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Updated 6 months ago, 06/08/2024

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Sarah Larbi
  • Rental Property Investor
  • Oakville/ Brantford, Ontario
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Costa Rica

Sarah Larbi
  • Rental Property Investor
  • Oakville/ Brantford, Ontario
Posted
Does anyone have any experience investing in Costa Rica? I would like to buy a future retirement home to get away from the cold winters but in the meantime would love to rent it out as a vacation rental. What are the good areas to consider and where would I get the most vacation renters and cash flow?

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Crystal Townley
  • Lender
  • United States
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Crystal Townley
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  • United States
Replied

Hi all! I am a realtor in Playa Hermosa/Coco area. Yields depend on the type of property as previously mentioned. There is a condominium complex that is fantastic for short term vacation rentals. These condos yield 5-8 percent conservatively. Contact me directly and we can discuss further!

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William Robison
  • Real Estate Consultant
  • Kansas City, MO
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William Robison
  • Real Estate Consultant
  • Kansas City, MO
Replied
Originally posted by @Mike Lambert:

@Jon Latorre

$100k+ sounds nice but it's not the same return whether the property costs $2 million or $5 million.

My question was what is the typical rental yield range? That’s what really matters here.

Hello Mike.  I am researching a project and doing an extensive property visit next month on a project that yields well over six figure in revenue.  I couldnt agree more though, cost is critical.  This project is $2.5M, with gross revenues well over 10%.  Significant benefits are the marketing and management.  Marketing is through a dedicated tourism team, hence the higher than typical gross.  Management is an experienced USA team.  In Costa Rica, property condition is a constant variable, far more critical to maintain than the USA.  Dependable routine maintenance is a part of this property with a full time team on site at the villa.  This project will likely be acquired as a SPAC, but those details will be determined by the group of investors, if more than one.

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Ewa Reza
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  • Real Estate Agent
  • Los Angeles, CA
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Ewa Reza
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  • Real Estate Agent
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Replied

@Jon Latorre I'm traveling to CR next week. What areas do you recommend for airbnb in particular? 2 or 3 bedroom properties would be more profitable considering their cost? If your company were to manage the STR in CR how do you deal with matter of safety / home burglaries?

  • Ewa Reza
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    Shiloh Lundahl
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    Replied

    @Ewa Reza Are you asking where to stay when you go to Costa Rica, or are you asking if you were to buy your own AirBNB in Costa Rica, where would you buy it and should it be a 2 bed room or 3 bedroom?

  • Shiloh Lundahl
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    Hello BP community! First time poster here. I'm looking at purchasing a condo, in Playa Coco at https://www.pacifico-costarica.... After calculating the numbers, it is no where close to the "1% rule" using the numbers of the property management company suggested by the real estate agent. I really like CR and can see myself retiring here someday. I'm willing to purchase something that isn't a cash cow, but would like to at least break even.

    Anyone have any experience with owning a rental property at Pacifico? How much is reasonable for management, accounting, and rental commission fees? Any advice is appreciated!

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    Mike Lambert
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    @Omar Pieters

    A few things here.

    The 1% rule is thankfully not a rule otherwise most real estate investments in the US and many other parts of the world wouldn't work. Also, you don't need to clear the 1% rule to break-even. Even in the US when you have a mortgage, you should have a profitable investment if it satisfies the 1% rule.

    The 1% rule is generally applied to long-term rentals. It's disappointing that you can't make it work with short-term rentals, as that should be much easier. This doesn't surprise me though, as properties in Costa Rica are way less profitable than people think they are. This is because they're much more expensive than other countries in the region and, unlike in some other countries in the region Costa Rica doesn't have the mass tourism needed to get you the rental income that would justify those prices.

    This being said, it shouldn't be hard for you to break even though since all you'd need to do for that is cover your costs. If you pay cash, you don't have to cover the cost of a mortgage. If you take a HELOC at home, I'd imagine you'd be able to cover that cost as well. In any case, you can easily calculate that.

    Looking at your objective of retiring in Costa Rica, you have two options:

    1. You buy today so that you pay less than if you were buying when you retire and hopefully you make some money along the way. I'm not sure how much capital growth is left in the tank given the already high prices though.

    2. You invest in something else, for example in a more profitable place, and the you use the proceeds of the investment to buy a property in Costa Rica when you retire. You might be able to afford a "better" property then.

    If you invest somewhere else in a vacation rental for example, you might also discover another place that you might like for retirement as well that might be more profitable. You never know!

  • Mike Lambert
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    @Mike Lambert

    Thank you very much for your insight. I've decided against purchasing the property at this time. Hopefully, Costa Rica will become a little more profitable in the future.

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    Hi! Investment in hotels in Costa Rica is not as expensive as here and is very lucrative. Jaco Beach is still underdeveloped.

