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.

This gorgeous natural swimming hole sits below one of the nicer homes in Uvita.

It’s one of the most popular questions we, the Guys In The Zone, field— “What’s been selling? We get this question from both buyers and sellers.  Generally speaking, the answer is— great deals.

PRICE

Price is the #1 determining factor for a great deal, but there is another factor that is equally important— the living experience.  Ben, my business partner in Costa Rica real estate, phrases it this way, “do any unique features of the property significantly affect the quality of the living experience?”

There are very few remaining places on the planet where things are (1) inexpensive and (2) incredible.  During the boom years of 2004-2008, Costa Rica real estate was inexpensive and incredible.  Large farms were purchased $1.00/meter squared and nice ocean view lots were under $100,000.

Three years after the peak of 2008, property values across the border came down between 40-50%.  Many houses are now selling for replacement cost or less.  Once again, we have large farms for $1.00/m2.  The obvious reason was the global economic downturn and continual 10:1 ratio of sellers to buyers.  Basic economics tells us that price, or in this case property value, had to come down.  Our listing database is now filled with good properties in every category—houses, land, large parcels and commercial.

THE LIVING EXPERIENCE

For most people, buying real estate in Costa Rica isn’t just about getting a great deal.  You can move to Orlando, Florida if that is your only goal.  It is about the unique features that significantly enrich the living experience.  When Ben and I get a new land or house listing that has an ocean view and a trail to a nearby river… Continue Reading

Property Values In The New World

It would seem that life has settled into a routine now in our “new world” setting here in Uvita Costa Rica.  What’s it been, 2 years since the global economy went into the stink house?  My how time flies.  Our real estate company is cooking right along actually doing some business.  The business that happened so rarely during the recession was mostly for under $100k  lot sales and $300k was the upper edge of house sales.  The prices in our market have dropped 40% – 50% across the board.  And there are still some highly motivated  sellers out there.  I’ve started a list of these sellers.  Originally I was going to call it the “Desperate Sellers” list, but I have re-thunk it and come up with the “Motivated Sellers” list.  Right now I’ve got 5 properties on the list.  The top deal there at this writing is the 57 acres farm in Uvita for $250,000.  Click here if you’d like to check it out.

The point is that the market has definitely re-defined itself and numerous sellers are adapting.  We went through a time here in The Zone when it was pure death, nothing sold and there was no one looking.  Some real estate offices closed down and others (like GITZ) tightened their belts and survived.  Now we are watching and learning what the new world looks like.  Here’s some of what we’re finding out.

Money is tight (duh!).  But, there are buyers here, and they aren’t just the $100k lot or $300k house buyer variety.  There is a recent sale of a Lagunas house for $750k and an Ojochal house at $850k, so we seem to be breaking out of the old restraints.  This isn’t to say that things are hopping again here in the zone, but they are a sight better than they’ve been for a couple of years.  The Guys In The Zone are enjoying doing some business, but again, it’s all been for steeply reduced pricing.  We had a client come down looking for a $100k ocean view property, of which we have some to show, but these clients morphed their criteria while here, and were enamored with some very fine properties at great prices.  End of the story? 2 lots at just a little over $500k.  If you’d like to see what the properties were, click here for one, and here for the other.

Conversations about current values abound.  Methods for establishing the values Continue Reading

Half of my family is from Canada, eh.  My mother grew up in Newfoundland until the age of 13 when my grandfather found work in California.  The extended family that stayed behind, some later moving to Ottawa, would frequently visit us in the San Francisco Bay Area, especially during the cold, winter months.

A few years ago, when I moved down to Costa Rica full time, I realized there are a lot of Canadians visiting (102,471 in 2009*) and living the area.  One of the main reason Canadians (virtually all nationalities for that matter) visit, buy land, and in some cases, relocate to Costa Rica is the weather.  As one client put it, “Shoveling snow sucks.”  I have only experienced it a couple of times in Lake Tahoe, California, and I’d have to agree.

