Reading through your blog it appears that purchasing a home or property in the southern zone is now just for the wealthy. Those who have 5 or 6 other houses and for which one more is just another investment. There are those of us who would like to make Costa Rica our new home and leave the corporate hassles behind. We just may not have the $300K - $1M in cash for such a move. What do you recommend for those of us who are a little ahead in the US real estate game and are looking for a quiet, secluded, place to raise some fruit, veggies, etc. and settle down?

Nicely put, and meaty. I wrote back:

I hate to do this to you, but I’m going to answer your question with some questions. Nearly all of our deals here are cash deals. What amount of cash would you be able to put into the deal, and what sort of terms would you need? How much land would you like to see for the fruit and veggies? Does the property need to be ocean view? How close to the beach? Does it need to have a home on it, or would you build? What would a deal need to look like for someone in your position? Owner financing? Lower prices on property? Costa Rica financing? I’ve got a number of motivated sellers right now that would be open to some creative deal making, provided it put some cash in their pocket now. If we were to home in on some of the above details, I could perhaps help with finding you a property. We can structure a deal in such a way that it works for you, and then approach a seller with those terms and see if he bites.

Jim’s question got me thinking.  I’ve had a number of sellers come to me lately saying that they need to sell something.  As a result, they are lowering prices, or at least, indicating to me that they’ll listen to offers.  So now I’ve got this idea of working with a buyer and really getting a good understanding of what their capability is financially (how much money they’ve got) and if we can set up an owner financing situation that will result in folks like Jim, who would like to own a spot of Costa Rica, with a view to some day being able to re-locate to here. Jim and I might go ahead and post the process that we’re working through here for other reader’s benefit.  In a sense, what we’re doing here is spinning straw into gold.  Taking a limited budget and working it in a down market to make it happen.

I am having daily discussions on the current state of the market with regards to Costa Rica real estate. I suppose that my position in the Costa Rica land marketplace makes my opinion of value to some. But really, nobody knows what it is that is going to happen. There are just so many factors at play now. But, having said that, I’m going to stick my neck out and make some concrete predictions about what we’re going to see here in Costa Rica’s southern zone.  But my prediction disclaimer remains in force… we’ll see.

I think that this coming season, which is starting now, we’re going to see some land banking (see below) sales, some of which will likely be higher end, and I think that we’re going to see some determined re-location buyers here. Here’s why.

Land Bank raw land sales

There are a number of sellers that bought large parcels here during the development land grab of the last few years. It’s not hard to understand that things change and development plans get set on the back burner for one reason or another. In our listings database, we are getting some properties that were all the rage a short time ago. They were snapped up and we didn’t expect to see them back on the market as single parcels again. Large parcels of gorgeous, tropical rain forest land with rivers, waterfalls, ocean views and other qualities that make them highly desirable properties.

At the very core of investment strategies is: can I sell this thing when I want to, and will it yield a reasonable rate of asset appreciation at that time?

Land banking is the term used for acquiring land for the sole purpose of storing money. The land is simply a vehicle for storing, and preserving those funds until the property is sold at a later date for a higher price. The then selling price should provide a decent rate of return. This is usually compared with what some money market rates would give for the same term.

I have already seen this occur on a number of occasions. A recent buyer, who had made a number of land purchases over the past 3 years made the statement: “I thought I was done, but when the markets started going down, and I lost $200k out of my portfolio, I decided to buy some more Costa Rica real estate”. And so he did.

Others that have made recent acquisitions feel fortunate that they got their money out of their portfolios and into land here as well. They feel that in so doing, they avoided some of the losses incurred by many in the global markets, and the value of their Costa Rica land is holding its value.

So, my crystal ball says that we are going to see some land banking going on this season.

Land Banking Properties to look at:

• Commercial property in Uvita Costa Rica. Uvita is exploding with growth as it develops into the social and cultural hub of the southern zone. Do a good buy on some of this type of land and then when the cycle swings back up, which it always does, sell it at a reasonable profit.
  Commercial plug for a commercial, 2.4 acre lot in Uvita: Price $350,000 Click here to view.



• Commercial property between Uvita and Palmar Norte. Anywhere in this zone, the buy-and-hold strategy is promising. A recently finished hospital is there, plans, permits and funding are in place for an International Airport for Palmar Sur, a marina in Golfito, and a golf course in San Buenas, are all in the works.
• Good quality ocean view lot. This should be good for a single family, or a possible income generating multi-site property where rental villas or cabinas can be built.
• Good quality non-ocean view lot. These are almost always a good value here, due to the demand for ocean views. Consequently, all other virtues of a property being equal, the lack of an ocean view brings the price down considerably when compared to its ocean view counterpart. Also, such properties often times compensate for their lack of ocean view with size. I think that in the coming years, we are going to see an increase in the value of such properties for their ability to be cultivated for organic fruits and vegetables, perhaps even going off the grid.
  Commercial plug for one such listing I have: A property located about 10 minutes from the beach that is 15 acres, and has tons of usable space on it. There is also a year ‘round creek on its border that could be investigated for a hydro electric plant. Priced at $189,000, a comparable ocean view lot could conceivably be double (or more) of that. Click here for details.