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    @Aleksandra Droval

    What do you mean by very lucrative? And underdeveloped? The government of Costa Rica has a policy to limit development and doesn't invest much in infrastructure to bring tourism. As a result, investment is much less than in other countries in the regions and, as a result, the government has very little money to invest in infrastructure and tourism so it's a bit of a vicious circle. As a result, the country's tourism potential is totally underexploited. Obviously it's good from a nature preservation point of view but it's a very different from an investment point of view. Also, don't people tend to prefer Airbnb over hotels?

  • Mike Lambert
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    Derek Brickley
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    To my knowledge, the problem with investing in Costa Rica is that there is no financing available. The only way to purchase property (for a STR) is through cash. Does anyone else know of financing options there?

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    Derek Brickley
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    Also great areas of CR are Guanacaste Region, Playa Flamingo and Playa Grande are amazing.  Then Nosara was a lovely trip as well.

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    Mike Lambert
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    @Derek Brickley

    You're correct when it comes to financing. There is some financing available but it's rarely used, as it's extremely difficult to make a deal profitable given the lending conditions. Because so much real estate in the US or Canada wouldn't be profitable without ultra low interest rate (as many investors are discovering lately), we are obsessed with getting cheap financing. And we fail to realize that there are others countries in the region where investing in cash is more profitable than investing in the US or Canada with a mortgage. This is why many buyers choose to pay cash even if they don't have to as they want their cash to be invested indeed, especially given the current inflation. Costa Rica isn't one of those countries unfortunately.

    I agree with you Costa Rica is an amazingly beautiful country, although it's a question of taste. Many people get bored after a week or two and won't want to stay longer as there are hardly any cities and not much happening and there's so much jungle you can look at in a day (it's a great place for quiet retirees). As experienced investors keep repeating over and over on BiggerPockets, don't fall in love with an investment property, as it's all about figures. The same goes for countries, regions and cities.

  • Mike Lambert
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    Shiloh Lundahl
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    Shiloh Lundahl
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    @Derek Brickley, I am going to disagree with some of the things that @Mike Lambert mentioned about Costa Rica.  I often see him comment on threads where Costa Rica is mentioned saying that Costa Rica isn't a good investment compared to the investments that he does for himself and others in countries like Mexico.  

    When comparing investments it is difficult to be able to compare apples to apples.  That's because there are multiple variables when it comes to investing.  Mike states not to fall in love with an investment property.  And the truth is, if the investment property was completely passive and you had zero connection with it, such as an arbitrary stock in a mutual fund, then I would agree not to get emotionally attached to any one investment.  But when it comes to choosing or creating investments that will produce a return along with personal fulfillment or enjoyment, then I say it definitely matters what you invest in and where you invest.  

    My property (soon to be properties) in Costa Rica are calculated to provide a modest cash on cash return but will provide a very high lifestyle return. I say calculated because we are still within our first year of operations so I wouldn't be able to tell you what the actual average stabilized returns are until I have enough data. But I can tell you that on average over the past 3 months we have brought in around 8k and this month over 10k in airbnb bookings. We are projected to make about a 8% cash on cash return on our investment. That amount is extremely low compared to my other investments which usually make more than a 100% IRR over a 3 year period of time. Some would ask why I just don't do more of the deals that create a 100% return and just use that income to go on a vacation to Costa Rica instead of putting over 100k into a property that only returns 8k a year. To those people this is what I would say:

    The reason's I invest in awesome properties that may not produce high cash on cash returns such as my cabins and my properties in Costa Rica is because I have enough cash producing properties that to place another 100k into more cash producing properties wouldn't really add much more to my life.  However, by placing money in a property that I would like to have in order to increase my quality of life, that can also produce some cash flow instead of being a liability that requires money every month, I can increase my quality of life without increasing my monthly liabilities.  And so it is with my properties in Costa Rica.

    Also, there is much more to do in Costa Rica other than just look at the Jungle. The people are super friendly and enjoyable. The beaches, rivers, lakes, and waterfalls are beautiful and enjoyable to go to.  The port of Puntarenas is lively. There are 7 different volcanos to visit and explore. There is a river of hot water by the hotel Tabacon in San Carlos that is an absolutely unique experience.  You can watch the sea turtles lay their eggs on the beach or watch the  turtles hatch and make their way to the ocean.  There are so many different wildlife creatures to see, that if you are an animal lover, you could spend months seeing new animals every day.  This is a picture was taken 2 days ago by my contractor in front of my property.

    So long story short Derek, there are more than just financial returns as to why people invest.  So don't let someone discourage you because their investing criteria is different than yours.

    As far as financing goes, there are options for financing if you have a plan for the property.  We are going to be getting financing for a property that we are buying on the beach.  The rates aren't great, but it will lower our immediate out of pocket expenses over the next 5 years so I am happy with it.  We are getting a loan for between 400k and 500k for 5 years on a property that we are buying for 955k.  We are bringing investor into the deal with us and we will only be out of pocket between 20k and 60k each my partner and I.  We will be paying 12% on the 400k - 500k and each year will will pay the loan down by 100k.  So to answer your question, there is financing available for certain properties that have good business plans.

