creativity. In fact, it was my efforts to be creative and to think outside of the box that initially drew my attention over to some of the potential business “assets” that I have available to me.  How about an older man that figured things out in his day back in the States?  Would he be interested in sharing his thoughts and perspectives on my business efforts? “Ben, you’re keeping me alive” he says. This is what I call a fit.

My dear old friend and my clients mentioned earlier differ in that Old Friend is happy and content here. The other is moving back to the States.  Granted, there are lots of reasons for moving back to the States. When our kids have kids we tend to lose our minds and feel that being with the grandkids is the thing that has to be done, regardless of what it takes. However, I’ve met a number of folks here that say that the kids can come here to see them, by golly.

I wonder if the difference really might be the activity/boredom balance.

Now in my real estate and relocation consulting service, I include this point about boredom in the schpiel.  Costa Rica isn’t like the States where so much of one’s time is spent shopping as a form of pastime or entertainment. You lose this habit here pronto.  Shopping here in the zone takes about 2 hours, tops, then you’re done.

You can make a day of it, and many do, if you want to go up to the San Isidro farmers market on Thursday and/or Friday. Travel time from Uvita is just under an hour each way.  It’s also quite the adventure to simply stroll the streets of San Isidro and window shop. This can be a lot of fun, but it won’t ever be more than the occasional thing that you do here.

Interesting Ideas

There are some interesting and creative efforts that have been made by folks who have chosen to make Costa Rica their home. In an upcoming article I’ll tell you about some of these efforts.  I’ve even got a favorite that I’ll share with you.

First, I’ll take the easy road and tell you what I do. I run the real estate company: Guys In The Zone.  My partner Rod Martin and I have forged one of the deepest working/friendship relationships on the planet.  Knowing that you’ve got a partner through thick and thin gives life a depth that it otherwise doesn’t have and I’ve got this in Rod.

So, we call it the business of real estate, but the funny thing is, we spend the majority of our time doing things that really aren’t “real estate” by definition.

All those points that I mentioned above, the points about bank accounts, learning Spanish and so on? We consider these topics regularly as we work with people on real estate.  Who would’a thunk that a discussion about how to learn Spanish or quieting the internal dialogue would be involved with the business of real estate?  Well, it’s all part of the package.  When you sell real estate in Costa Rica, you become the single point of contact for folks that are interested in The Zone either as a place to vacation, invest, migrate to for half the year, or full blown live here. I gotta say, this makes life interesting.

In addition to this I enjoy writing articles such as this one for our blog (www.thezoneblog.com), as well as publishing articles in the local Montañas al Mar magazine.  I’m involved with CAP (Crime Awareness and Prevention) and just try and find things that need doing. The Guys in the Zone also run a couple of the local web site portals  that serve as visitors guides to the area (www.dominical.biz and www.uvita.biz).

I say all that to demonstrate why the thought of boredom is a strange one in my world.

I’ll be posting some examples of the creative ways that expats not only fill time, but support their lives while living here in this sparsely populated area of the world.

August begins a new Guys In The Zone tradition, the poll question. As some of you know, we have been increasingly active with the social marketing and networking lately. LinkedIn, in particular, has inspired many new connections and ideas. The Poll will be a regular addition to our Talk Show and articles, and who knows? It may even inspire youto submit your own poll question about Costa Rica real estate and life in the Southern Pacific Zone. If you have a LinkedIn account, thanks for voting!

This episode focuses on the most popular features people look for in Costa Rica real estate– the ocean view and proximity to a river/waterfalls. We explain how whether your desire is to buy an existing home or buy raw land & build, both of these quintessential property features add to the quality of life. If a picture is worth a thousand words, these video clips shot “on location” in two of the best developments in the area will speak volumes. Enjoy.

Episode14 by GuysInTheZone

This is our mid-year review of real estate in the Southern Pacific Zone of Costa Rica. With tourism numbers up 11% in Central America, Ben and Rod discuss how this trend points to a brighter future for The Zone.

Costa Rica Real Estate – Talk Show 13 by GuysInTheZone

“Four percent of the sale price on top of your commission?!” exclaimed our client, a long time resident in The Zone. (In keeping with an old Guys’ tradition, I’ll refer to him as Mr. Zellbren throughout this article.) Ben and I first explained that we are currently dealing with a severely down market (approximately 50% off the peak value of three years ago) and an excellent time to wait for the market to rebound. Mr. Zellbren wasn’t interested in waiting, so we continued to explain the standard closing costs of a Costa Rica real estate deal. Some of the data he was familiar with; some of the finer points had to be clarified.

Traditional Closing Costs

Closing costs, when you add up the transfer tax, stamps, and legal fees, usually equate to approximately 4% of the sale price. Mr. Zellbren told us he would accept a $550,000 offer for his house equaling $22,000 in closing costs. In 99% of the deals we are part of, Buyers and Sellers split closing costs 50-50. It’s what we do here in Costa Rica. Additional costs—re-surveys, title insurance, new corporations—are typically paid by the Buyer.

Interestingly, there are a variety of stamps required to transfer a property in Costa Rica. They are– the Legal Bar Association Stamp (Timbre del Colegio de Abogados), the Municipal Stamp (Timbre Municipal), the Fiscal Stamp (Especie Fiscal), the National Archives Stamp (Timbe del Archivo Nacional) and the Agriculture Stamp (Timbre Agrario). Like everything else, your lawyer will take care of the licking and sticking of these stamps, which equate to roughly .05% of the sale price.

Legal fees, also known as notary fees here in Costa Rica, are calculated at 1.5% of the sale price. This is what is paid to the lawyer/notary for setting up the Sales and Purchase Agreement, as well as, researching and filing all of the necessary documents in the sale. These standard legal fees do not include any additional legal work (e.g., a new corporations, establishing an easement, etc.). One last point regarding lawyers that I would like to add is… you often get what you pay for. Continue Reading