Relocation Buyers:

Even though the word on the street is good about Costa Rica, both with tourism and real estate, there are still some motivated sellers. There hasn’t been an across the board price reduction here in our market, but in isolated cases, we’re seeing folks that need to sell what they have here, to protect what they have there. This is resulting in some below market deals. Consequently I think we’re going to see a number of couple’s, and maybe even some families here searching for their new home lot.

Relocation Properties: single family, and multi-site, income generating properties are likely going to be enjoying some strong attention in the coming season. The reason for my guess on this one has a few facets. One is disillusionment with the U.S. economy and its prognosis.

Commercial plug for two such multi-site listings that I’ve got:

• 4 acres, massive ocean view in Uvita.  Numerous building sites, $290,000: click here to view.
• 3.1 acres, small ocean view in Ojochal, extra building sites, $139,000: click here to view.

There are a number of other factors in place: war, health care cost, taxes, environmental and ecological concerns, population density, corporate corruption and media saturation, to mention just a few of the reasons that I hear from people looking for property in Costa Rica.

I know that we’ve lost a lot of buyers from the economic downturn. I think that there is some compensation in the overall scheme of things that may come close to making up the difference. I am actually busier now than I was this time last year. So, contrary to the concern that the sky has fallen, my crystal ball is reading that things are going well, relatively speaking, in Costa Rica real estate. However – we’ll see.

Since this is all just now happening I’m only able to report on what I know and have found on some news sites on the net.

There was apparently a large construction site that was shut down in a project that was called both “Hermosa Arriba” and “Playa Hermosa Arriba”. The project was cited for not staying within the confines of it’s building permit. The project went whipping right by its permitted size of 5,381 feet to construct a house of 37,673 feet.

Here are a couple of links to what I’ve found so far:

• AM Costa Rica’s report - English
• El Financiero’s report - Spanish
• La Nacion - Spanish

The La Nacion article is the most in depth, and actually was written prior to the current inspections. The article cites the above mentioned oversized house.

The El Financiero’s report quotes a fellow as saying that “the coastal mountain range is bleeding”.  Evidently some aerial photos played a part in discovering developments that have cut roads and building sites into these jungle clad mountains without permits, or with questionably obtained permits.  One of the big concerns is the orange clay runoff that washes into the Pacific and that then chokes the coral.  This issue is likely to continue with some heads rolling as the mayor of the Canton de Osa is being investigated for his records of these events.

I have received some inquiries from concerned property owners as to what effect these inspections and development/construction closures may have on them.  So far I don’t see any concern to any of our clients.

We call our business “Dominical Dot Biz Select Properties” for this very fact.  We select properties that are compliant with good development practices and reject listing others.  (Just thought I’d put that plug in)

The effect will most likely be that the land deals here will be a bit more arduous in the due diligence stage.  This has got to be a good thing since it is nature’s radical presence here that has attracted us all here in the first place.

The so far sketchy info and street talk that we are hearing here is that there are numerous projects being subjected to well deserved scrutiny. I’ll post more as I hear it.

So now we were going to try and rebuild the house in such a way that the little blighters wouldn’t call our home “home” anymore. We had heard that they hate fiberglass insulation, so we were going to put on a new roof and insulate it with fiberglass. I’ll go ahead and tell you how it ended up since this isn’t really the point of this article. It didn’t work. We now have a guy enshrouding the whole house with screen. I’m not sure how we’re going to get in and out of the house, but it might just work with respect to finally getting the bats to go away.

Remodeling is an interesting endeavor no matter where you live. But I have become convinced that it is super complex here, due to what I wrote in my previous article. Click here to view.

Europeans, North Americans, Icelanders, even other Latin American countries such as Mexico and Guatemala, all have a certain sense of style. Costa Rica doesn’t. Well it does in that the lack of style is universal. There is little to no attention given to the aesthetic of the living space. Look below the surface of the unimaginative décor and design of most Tico homes, offices, stores, whatever and you will find a poorly put together mechanical structure.
For instance:

For my remodel, I was going to use stud construction and sheet rock. Sounds normal to a North American, but here it is not. If you are going to do such construction here, make sure to see some other work that the contractor has done with this type of work. It is not something that they know well. I was informed that they were going to do a “slick wall” finish. They actually didn’t use the term “slick wall” but this is what the end result was going to be since they didn’t know about the various texture possibilities for drywall. I raised my eyebrows since this is the hardest finish to get right with sheet rock. I mentioned this to them but was resoundingly reassured that they knew what they were doing. I said “great, I love slick wall”. “But if you were to put some texture on it, it wouldn’t need to be perfect like with slick was since the texture reflects light around and hides some imperfections.” Again, “no se preocupe (don’t worry) Don Benjamin”. Ok, we’ll see.

It was about this time in the project that I noticed that there were no electrical plugs in the wall. I mentioned this to the guys and they explained to me that the electrician was going to come in a few days and put the wiring and boxes in. I had to stand back and scratch just a bit. I asked why on earth they would put the sheet rock on prior to the electrician putting the wiring and boxes in the wall. It was explained to me that they were ready to put the sheet rock on, and the electrician hadn’t yet shown up to put in his stuff. So he’d simply have to put it in later.