  • Shiloh Lundahl
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  • Podcast Guest on Show #287
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    Mike Lambert
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    @Shiloh Lundahl

    Hopefully you won't think I lost my mind but I agree with you disagreeing with me on the things you mentioned and I agree with most of what you wrote. Most people who buy in Costa Rica do it for lifestyle and they might rent (or not) to cover the cost and maybe make a little profit.

    Unless mentioned otherwise, when responding on that topic I know or I have assumed that people are potentially interested in an investment property, not a lifestyle property because this is an "investment" website and people talk about STR. When it comes to a lifestyle property, it's another ball game and all the comments you wrote make total sense, especially for people who like similar things in life.

  • Mike Lambert
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    Derek Brickley
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    @Shiloh Lundahl that’s great info for sure! Is this home in the beach a new construction or an existing home?  Also, where did you find financing available?  

    I totally agree, I have never been bored in Costa Rica (my profile pic is my girlfriend and I surfing in Nosara) and I really like your perspective!

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    @Mike LambertAs the hospitality industry is revitalizing from COVID, hotels are back to the increased occupancy rates. Jaco Beach, known for surfing and close proximity to the San Jose airport started new construction projects, that will require an increase in the variety of activities for the tourists. Costa Rica relays on Tourism and, you are absolutely right about the dilutions of hospitality in the world by Airbnb, however, the static still shows the preference of hotels by consumers when it comes to resorts due to all-inclusive options, comfort, and personalized care. Hotels don't sell just an overnight stay - they sell experiences. The Government actually started approving high-rise constructions on the shoreline of Jaco Beach, and other zoning licenses. 

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    @Aleksandra Droval

    I'm not sure what statistics you're looking at but everything I've read and heard shows exactly te opposite, that hotels are losing to Airbnb precisely because of the experience. Which would make most BiggerPockets readers happy as there are probably many more who own STRs than hotels. Are you suggesting that being crammed in a small hotel room represents a better experience than being in a comfortable homey Airbnb?

    Aside from that, the people I know who love to go to Costa Rica are going precisely because there is nature and no high rises. If they start allowing high rises by the beach outside of the all-inclusive hotels like they do right now, that could be a big mistake. If people want to be in a high rise hotel, they can just go to a place like Cancun. It's much cheaper and closer and they don't lose two entire days of their holiday week traveling.

    Obviously, this doesn't mean you can't make money if you have the right hotel at the right place to take advantage of the travel resurgence. Looking at the long-term picture I just alluded to though, that wouldn't be my preferred investment vehicle. But it could be yours.

  • Mike Lambert
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    Rob Pattison
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    Rob Pattison
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    Hello everyone.   I have a question.   I own a house just south of Jaco, in a town called Esterillos Oeste.   I actually own a 20 year lease as I'm within 100 yards of the ocean.  I've owned this house for 2 years.

    The Costa Rica attorney I've been using says that I need to get another Power of Attorney and is quoting me $600 to do the paperwork for a power of attorney.

    The price seems steep and I'm not certain when I need a new power of attorney when I paid for one last year.   When I became power of attorney for my Dad here in the US, the whole transaction costs me $50 and I used a notary.   I understand Costa Rica may have different requirements, but $600 sounds steep and having to do it every year seems excessive.

    Thank you to anyone who can give me some advice.


  • Rob Pattison
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    Josh Paterson
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    Josh Paterson
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    Quote from @Jon Latorre:
    Sarah Larbi Costa Rica is a great place to own a STR! In fact my company Vacasa manages a multitude of properties in the country and we are always looking to expand in this high demand market. If you are interested I could get you detailed information on where STR's perform best within the country. I can also give projections on how much any particular property might bring in with regards to gross revenue. Shoot me a message if you please! Would love to chat. Best,
    Hey John, I know this is an old thread. You still part of Vacasa? I'd love to see the information you have.  I have a trip planned early August to Uvita but I plan to look at a few different locations.

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    Edgar U.
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    Edgar U.
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    Hey everyone, I alongside my partners are actually creating a platform for folks looking to buy/sell land in Costa Rica (actually all of Latin America + Caribbean for that matter). Trying to make it where there is a lot of data, easy to use, and have a lot of articles written by local experts. If anyone in the forum is interested, send me  DM, I'd post it here just not sure if BP will allow it.

    I visited and like everyone felt in love with the country. It isn't one of the cheapest in all of Central America; however, it has so much untapped potential that is hard not to look the other way.

    In setting up the platform I have connected with someone local in the area and that will be my 1st point of contact and I could share his info for you to reach out.