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Buying Real Estate in Costa Rica
Like us, many people have spent time in this amazing country and felt a connection with the pura vida lifestyle. Costa Rica’s temperate climate is comfortable year-round and the list of outdoor activities to do is endless. It’s also a very safe country with affordable healthcare and strong expat communities that create a home away from home.
Can Americans Buy Property In Costa Rica?
1. Absolutely! The great part about Costa Rica is that foreigners and locals have the same ownership rights when buying property. Foreigners can purchase property on a tourist visa without the need for residency or citizenship.
In Costa Rica, there is no MLS system or certified real estate agents. Unlike the United States and Canada, the industry isn’t tightly regulated. This means that shopping for properties isn’t as easy as logging onto the MLS and viewing everything available for sale. It also makes it harder to view comparable prices. Looking for recommendations for an honest real estate broker or agent with a good reputation is the best way to start. It’s wise to find an agent who’s highly regarded in the area you want to purchase in and has the references to prove it. It can be as simple as asking around the community for recommendations. You can then look into the names that pop up a few times. Keep in mind that just because an agent is an English-speaking expat doesn’t mean that they will be honest. Less regulation opens up the doors for potential fraud and “fake” real estate agents, so doing your due diligence is important.
2. Titled property
In Costa Rica, any property located within the first 50 meters of the high tide line is considered public land. This means it is protected and cannot be titled. The next 150 meters up from this zone is called the Maritime Zone or Concession Land. While foreigners can readily buy property in Costa Rica, a non-citizen can only own up to 49% of Maritime Zone land. To translate, that means direct oceanfront property in Costa Rica is usually off the table.
To check that there is a clear title on your prospective property, you’ll need to hire a real estate attorney. You can do a title search yourself online, but you’ll have to register and know the property’s identification number. It’s best to have a real estate attorney do the property title search through the public registry in Costa Rica.
Costa Rica also has a numbering system to be aware of called the Folio Real. Most properties have a unique identification number registered at the public registry in San Jose. This is the system your attorney will search to get all the available info on the properties on the market.
3. Title insurance
Title insurance is available in Costa Rica but is almost never used by the local population in their real estate purchases. If you are interested in getting title insurance for your property purchase, do an online search for title companies in Costa Rica.
4. Restrictions and zoning
Since Costa Rica has so many protected areas for nature conservation, you will find setbacks from rivers and forests, which are always annotated in the National Registry. Many cities have a zoning plan which should be checked before you buy any land. The zoning will show if it is agricultural or residential and what the restrictions are. Always request a copy of the cadaster plan (survey or plot map) where you can see any restrictions. Setbacks from rivers should be requested from INVU.
5. The most important thing to do when buying land in Costa Rica is to have a survey done. A surveyor will confirm your property boundary lines to avoid any disputes with neighbours. Then your attorney will record the property survey with the public registry to make it official. Even though these types of things bear legal fees, they’re steps you really don’t want to skip!
If you’ve found land for sale in an area you like, visit the site and ask the seller lots of questions before making an offer.
Does the property have water, electricity and sewer access?
Does it have internet?
Are you allowed to build on it?
Even if you have a real estate agent, the onus is on you as the buyer to do your due diligence.
6. Hire a real estate attorney
Citizens, residents and non-residents alike should hire an attorney for their real estate purchases. Don’t just hire any attorney for your Costa Rica real estate purchases, I recommend you hire your own bilingual real estate attorney/notary public and someone who specializes in real estate, so you are well represented. Only a notary public can record a purchase in the National Registry through a protocolized deed that will be registered in the National Registry.
Make sure the real estate attorney you hire has a SUGEF (Financial Institution Superintendency) approved escrow account or use a title company, so earnest money can be held in escrow without any legal problems.
7. When you start your property search
Start your search online for the locations that match your requirements. Visit Costa Rica and the locations you are interested in several times. If you don’t know where to start, make a reservation on a retirement tour, which can be found online easily.
If you plan to make a serious offer on a property once you are in Costa Rica, talk to your banker ahead of time so you will be able to make a wire for the earnest money by phone. If you don’t, you will have to wait to conclude your offer until you are back home, as most banks won’t allow you to do a wire transfer unless you are there in person.
8. Real estate agent
Research the available real estate agents in the area(s) that match your requirements. Don’t hire any agents who are not an expert in the particular area that you are interested in because the right agent can help you for years to come with all your needs. Try to stick with one agent so you can expect that outstanding service. If you contact many agents, they will all just show you what they have listed and you will never find out about the best options.
9. Real estate commissions
It is typical for the seller to pay the real estate commission, which is 6 percent in the Central Valley and can run up to 9 percent elsewhere. Exclusive listing agreements might show up to 10 percent real estate commission depending on what advertising materials are agreed on and the agency.
You as the buyer will not have to pay this commission unless you hire a buyer’s agent. In most cases, the buyer’s agent will split the commission with the listing agent, unless it’s a for-sale-by-owner listing or a foreclosure.
10. Offer on a property
Don’t make any verbal offers. Ask your real estate agent to write up the offer and take it to the seller. Once agreed on, have your agent ask your real estate lawyer to write up a formal purchase-sale agreement. Just like a property purchase anywhere else, you’ll then negotiate the purchase price. Don’t expect this process to move as quickly as it would back home. People in Central America aren’t glued to their phones and computers like agents in the US or Canada. When you and the seller sign the agreement, it is customary to wire 10 percent of the sales price (unless agreed differently) into escrow with your lawyer.