I thought back to the projects that I had been involved with in the States and how a plumbing crew, or an electrical crew could hold up a job by not being there the day they were supposed to be, since it all just works that way. They frame up the walls, then get out of the way. The plumbers and electricians come in and put their stuff in, then they sheet rock, cutting holes to accommodate the electrical boxes that protrude from the wall the width of the sheet rock. If the sub-contractors are out of synch there is always a huge stink. So I guess one could say that the Costa Rican method avoids such problems. They just go ahead and put the sheet rock up, regardless.

It is good to understand a fundamental point here. The general contractor may or may not feel responsible for the timing of such things. You must make sure when you are negotiating the original contract, that he understands that he is the one that you are going to look to for coordinating the whole project. This is not a given. As it turned out, even with the retrofit method of putting in the electrical boxes, they were extremely reluctant to have the electrical boxes come out flush with the sheet rock. Some times the screws that hold on the finish plate of the wall switch or wall plug weren’t long enough to reach into the box and so special screws had to be purchased.

Most construction here is slab build. For the foundation walls, a ditch is dug and formed up for the concrete. Correct practice is to lay out the plumbing and wiring so that sleeves can be put into the foundation walls and the rebar and cement can pass through the hole created by the sleeve.

Not so here in Costa Rica. Here, the foundation wall is put in with no regard for anything but the foundation wall, and the rest of it can just find its own way, busting holes in the foundation wall later on to accommodate whatever might need to pass through. Keep in mind that the principal behind cement construction prohibits the cutting of rebar since it creates an unbroken and very strong web of iron running around the circumference of the building.

Its kind of like living in a culture that puts its shoes on first and then struggles like crazy to pull the pants on over the shoes.

I know, you are thinking, “man this guy is burned out on Costa Rica”, or at least on the building practices of Costa Rica. Actually, the more I live here the more I love it. The theme of this blog is Costa Rica Real Estate. I am normally rather Polly Anna in my view points about things, but with regards to construction in Costa Rica, it is an exception.
We are entering our construction phase of real estate in a big way, so I feel that candor with respect to these things is appropriate.

I sometimes think that I have seen it all… but then again, maybe not. I hope that this information will be useful for those who are going to build here in Costa Rica. The intent of detailing out the “electrical box” scenario is, quite frankly, one of the lighter weight problems that I have witnessed here. The examples of poor business and building practices here are extensive. The point is to understand what you’re dealing with, and then have your eyes wide open as you embark on the project.

You can do it. It is difficult, but there are a lot of nicely built homes here. Talk with people who have done it and you’ll hear everything from “it was an endless nightmare” to “no problem, it went great”.

I am available to receive experiences you may have had in a construction practice here for the purpose of helping others to know what to look for. Please feel free to e-mail them to me.

As is the case with all free markets, the demand is there, and it is starting to be met by good quality craftsmen and overseers. The crews are all Tico, but with a well thought out contract, and a good engineer, you can make a success of your construction project in Costa Rica.

Click here to see other construction articles.

In my years of selling real estate here, I have sold very few built homes. Most of my deals have been raw land, either large parcels that could be developed in any number of ways: subdividing and selling lots, farming, reforestation, commercial ventures such as a golf course or a restaurant, yoga retreat etc…

The large parcels are rare now, and a lot of the subdividing has been done. We are now strongly, into the re-sale of lots phase of the cycle. We are also seeing more houses on the market.

The Costa Rica Formula

It went like this: purchase a piece of land, say 12 acres for not much money at that time. Cut off a piece and sell it. The Costa Rica real estate marketplace was rapidly appreciating, so you could essentially own your resulting property for free. You were able to sell your cut-off piece for what you had in the purchase of the whole piece.

This formula is pretty much gone. It can still be done in a moderated sense, which is, to purchase a piece that is large enough to cut into two, and by selling off one of the two, you can seriously reduce what you have in your resulting piece of land.

Where We Are Now

The pressure is on the land with the real estate cycle doing its thing. The density of lots is growing, and there is a maturing of both the country, with its efforts to preserve the natural beauty of Costa Rica, and the maturing of the type of buyer that we are seeing here.

Costa Rica Law

The Costa Rican government has recently stepped up its vigilance of the use of land. Also, its agencies for enforcing the nature preserving laws of the land are stronger. Many laws which have been on the books for many years but have never been enforced are being enforced. There have been some rude awakenings for the large scale developers and the small time formula investors as well.

Permits for cutting in new roads and building sites are now being handed out judiciously, which is a change over former years where arguably it could be said that most of the developers didn’t even bother with getting permits. Now you get shut down for not having permits, and slapped with a fine. There is some talk about jail time for serious offenders, but I’ve not personally seen this.

Offenders of illegal road and tree cutting are frequently reported by neighbors, passersby, hang gliders, and even the fishing boat captains and tourists who, from their vantage, look back up toward the land and see a new orange cut in the clay soil against the green of the forest.