Canadians in Costa Rica

Shorts, No Shoes
The Southern Pacific Zone (The Zone) is the tropics.  Those living near the beach are rarely (if ever) cold here, and most people walk around in shorts 365 days out of the year.  For those who “melt in the heat”, The Zone’s unique geography offers many cooler locations up in the mountains, most offering spectacular views, waterfalls, and close proximity to the beaches and/or San Isidro, one of the fastest growing cities in Central America.  It rains 6 months out of the year, but even in September most mornings begin with blue skies and sunshine.

Active Adult Communities
The landscape and its wildlife are spectacular.  In fact, I’ve seen it written that the Corcovado National Park on the Osa Peninsula is “home to more plant & animal species than all of North America combined.”  Add in the many outdoor activities available in the area— world class sport fishing, whale watching, bird watching, hiking, golf, tennis, and surfing to name a few — and retirement in Costa Rica is actually when many expat residents really start living.  In fact, I just left two clients who were headed to a waterfall, then to the Whale’s Tail in Uvita for a low-tide beach walk and snorkeling session.

Another reason Canadians love Costa Rica is the cultural adventure.  It starts with the ticos.  On the whole, the polite locals are family and community-focused, and even the toughest-looking hombre will break into a smile if you smile.  Yes, there are a few cultural nuances to adapt to—“yes” doesn’t always mean “yes”, “tico time” means being late, strange driving habits— but ultimately these are all opportunities to take a deep breath and grow a little.  The Zone has a safe, laid back feel to it… add a hammock and a good book into the mix, and it is relaxation-defined.

A “Lot” For A Little
Foreign investors continue to visit and invest in The Zone.  Add in the fact that annual property tax in Costa Rica is .25% and there is no Capital Gains Tax, and the investment picture is even more appealing.  Canadian citizens who claim non-resident status and have residency in Costa Rica are not double taxed by the Canadian government on their Costa Rica income.  If you’ve always wanted to make Costa Rica your home, please consult your tax attorney for more details.  But, in summary, to be a non-resident Canadian you must—

1. live in Canada for less than 183 days in the tax year
2. not have any residential ties (e.g., cars, houses, a spouse or dependents) in Canada.

We see a lot of people visiting, buying and relocating to The Zone.  There is so much room for growth here, success only requires imagination, a little research, and some good connections.

Beautiful weather, abundant wildlife, friendly people, and good investment opportunities… no wonder so many Canadians are buying real estate in the Southern Pacific Zone of Costa Rica!

*http://www.visitcostarica.com/ict/paginas/modEst/estadisticas.asp?idIdioma=1

Costa Rica Real Estate Listings

I just received an e-mail from a reader that shamed me into sitting right down and writing.

I have read your face book page and articles on the tax issue there.

I had been planning to take a trip in March in the hopes to travel to Domincal and Uvita nd look at some land that over looks (has view of) the playa. But with all this discussion of election and no tourism and the tricky tax factor it sort of puts a damper on it.  Was this a major blow to the real estate and tourism market, and did it blow you out?

I’m sorry but I’m not aware of the negative effect that the election could have on a land purchase in Costa Rica so I’m not able to address that.

As for tourism – well now that’s an interesting topic.

Tourism has been as hot here over this last holiday season as I have ever seen.  With the new road from Dominical to Quepos, I think that we’re really in for it here.  I understand that the status of tourism is currently anybody’s guess.  Around here it feels like we are in a growth mode. Granted, I haven’t read a lot of media recently and I don’t have a TV, so as a news source I’m limited to what I see and feel.

Over the holidays Uvita was caught by surprise.  The grocery shelves were bare and we spoke with people everyday looking for a place to stay.  I think that everyone found a bed and it felt like one big party around here. I think that it is notable that the beer supply seemed to hold despite what appeared to be a gargantuan demand.

Although the crowds have left, the festive feel continues with a good strong tourist presence.  So, without reading an article to the contrary, I’d say that tourism is alive and well in Uvita and Dominical Costa Rica, and that the prospects for the future are bright, especially with the two new segments of road making the drive from San Jose to Dominical a 2 hour and 40 minute affair now, instead of the former 4+ hours and some of that on teeth loosening dirt roads.

