Land in Costa Rica, good investment?

[Lisa Dreher]

Hi BP community! My partner and I have been given the opportunity to purchase some land (around 1 acre) in southern Costa Rica about 8km from the airport. We’ve always wanted to go there and have many friends and family who have traveled to CR and loved it, but have never gone ourselves. We’d travel there (at some point when Covid isn’t so damn scary) first before deciding. But for now are doing preliminary research and wanted to reach out to see if anyone here owns land/property in CR, has any insight into things we should be particularly cautious about, or just general advice on making such an investment?!?

Thank you all!

[Mike Lambert]

I have been investing internationally for a few years now. I'm very familiar with Costa Rica but have never invested there for reasons I mentioned below. Yet, I could mention a few points that could help you in making a decision even without going there.

Let me first make two preliminary remarks:

a. You give us very little information, which makes it much harder to give you a quality answer. One of the many things you don't tell us is what your is objective with the property. Do you even know yourself? This is the first thing you should know. However, in this specific case, it mightn't matter that much because one could pretty much come to a clear conclusion in this case.

b. I'm not sure what you mean by having the opportunity to buy some land in Costa Rica. It's a free market. Anybody can buy any property that's on the market.

Here are a few points that could help you:

1. One of the fundamental rules of investing is "Don't fall in love with your investments". The purpose of an investment is to make money. So as a pure investment, the facts that Costa Rica is a beautiful country and a popular tourist destination shouldn't matter if they don't make you any money.

2. Even though Costa Rica is beautiful and increasingly popular with tourists, that doesn't make it a great investment destination necessarily. I have the necessary knowledge and connections to invest in Costa Rica and yet I prefer to invest in other "neighbouring" countries like Mexico or the Dominican Republic because the returns on investment there are much higher there (and they're beautiful countries too). Why is that? Firstly, Costa Rica has become very expensive and properties will therefore cost you much more. The time to profitably invest was Costa Rica is decades ago when it was cheap and an emerging tourist destination; people who invest today are late to the party, in the main touristic parts of the country at least. Secondly, unlike Mexico or the Dominican Republic, Costa Rica doesn't have mass tourism as a result of a decision the country has made to limit the growth in development and tourism. While you might like this as a tourist, snowbird or retiree, it means that the occupancy and income you derive from your property will be much lower. Thirdly, a country like the Dominican Republic, which has invested massively in its tourism infrastructure, has had a much higher economic growth than Costa Rica and, as a result, has created its own middle class. This means that, if you invest there, you are not entirely dependent from the international clients because you have a domestic clients as well. Costa Rica is a very egalitarian society that hasn't done that well economically and, as a result, it doesn't have a real middle class to speak of and, therefore, you are entirely dependent from international clients, which makes it more risky. So your cost/investment and your risk are higher and your profit is lower. To have a great investment, it should be the other way around. A friend of mine developed a villa project in Costa Rica and is selling the villas. He's promising a 5% return on investment. The project is gorgeous and the buyer would end up with a beautiful villa. However, he'd have to pay 100% in cash and only make 5% on his money, with very low odds of a serious capital gain, given the price he's paying. It's so easy to make a higher return in the US, why anybody would take all the risks of investing in Costa Rica for a lousy 5% return makes no sense to me. Of course, in this case, the buyer would probably buy for its own use and might not even bother renting the property or might just be happy to rent just to recoup his costs. However, in that case, it's not an investment.

3. Land in Costa Rica, with the exception of a few strategic locations, is very illiquid. It might be very difficult to sell it at a profit, let alone sell it at all. Unless you have a strategically located piece of land, it's very risky.

4. In Costa Rica like anywhere else, it's still location, location, location. At first glance, the fact that the property is close to the airport is a good idea. Generally, when investing internationally, it's recommended to be within maximum 2 hours of an international airport. Indeed, people who have a 1-week holiday don't want to loose too much of it traveling. However, being too close to the airport isn't a good idea. Nobody goes to Costa Rica to hear the noise of planes.

5. Vacationers, snowbirds, retirees and digital nomads are your potential clients to monetize your investment. They go to Costa Rica for the beaches and/or the nature and the jungle. In Costa Rica, you can easily have all of them together so any property that isn't close to the beach and within easy access won't probably make a great investment. The only exception is the Central Valley that is popular with certain retirees but there is plenty of land available there and land isn't much valuable. Knowing where the airports are in Costa Rica, there is no way that you can be in a sought after location 8 kms from the airport. You can do a test that doesn't lie. Try to find a vacation rental anywhere 8 kms around the airport and you probably won't find any. That alone should tell you pretty much everything you need to know.

6. There might still be some investment opportunities in Costa Rica in the Costa Ballena because the access to it has recently become easier and quicker, which helps develop tourism. However, it'll never be as profitable as other countries like Mexico, the Dominican Republic or even neighbouring Panama.

Obviously, it's an other ballgame if you plan to use the property for yourself, in which case it wouldn't really be an investment. I'm not sure you'd want to stay at a place that is that close to the airport and that far from the beach though.