The Type of Buyers

The tipping point for the land boom in Costa Rica’s southern zone happened by my reckoning in 2004. This date will vary depending on who you talk with and what their personal experience has been with respect to the land business. Back then, land transactions happened easily and quickly. There wasn’t a lot of due diligence applied to the purchase of a piece of land. Some deals would happen in a single day.

We had the equity buyers, fat with a recent re-finance of their home in the exploding U.S. market place, walking into our real estate offices to pursue the $100,000 ocean view lot. Those were indeed heady times. We thought about implementing an ice cream shop-like ticket dispenser for our office: “take a number”. The big challenge for buyers back then was being able to find an available real estate agent to take them out to look at property.

That type of buyers is gone. The easy financing programs of the U. S. have all been shut down. Now what we’ve got are serious business people looking for an investment that’ll deliver a decent return on their investment annually, or they may be planning for their retirement. These are people who have been working their jobs and businesses over the last 30+ years and have a diverse portfolio of investment and retirement accounts. Now they are simply taking the next logical step. The U.S. stock market is a little scary, and the real estate market there doesn’t yet seem to be bottomed out.

These buyers are more sophisticated than in earlier years. They are not accepting the answer, “over there” when they ask where the boundary line is. They need to walk the lines, perhaps with a topographer. They are not satisfied with a photo of me standing by an open spigot with water gushing out to demonstrate the presence of water on the property prior to closing. They want to see the legal document verifying the right that they get to that water.

Positive Indicators

Tourism Industry is Strong

On a country wide level, Costa Rica is enjoying a 12% annual increase in tourism. The other Latin American countries are right around 4%.

The Highway

Perhaps the most immediate and forceful event that will influence investment values here is the paving of the coastal highway that runs from Quepos to Dominical. I wrote an entire article on that recently that you can read by clicking here. The impact of this highway on Costa Rica’s southern zone will, I believe, be extreme.

The Hospital

There is also the new, state of the art hospital that is located near Cortez. The word on the street is good about the services available there. This is a huge consideration for retirees moving to the area (read: baby boomers).

The International Airport in Palmar Sur

This is taking steady strides towards what is undoubtedly an eventuality. I believe that some day we’ll have an International airport in Palmar Sur, just like up in Liberia, with direct flights from lord knows where all on the planet. With my investors, I generally encourage them not to factor this in to their investing considerations. If it happens any time soon, that’ll be a bonus in a financial way. I’ll write about my opinions and views of the International Airport at some other time.

Financing

This is the “Third Thing” that I wrote about years ago. The big investment indicators in the past have been the improved coastal highway, and the International Airport. Again taking my real estate career as the case study, the vast majority of my sales have been non-financed. Financing is here, but since it is a little different than in the States, and often times is done in Spanish, there is some trepidation about its utility for the average buyer. Financing in Costa Rica comes with a few extra transaction point fees that many foreigners find dissuading as well, but many are dealing with these concerns and starting to finance their acquisitions here, figuring that the asset appreciate will more than take up the slack. This too is having, and will continue to have, a stimulating affect on the value of property around these parts.

Spirituality

I know that this may seem like a strange word to find in an article entitled “Investment Indicators”, but I feel that it is appropriate. I can’t tell you how many times I have seen the therapeutic affect that this little spot on the globe has on its visitors. It seems that right around day 4 of a visit here, the visitor slows down. I think that a lot of the ubiquitous media chatter that is life in the States finally goes away and we can start to think thoughts of our own originality without influence. When I mention Costa Rica’s ability to help quiet our “internal dialogue” to a visitor, I almost always get a resounding confirmation that this is one of the truly agreeable virtues that our area offers to its visitors and residents. I think that this point factors into our consideration of land investment indicators. My opinion is that the demand for such havens globally will only increase in the coming years.

When considering investment indicators for Costa Rica, these are all points that I feel are favorable. The market is growing up, but it is still early, or “immature”. The growth pains that are being felt are of what was a previously casual market place becoming formalized. This is a good thing. The results will be enhanced living conditions for both humans and nature.

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.
If they are in a corporation, not only do you have anonymity from the IRS perspective, but there are some tax strategies that can be implemented through countries that do have tax treaties with the US. And by that I mean if it is taxed in these countries at, say 15%, the US will not tax the income when you bring it home. It’s all very complicated, which is why the world needs tax attorneys. Also, there are some strategies the attorneys can use by treating some of the income as capital gains, etc. to reduce the CR tax to 15 or 20%. We could potentially see a reduction in our tax bill from 65% to 30% by listening to the guys that know how to do this. It’s all legal, but we need the experts to tell us how to do it. This is what rich people do…I’d like to be rich, wouldn’t you?

This is why it is prudent to wait for the tax attorney’s recommendation.

Also, if you buy personal property in CR like a car, you should buy it under a separate corporation. If you get in an accident and you are sued, they sue the corporation. If the corporation has no assets, you lose nothing personally.