I have not seen an article written from your blog or website in February on your website so I want to know if you are still in business down there?

Well, I thank you for getting me off of my butt to get this article posted.  I sure don’t want to give the impression that we’re out of business.  Our lack of posting is a testament to our being busy.  Rod and I have been doing quite a bit of real estate business.  We’ve done some deals, and more are coming our way.  All of the agencies are reporting the same, some with best ever numbers – (I heard this last part through a third party, but I hope to confirm it shortly.) Continue Reading

So, I get this great e-mail from some super in-the-know real estate guys the other day that answers a number of my questions regarding the new Luxury Tax law. After this “clarification” I post to my Facebook page and Tweet the news where I stated “I have determined that the new Luxury Tax in Costa Rica is for construction only and does not include the value of the dirt under the house.”. This is wrong.

Today I wake up to find out that I had posted incorrectly and in the process cost thousands of people their homes and livelihood – OK, well it wasn’t quite that dire, but still…

I read an article in AM Costa Rica that says:

The biggest issue appears to be if land should be included in the valuation to determine the amount on which tax is to be assessed. Some say yes and some say no.

Well, the law says yes, but that appears to be a late change by the legislative staff without the knowledge of some of the key legislative players.

Consequently the title: “Tico and expat confusion reigns on new luxury tax” In it the author explains how the law is poorly written, and the “Hacienda de Tributacion” (Costa Rica IRS) has not communicated the law well through press releases (there have been none to date) nor through their website where it is mentioned in a cryptic and hard to find form.  So, even for those well meaning, law abiding tax payers who want to comply, they aren’t really sure what to comply with. Continue Reading

There is a new law that has now quietly come into force in Costa Rica.  It is being called the “Luxury House Tax” or a facsimile thereof.

I now have it on good authority that there is mass confusion about this law by the few that have even heard of it. I am one amongst the throng of the confused, but I will here report what I know and will continue to post as I get new information.

There appear to be many that have not heard of the law, but whether a person doesn’t know about the law or simply chooses to do nothing about the law, word is that there will be some rather harsh consequences.  How ‘bout them apples?

This is a new tax and it is only for constructed properties – houses, not for raw land.   Houses built on both titled and maritime zone property are affected.

House owners must declare the value of their house, and then pay the tax between January 1 and January 15^th.  The law went into affect October 1, 2009 so the amount in this first time slot will be from October 1, 2009 to January 1, 2010.

If the value of your house is below $170,000 (give or take – this amount will vary depending on the exchange rate), you are exempt.

I have included a table of the current tax-to-value table. At the writing the colon is hovering right around 580 per dollar but you can take the figures below and use the conversion thing by clicking here.

There is an example pdf form on the Costa Rica government’s web site. If you’d like to see it for who knows what reason: click here. It’ll open in a new window and load a pdf document that is an example of what the final version will look like shortly.

The Mysterious Disappearance of the “Equity Buyer”

It doesn’t take a real estate tycoon to figure out the primary reason for the decline in Costa Rica real estate activity— the disappearance of the “equity buyer” [noun- a mortgage holder who uses the amount of ownership built up through payments and appreciation to purchase additional real property]. With the banking industry on its heels at the beginning of 2007 (and flat on its butt by the end of the year) and home values at record lows, those buyers with a desire to invest in Costa Rica property were seemingly left without this viable capital source.

Yet the optimist in me feels compelled (at 6am on a Tuesday morning) to share a couple of thoughts and possible solutions for people who want to be down here. And let me tell you, if there is one market factor that has not changed it is that people love Costa Rica.

A Little Known Fact– The Self-Directed IRA

I had a client contact me recently with her desire to purchase land in our area of Costa Rica. She is a real estate professional from Florida and knowledgeable about buying property in Costa Rica. Her approach was, via a third-party investment trust company, to self-directed funds from her United States IRA (Independent Retirement Account) to buy land in Costa Rica. After our initial discussion, I did a little research.

