Costa Rica Real Estate

Answer: 98%.  The Question… what percentage of people first visit Costa Rica as tourists before buying their own piece of paradise?

Uvita's Whale's Tail formation taken from Escaleras.

Costa Rica is attractive as a vacation spot, for retirement and investment, especially in this “buyer’s market.”  In particular, the Southern Pacific Zone (and I’m talking about the area south from Quepos to Palmar) has a number a factors that set it apart from the rest of Costa Rica—the mountains-to-the-sea geography, sunset ocean views, the verdant jungles, and the protected habitats.  In addition, up and down this coastal region, resident Ticos and foreigners from all parts of the world enjoy a “small town” community feel.

For those who haven’t been down to The Zone (as we like to call it), there are small differences between the small towns in this area–

• DOMINICAL–  Many of the visitors who choose Dominical as a home base are surfers or other people who want to be within walking distance to the beach.
• UVITA–  Those who choose Uvita have either already explored Dominical or want to be close to the famous Whale’s Tail and boat launch for whale and dolphin tours, snorkeling and scuba diving adventures.  Simply put, the magical nature of these activities brings people back, year after year, in increasing numbers.
• OJOCHAL–  Located 15 minutes south of Uvita, Ojochal is one of the more established expat communities.  Originally, the coastal road only came as far north as Ojochal, hence the pre-Costanera wave of development starting in the late 90′s.  It is known as the multi-cultural hub of The Zone and home to an amazing array of culinary options.

The Zone has received a flood of publicity over the past four to five years.  Heralded as one of the world’s eco-tourism hot spots, most tourists come to our area excited by the likelihood of seeing exotic animals up close and personal.  In fact, groups of monkeys and toucans make daily visits to our property and most of the eco-hotels in the region.

Boom Markets

Another reason for the area’s popularity, one we have written about extensively, is access — the completed Coastal Highway, the improved road from San Isidro, and the proposed International Airport in the Palmar/Sierpe area 40 minutes south of Uvita.  According to the Instituto Costarricense de Turismo, tourism is up 9.6 percent for the first half of this year compared with 2009.[1] Perhaps the stimulus package in the U.S. and Europe is working?  (That was a joke.)

We only need to look at the effect of the new international airport in the Guanacaste region—131,295 tourist arrivals in the first half of 2010[2]— to understand why tourists, retirees and investors flocked there.  Thanks to the ardent publicity of television, print, and web advertising (e.g., International Living Magazine), there was a tourism and real estate boom in the first part of this decade.  The first part of 2010 is no different, as activity is up in this buyer’s market.

The Painful 2%

As for the two percent of property buyers left out of the original answer (in fact, they are the group who sparked this article), there are actually foreign investors who buy property sight-unseen.  Just in case you are not familiar with the term, it means buying land without physically seeing what you are buying.  This often happens when prospective buyers attend marketing seminars that pitch only one or two specific developments in an area.  The simple reason for this is… these marketing specialists are often The Developer!   They lure prospective investors to Costa Rica with attractive incentives like “fly and buy” programs, where discounts are applied to immediate land purchases.

There are potential problems with following this developer’s path to your future paradise.  Here’s a common scenario; you finally arrive at the small, regional airport in Costa Rica.  You meet your bilingual feet-on-the-ground sales agent/tour guide/driver.  He explains you have a full and exciting week ahead—dinners, outdoor activities, and multiple tours of the developments— so full and exciting that you never really have time to look around and get an objective view on land values and investment opportunities.

BEWARE… their bottom line is to sell you property in their developments.  I can’t tell you how many “seminar buyers” (most of whom are from Canada?) come to us after the fact and are shocked at the real market value of their land… and this was when the market was still strong.

Ben in the field with a client.

Pure Brokering

There is a simple way to avoid this investment pitfall.  Most of the real estate agencies in the area offer what we “Guys” like to call: pure brokering.  I use the word “pure” to indicate what Ben & I like to do.  I guess you could say, it’s the Guys In The Zone style.  First and foremost on our agenda is: “find you the most ideal property that fits your objectives” – pure brokering.

People ask us daily how the market is doing, and if you’ve been tuning into our Talk Shows for the past couple of years you know the market here has reflected the global market’s trend downward.  Markets go up and down… that’s just a fact of life wherever you are.  Ask any of the real estate companies in the area, activity is up… and this is typically our slow season.  It feels like we have hit the bottom, and this high season (Dec-Feb) is expected to live up to its name.

There are a variety of factors that make The Zone an attractive place to vacation, invest, and eventually retire.  And let me tell you, the only thing better than watching a flock of toucans hopping in the trees… is when you are watching a flock of toucans hopping the trees on your own property.

[2] http://www2.prensalibre.cr/pl/la_economia/28972-ingreso-de-turistas-aumento-un-96-en-primer-semestre-del-ano.html

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.