As a broker of real estate in Costa Rica, I work with investors from all around the globe as they search for their property in Costa Rica. In working with these people I get to hear what their concerns are and watch how they respond as they learn and experience the Costa Rica real estate marketplace.

One of the San Buenas Golf Resort (SBGR) partners is Duane Halverson, retired COO from the well known dairy company “Land ‘O Lakes” in the United States. Duane and I have struck up a rather unlikely, synergistic relationship that has resulted in some pretty interesting dialogue: Duane being a long time, firmly anchored, North American business executive, entrusted with the financial well being of a large U. S. company (he also sits on the board of numerous other corporations there in the States), and me being a jungle tromping real estate agent in the wilds of Costa Rica.

Mr. Halverson sent me the summary below of a speech that he attended by Michael Ryan of New York city who is an economist who appears periodically on CNN. He spoke about the US and world economy. Following are some of his key points;

US ECONOMY

• We are in a housing led downturn
• The ” housing opening ” rate is the highest since World War Two. The high housing inventory and the long-term housing demand equation suggests further housing price declines . The prices of many homes will decline another 6-12% during the next 12 months.
• The commercial market situation is much better than the residual.
• The USA will have below normal growth for the next two years.
• The ” headline” inflation rate is elevated. The core rate, excluding food and energy is not. The single largest contributor to inflation is “wages and salaries. “
• The inflation rate and interest rates will remain relatively low for the next 6-12 months.
• The USA is still the world’s largest economy. However, due to the growth of other countries, especially India and China, the USA economy plays the lowest rate in the world economy since World War Two. This is good for world stability.
• The U. S. sub prime mortgages are $ 1. 2 trillion of the total mortgage market of $ 85 trillion. However, the impact has been felt by many people and numerous financial institutions.
• Exports account for but 12% of the USA GDP. Thus the USA must grow internally.
• Agri business, as a sector, should be good for the next several years (as the world economy grows the demand for protein increases).
• USA stock price earnings ratio is at a 20 year low. The key variable is what corporate earnings will be.
• Global growth will remain strong. In 2008 emerging market countries will account for 60% of global growth. Thus, large cap stocks should do well (large cap stocks tend to be global in nature).
• Regardless of who wins the presidential election, taxes will increase.

Below is my response to Duane.

Dear Duane,

I have been thinking about your letter summarizing Mr Ryan’s take on the economy, and putting it up against what I see going on here in Costa Rica. Frankly his analysis is more optimistic than what I had understood things to be.

It may be that Costa Rica real estate is in a rather strong position when considering the global economy. It’s like one of the pivotal points, albeit very small, of the earth’s ebbs and flows of economic well being.

To illustrate:
When I first got started in the art business in ’85, the Texans were our biggest source of clientele there in Aspen Colorado, USA. They would come a strollin’ in to the gallery with their handmade $12,000 Lucese alligator boots with the big hair trophy wife bedecked with furs and a rock on her finger that made it difficult for her to lift her hand to adjust her coiffure. Selling art to them was quite easy. All things “impressionism”, they would buy. . . then the oil market fell out. We Aspen art dealers were concerned about making a living with no Texans coming in. It was a dramatic toggle that cut the flow of our bread and butter clientele.

The art market is perhaps one of the most sensitive instruments for gauging the economic condition of the country. It is a non-essential (although some of my collector clients would argue with that statement), and it is a subjective, pleasure sort of product. It has nothing to do really with sustenance and covering. At best it could be said to diversify one’s portfolio, but this would only happen after the 401k, IRA, real estate, and stocks were all in top shape.

Well, we hardly missed a beat back then as the economy moved around, doing its thing. It seems that the day the oil market went to pot, the stock market kicked into high gear with the whole junk bond shenanigans. Trash disposal became a hot ticket as the country became aware that the landfills were full and we were generating trash at record levels, and the yen was at all time highs. The Japanese paid $39,921,750 for oil on canvas by Van Gogh of some sunflowers in a pot.

It was then that I realized that I had picked a spot on the globe that benefitted from a rather secure economy since whoever had the wherewithal, wherever they may be, would be the ones that would come to Aspen. As long as we didn’t get too awfully attached to any one group and miss their passing, we would happily welcome the next ones to come in.

Factors that hurt that particular industry though, due to its sensitive nature, were things like, the Persian Gulf War. There was lots of money around, but people were depressed, and concerned. So they didn’t buy art. That was perhaps the longest stretch of low to no sales I experienced in the art business.

I write all that, to write this. I think that Costa Rica sits in a similar global position as Aspen did back then, for the same fundamental reasons. Additionally I think that Costa Rica real estate enjoys a lack of sensitivity that wasn’t present in the art market. Real estate will still make sense, and perhaps more so, in the presence of an emotional hit.

I think that you and I have spoken about how the buyers here have changed from 5 years ago when our land boom in the Dominical, Uvita, and Ojochal zone began. Back then we had a “take a number” situation going on in our Dominical office. This was an abundant source of leads for us. The crazy land boom in the States generated a huge stream of buyers for us here in Costa Rica’s southern zone. These buyers seemed to all have an upper budget limit of $100k and they all wanted ocean views. It was an interesting phenomenon. I recognized this happening and actually counted the number of under $100k ocean view lots that we had at the time, and counted down as they sold. I had one week when I sold five lots, and another 2 week period where I sold 6. The big topic here among the real estate agents was, “you got anything to sell”? Those were some pretty heady times.