I discovered that in 1974 Americans were allowed to invest tax-deferred retirement funds in real estate and, get this, foreign real estate! Even though it wasn’t publicized (or understood), this was a landmark moment in the evolution of the Internal Revenue Code. And even now, many people are unaware of the diverse benefits of switching from a traditional IRA to a Self-Directed IRA.

The benefits will appeal to many IRA owners—

• Tax-deferred: The U.S. government allows this money to be used for purchasing land outside of the U.S. on a tax-deferred basis as long as the funds are not withdrawn before retirement age. This means you can purchase any type of legally owned property (i.e., a house, a condo, raw land, commercial property) in Costa Rica. For those of you who have always dreamed of growing your own food on a large farm or just simply retiring in a resort community, this presents a magnificent option.

• Control: Unlike stocks, owners can have a direct affect on the property’s appreciative value by making improvements to the land or structures. This added sense of control over your real property investment can be appealing for those who are tired of stocks being improperly managed by a broker or financial advisor.

• Income: ANY income generated by the property goes back into the IRA account. In the examples of rental income generation via houses and luxury estates, this is an attractive investment benefit… especially considering the burgeoning market of tourists who now vacation in the southern Pacific zone. (2008 tourist arrivals were estimated at 2.2 million, up from 2007′s total of 1.97 million)

• Financing: Property purchased by your Self-Directed IRA can also be financed, as long as the purchase is structured properly.

Allow me to share a few considerations if you are contemplating this financial move:

Self-Directed IRAs are similar to traditional IRAs except they must be managed by a financial custodian, typically a trust company. The custodian is actually the entity that buys the real estate on your behalf. My client is using Equity Trust, but there are many options (e.g., Sunwest Trust) and I encourage you to investigate their level of experience investing in Costa Rica, as well as, their annual fees.

It is also important to keep some additional liquid funds (cash) in your Self-Directed IRA, property taxes (In Costa Rica only .5% – 1.5% of declared property value) and other necessary payments that need to be made, via the custodian.

Finally, if you are under 59 & ½, you cannot use this foreign investment as your primary residence or vacation home. However, my client (who wishes to retire in Costa Rica in the near future) has devised the wonderful strategy of buying a big piece with her Self-Directed IRA funds and also buying a smaller adjacent piece with her personal savings. We also discussed segregating a buildable parcel of land off a larger farm to facilitate this idea. This way she can monitor and improve her larger piece while living on the smaller parcel, thus holding to this Self-Directed IRA restriction. For those over 59 and ½, great news…. this residential restriction does not apply!

Even for those American investors who are years away from retiring, the Self-Directed IRA is a fantastic option for those looking to invest or relocate to Costa Rica. And speaking from personal experience, there’s no where IRA-ther be.

I think that in every real estate transaction that I have been involved in here in Costa Rica, the buyer has opted to use a Costa Rica corporation to purchase the property. I have explained the pros and cons various ways when asked, but I don’t think that I have ever put it as well as an e-mail that I was just copied on from one of the San Buenas Golf Resort partners. I include it here for the benefit of readers of this blog.

The bottom line is you should always conduct business in CR via a corporation. There are definite tax and liability implications. Canadian residents are lucky…any income earned outside of Canada is not taxed by Canada. The US is different, all income, regardless of where it is earned, is taxed. CR and the US do not have a tax treaty, so you will pay the CR government 30% and the US government 35% if the shares are in your name.
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In the process of buying a piece of land in Costa Rica, we get to a point where the client has to make a rather strange decision. Should they declare the full value of the property on the Purchase and Sale agreement? Or should they under declare so that they can avoid paying taxes on the full amount? This may sound like a “shady” decision. One would think it to be illegal to not declare the actual amount paid for the property on their contract. It’s not. In fact, the common practice here for years has been to declare a lesser value and the practice has been embraced by virtually everybody in the country. So, the consideration of “how much to declare” is a feature in nearly all land transactions in Costa Rica.

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