If you have not organized this before you traveled, you can do so when you get back home, but the purchase sale agreement will not be legal until the deposit arrives in escrow.
11. For the closing
If you are not going to be able to be in Costa Rica for the closing, I recommend you leave a SPECIAL power of attorney for your lawyer’s assistant, your real estate agent or anybody you trust, that will allow that person to purchase the property in the name (personal or corporate) that you approve of this power of attorney ONLY.
Wire the complete purchase price and any necessary legal fees into escrow WELL before the closing date as banks in Costa Rica, to comply with money laundering laws, might hold the money for several days. Ask your attorney to send you the “Get to know your customer” form in time, so there won’t be any time wasted in finding the necessary documents.
13. Register title in your name, a corporation or other legal entities
When you purchase Costa Rica real estate, you can register the purchase in your name. In case you would like to share the property title with your spouse, another family member or business partners and you don’t want to allow the other to be able to sell without your consent, you can share the title in equal parts as a “right” or “derecho.” The title will show, for example, 1-345678-001 and -002, with as many partners as you’d like: -003, -004, -005, etc.
You can also purchase any Costa Rica real estate in a corporation such as a Sociedad Anónima (S.A.) or a Sociedad Responsabilidad Limitada (SRL), which is similar to an LLC. Ask your attorney for advice on the legal part of the transaction.
Another way to purchase your property is in the name of your retirement fund or the corporation that represents it, such as an IRA or 401(k). Not all Costa Rican attorneys know how to do this, so do your research.
14. Real estate title transfer costs
You can purchase a property in the same holding company or transfer the title to another company or your own name. The cost of the title transfer is 5 to 6 percent of the sales price total, which is customarily shared between buyer and seller unless negotiated differently. Legal stamps are approximately 1.1 percent, as they are on a sliding scale, and transfer taxes are 1.5 percent. Notary fees are also on a sliding scale and add up around 3 percent. Again, ask for your attorney’s advice on this matter.
15. Annual property taxes
Besides the real estate transfer taxes that you pay at closing, you also have to pay the 0.25 percent annual property taxes at the local municipality, over the registered value in that municipality. All property owners are obliged by law to re-assess their property every five years. If you don’t, the municipality will do it for you. At closing, the seller should bring a certification from the municipality that the property taxes are paid up to date; just bringing the last paid receipts is not enough.
Since 2009, luxury homes pay an annual “impuesto solidario” or luxury home tax on a sliding scale that changes almost every year. Check with your real estate agent or your attorney to find out if the property you are buying should pay luxury home tax and how much.
16. Corporation tax
For those who purchase real estate in a corporation, it is important to know that in 2012, the Costa Rican government created a corporation tax, but it was declared unconstitutional in the Costa Rican Constitutional Court in 2015. At the time of publication of this Costa Rica real estate guide, we don’t know when a new law will be approved by Congress. Check with your closing attorney.
17. Condominium Fees
If you purchase in a condominium or a gated community, the seller should bring a letter of the condominium administration that the HOA fees are paid up to date.
Once the deed is registered in the National Registry, your attorney can supply you with an “estudio de registro” proving you own the property. With that and your residency ID, you can go to the power company, the water company and the phone company to change the services to your name. You need to be a resident to do so. If you’re not, I recommend you purchase the property in a corporation and have a lawyer’s runner do all the changes at the utility companies for you. It is also quite customary to leave all the utilities in the former owner’s name.
Squatting is not very common in Costa Rica, but if you abandon your property, you don’t take care of it and don’t pay your property taxes for years, you’re asking for trouble. Someone might just move in.
If you follow this Costa Rica real estate guide step by step, you should be able to be not only successful in your property purchase, you will also be able to enjoy your property worry-free.
20. Bank financing is very different when it comes to Costa Rica real estate. Traditional mortgages aren’t widely available and are very expensive. They typically charge 10-15% interest so it’s best to finance through your home bank or use owner financing.
Owner financing is a common practice where you finance the property directly through the seller. If you’re ever the one selling property in Costa Rica, this can greatly add to your real estate investment returns. Do keep in mind that there are strict laws protecting property owners. So if a mortgage is not paid, the seller can repossess the property.
There are plenty of investment opportunities all over Costa Rica. In bigger cities and booming tourist areas, the rental market can be pretty hot. In the San Jose province in particular, rental returns earn an average of 8.6%. These yields are higher than neighbouring countries in Latin America thanks to Costa Rica’s thriving tourism.
Renting out a home or apartment can be a great option for extra income but does require some work. You’ll need to educate yourself on landlord-tenant property rights and try to find good tenants. While owning property in Jaco, Costa Rica would be cool, sticking to more family-oriented areas might be a better choice.
Also, don’t forget about the tax man! You will have to pay income taxes on any rent you collect with an assumed 15% in expenses. To break it down, the new tax law subtracts 15% of your rental income for expenses and then taxes you on the remainder. So each month, you are taxed 15% on 85% of your rental income. For a $1000 per month apartment, this would be $127.50 in monthly income taxes.