These buyers had cash, simply due to something so mundane as housing their families. With a stroke of their mortgage broker’s pen, they had $100k in their pockets.

Things have changed. The real estate market in the US has gone flat or crashed, the dollar has devaluated globally, and this “Texan” like source of buyers, equity buyers, has dried up.

I don’t think that we missed a beat. This all coincided with some other factors going on around here in Costa Rica’s southern zone, and real estate is continuing on here with vigor, albeit it looks a lot different than the halcyon days of ancient history, 5 years ago.

Step 1 of the construction process in Costa Rica really is that you have determined the cost of building what you want and you have determined that you’ve got the funds necessary to achieve your objective.

But that is not what this article is about. This one is about a meeting that I had yesterday with a client of mine that I’ll call Gabe for the sake of this article, (and due to the fact that that’s his name) and an engineer. Gabe is going to start building at the start of the next dry season. I think though that I’d like to go ahead and talk a minute about budgeting.

Right now when you ask the question “how much does it cost to build in Costa Rica?” you’re going to hear some diverse responses. What we are talking about here in Costa Rica’s southern zone: Dominical, Uvita, Ojochal, San Buenas and beyond, you’ll likely hear anything from $70.00 to $125 per sq. foot. I’ve heard these numbers and have wondered a bit at the broad range. $70.00 a square foot is probably not a good number to use in calculating the cost of building here. I know that you can build for that. I know of some that are building now for less than that. But for the purposes that we are here considering, we don’t want to use low figures.

Conventional wisdom would dictate that we calculate high to make sure that you don’t run out of money. Costs of materials and labor are rising. Materials are going up due to the global demand for cement and steel, presumably caused by whatever is going on in China. And also for labor costs here. The demand on construction services is high caused here by a construction boom that is logically following in the wake of our land boom that is now some 4 or 5 years old.

So my recommendation is, even if you don’t intend to build a palace with granite counter tops, that you calculate the cost at around $80 - $85 per foot, at this writing. From that point you can gauge the affect of your own preferences and add to that square foot price accordingly. $125 per foot is going to be luxurious.

Gabe and I met with a couple of engineers right here in Uvita by the names of Hugo and Juan Carlos. Their company is called “Ingeniera Satelital” Juan Carlos is the main engineer of the San Buenas golf course and the talk there about his services is good, so I felt comfortable setting up the appointment with my client Gabe.

We sat with these two gentlemen in their Uvita office and got right into a rollicking conversation about what a guy ought to do with his land to prepare it for building. I think that the information we uncovered there will be of interest to many readers of this blog.

I am inserting this contact information based on interest that this article has generated in the services offered by Ingeniera Satelital. Here is their contact info:
Juan Carlos
Ingenieria Satelital
011-506-2-743-8384
ingsatelital@gmail.com

The first question, of course is, “what are you going to do with your land”?
Answer - “A single family residence on an ocean view, mountain lot in Uvita”.

Ok then, first step, get the perimeter of the land defined. This is called “replantear”. Sounds a little like “replant” and in a way, that’s what it is. The perimeter of the land is going to be cleared and the survey points are going to have new re bar stakes “planted” in their places. This sounds easy, right?

In the case of most of the lots around our zone, some time has likely passed from when the lot was purchased, and the construction process is to begin. What that means here is that the perimeter is likely overgrown. Overgrown Costa Rica style is serious business. So we need to provide the engineers with a survey of the lot, and establish at least one known principal survey point there physically with them. From this they will be able to pin point the rest of the “vertices” or survey points. This requires a full day and a couple of machete wielding “peones”. By the way, this term is not demeaning here in Costa Rica. These valiant laborers that handle their razor sharp machetes so skillfully are called peones (pay-ohn-ehs) here. The North American, demeaning sense to the word is not present at all. It’s funny how long it takes for us Gringos here to accept that and actually refer to people by that term.

The perimeter is cleared and the survey points are established with #4 re bar posts that are painted red on top. So now there is a “caril” or pathway all around the lot with these stakes, clearly defining the property. The cost of this service is, as of this writing: $300 for a one hectare property. A hectare is 10,000 sq. meters and equals 2.47 acres of land.

Next, the engineers suggest a topographical map with contour lines be made of the property. This is called “curvas de nivel” (koor-bahs day nee-vehl) or “level curve lines” in Spanish.

Gabe, very thoughtfully purchased a piece of land that is just over one hectare. Gabe’s property is actually 12,000 + meters of land, but they gave us prices based on it being 1 hectare. To do the whole thing in a contour lined map would run $900. This is rarely necessary since you just need this information for the portion of the property that you’re going to build on. So you can reduce the price from there.

The engineers also suggest that a soil analysis be done for soil stability and percolation testing. Soil tests are done by a different company, but I have been involved in a few of them and so am able to provide the numbers from those experiences.

For a single family building site, there are normally 3 perforations done on the building site in the various load bearing areas of the lot. These take into consideration the location of the pool, the edge of the lot, which frequently, in our zone, drops down right away. The holes are roughly 18 feet deep and consider the strata that they find there as well as the molecular makeup of the soil. From this information the engineers are equipped with: what the soil will support weight wise, how it’ll handle rain run off, seismic activity, and percolation for septic. The cost of this type of test has been pretty consistent at around $1,300. The reports have all come back in Spanish and have been cumbersome to understand at best, even for native Spanish speakers.

I have never heard of a property failing a soil analysis. The test results simply tell you what is required in order to build what you want there.

So, aside from making sure that your budget is right, the first step of building a home in Costa Rica is to get all this basic data about your property. With the recent explosive growth in the Uvita area, capable service providers are conveniently on hand to help with the process.

There are some other benefits to starting with the engineers. They generally have an architectural firm that they work with, who in turn will likely have a construction outfit that they use. So the engineer can be a one stop shop for those looking to build a house in Costa Rica.

I thought that it might be interesting to catalogue the recent visit, well actually the current visit, of The Smiths. Their visit is very representative of what are perhaps the bulk of my presentations. From their upper budget limit of $200,000 for raw land, to their purpose for the purchase: they hope to relocate to Costa Rica in the coming years, a consideration of their experience will likely be a help to other who are looking to buy land in Costa Rica.

Using the Internet, Mr. Smith did the research on the Dominical and Uvita area real estate agencies and their listings. Mrs. Smith studied the geography of the area and what the various zones are called. They wrote to me asking for 3 references, which in fact isn’t so representative of what most prospective buyers do, but I think is a very smart idea.

To digress for a minute, all us real estate folks down here in Costa Rica are not licensed. There is no policed nor enforced procedure for buying land in Costa Rica. Consequently, a lot of how a land purchase is going to go revolves around your selection of a real estate agent. This practice of asking for references is a great idea. I am also available to give objective input regarding my peers in the business here. For the most part I have quite a bit of respect for the established agencies and their agents in our zone.

So, after receiving the references (click here to view), The Smiths sent me links to some of the listings that they had found on the web. Most were from my site, and some were from the sites of my competitors. Again, this is a good practice. The lack of a Multiple Listing Service (MLS) makes finding a property, and seeing all that is available within your criteria a bit of a challenge. There is no sharing of listings amongst the agencies. A seller must visit all of the agencies and have distinct contracts to list their property with each one. Whoever sells that property receives the entire commission. There is no listing agent, nor seller’s agent.

It is likely that your chosen agent’s website may not display all of the properties in his/her inventory. So what Mr. Smith did here is a good idea, and it turns out, worked well since I did have inventoried all of the properties they found on various websites, even though all of them weren’t seen on my website. If there were some listings on a competitor’s website that I didn’t have, I can either contact that agent prior to the prospects coming visit and get the listing, (in which case I’ll share the commission with that agent’s agency) or I can suggest to the prospect that they work directly with the other agent (in which case I’ll still receive a portion of the commission).

Mr. Smith’s investigation serves as an example also in that he was candid with his concerns about me, and also about the issue of soil stability. His concern about me was that there were so many high price properties on my site that he felt I might not deal that much in their price range. I assured them that the $150,000 - $200,000 is my bread basket and that I am very comfortable working in that range, which I think they would now attest to. As for soil stability, I cannot speak with any sort of authority about this, but have seen a lot of properties bought and sold here in Costa Rica, where there are regular tremors, and feel that the concern can be lived with. If a prospect falls in love with a property that looks like it could have a concern of either having land slide down on top of it, or sliding out from under it, a professional soil analysis can be arranged, the results of which can be a contingency of sale.

So, along with the above information, they detailed to me the oh-so-important 2 main points that help me find what you are looking for

1. the purpose for buying land in Costa Rica
2. their upper budget limit

With respect to point number 2, I have found that nobody seems to mind if we find something that satisfies point #1 but comes in under their upper budget limit.

Here is the profile of The Smiths. They have obligations back home with 2 grown kids in school. They would like to re-locate to Costa Rica in the coming years, or will at that time set up a migration lifestyle where they spend a good portion of the year in Costa Rica, and the rest back in the States. They would like to secure their property now as prices will, presumably, continue to rise. It can be an existing house, or a lot that they can then build on. The upper budget limit is obviously higher for an existing house.

They would like for the property, once it is built out, to generate rental income. This can be in the short term Vacation Rental market, or it can be in the much needed long term (no less than 6 months) market. So their choice of property is shaped by which of these markets they hope to appeal to.

The Vacation Rental market is rich here in the Dominical / Uvita / Ojochal zone. One can realize $2,000 - $4,000 a week with a well chosen and well designed and built home. This is mightily compelling when deciding how to best utilize a property while the owners are not here.

The long term rental market is lacking here (read: there is a high demand for long term rentals).It is not nearly as lucrative as the vacation rental, but it also has some compelling aspects to it, one of which is you’d likely have close to 100% occupancy and wouldn’t need a property management company to handle the marketing and renting of the property. One page at Dominical.biz (cost $100 per year, one time set up fee of $150), and you’d likely have it rented all the time, and even that expense can likely become unnecessary after a couple years.

We met midday for lunch, but decided to not lunch. The Smiths were focused on finding their property and they wanted to get to it. After a brief consultation in my office (it was brief largely due to all of the e-mailing and phone calls that we had made in preparation for their visit), off we went. Their upper budget limit for raw land was $200,000. My favorite pick in this price range in Uvita is La Gordita – ($195,000). So we headed up there and took a look. It takes a little while to see La Gordita since the property itself is 3 acres and we can spend a little time there, but also, there is a 10 minute walk down to the Rio Cortezal which this lot has access to, and which constitutes a real value add to the property.

Well, I have passed my 1,000 word objective with this review. I’ll continue with part II of The Smiths’s visit shortly.

We met, and off we went to view property. On the way to the property, we realized that another real estate agency had already shown him the property. The client was distressed. “How does this work”? “What if I want to work with you”? “Whose listing is it anyway”?

Ah, the problems caused by not having a Multiple Listing Service in Costa Rica. I feel like I bump into them every time I turn around in this business here in this country.

I have noticed that it is especially difficult for real estate buyers and investors from the States to grasp how it works here. It does work… really. It’s simply an inferior system to the MLS based system in the States.

As you almost surely know, dear reader, a Multiple Listing Service (MLS) is nothing more than a database of real estate listings. However, the business model of representation that is built on the existence of that database is the key.

The MLS model:

A real estate agent gets a listing and he inputs the information of the listing into the database so that all other agencies can access it. As I understand it, it is actually illegal for a real estate agent to keep the listing in his/her “hip pocket” and not input it to the database. This agent has now become the “listing agent”. If another agent, from another real estate agency, accesses that information, and sells that listing to a client, the listing agent’s agency receives one half of the commission, and the selling agent’s agency receives the other half.

The buyer and seller are both represented by their respective agents who they (buyer or seller) can trust to protect their interests in the deal.

The Costa Rica Model:

There is no central database. Each agency, presumably, has its own database. When a property gets entered into that an agency’s database, or we could just simply say: when a seller lists a property with an agency here in Costa Rica, that agency alone has the information. There is no arrangement whereby that agency then informs all agencies of the listing. In fact, the seller should make sure that whoever he/she is talking with in the agency will be sure and notify all agents within that agency of the listing.

If the seller wants to have their property well represented in the local marketplace, they will need to visit all of the agencies in the area with the listing and repeat the process.

So, now I’ve got a listing in my Costa Rica real estate agency. I show the property, I sell the property, the entire commission flows to my agency (standard commission here is 8%). No other agency has anything to do with the sale.

The seller doesn’t have representation by a given agency, nor does the buyer, and therein lies the rub.

“Well then, the lawyers in the deal must take up the slack and provide representation for the buyer and seller”. Nope. The lawyer on the deal functions as a notary of the deal, and facilitates the title ownership in Costa Rica’s National Registry (www.registronacional.go.cr). The system does not allow for the lawyer to represent one side or the other.

How can that work?

Well, it does. We do sell property here in Costa Rica.

The key player in a real estate transaction here, in my opinion, is the real estate agent. This hard working soul is working hard to make the deal happen. He/she really should have the best interest of his buyer at heart, and he really should have the best interest of the seller at heart. He doesn’t have to, he just should.

I guess that a lot of the problem comes from the concern about disclosure. How can the buyer know that the agent is disclosing everything that he knows about the property? How do we know that the agent isn’t in collusion with the seller to hide some fact about the property that the buyer ought to know about? Again, it falls to the agent to take care of the buyer. You, as the buyer, have to discern if your real estate agent is such a person.

There are stories here in Costa Rica, and lots of them, about shenanigans in real estate, and it’s true. I used to think that the MLS market in the States was free of such concerns. Over the years of doing real estate here in Costa Rica, I have come to learn that shenanigans go on in the States as well, even with representation.

So, I think that it boils down to a “human” issue. Honesty and concern for our fellow man are what we are looking for in anyone that we choose to do business with in this life. This is a basic of business regardless of what country we may be in.

So what happens when I am in transit to a property with a client, and I find out that he has already been shown the property by one of my competitors? What if my buyer really wants to do business with me and buy that property through me instead of him that showed him the property? Hmmm, well I suspect that such a situation could come up in the MLS system as well. We pretty much feel here that the agent that shows you the property is the one with whom you should do business to buy the property, and I said as much to my buyer that day. If there is an integrity concern with the original agent (which there wasn’t in this case), then fine, I’m available to help with the deal. However, I will insist that the original agent receive half of the commission, and this only if the buyer is willing to express his/her wishes to the original agent in writing (e-mail’s fine).

So we deal with the problems caused by the lack of an MLS in a sort of ad hoc manner around here in Costa Rica. Some day I suspect that we’ll have an MLS here, but until that day arrives, a lot of responsibility falls to the buyer to choose their Costa Rica real estate agent with care.