RE/MAX Costa Rica Real Estate Guide (January 2024 update)
Our top real estate agents and full-service offices created this Costa Rica Real Estate Guide to answer some of our most frequently asked questions. If your questions are not answered below, contact us, and we will be happy to have one of our specialists assist you.
Foreign Investment: Why are so many expats choosing Costa Rica?
Costa Rica allows foreigners to buy property like locals, unlike most Latin American countries. This applies to most property sold, but the Maritime Zone is an important exception. The zone covers the first 200 meters off the Pacific and Atlantic coasts. In the 1970s, a law granted beachfront property owners a fee-simple title. Only 10-15% of land owners utilized this, leaving 85–90% of the coast under government concession in a restricted lease. Ownership and development restrictions on concession property prioritize environmental protection but also present obstacles for foreign ownership. When purchasing beachfront condos, homes, or lots in Jacó Beach on the Central Pacific coast, for example, prioritize fully titled properties.
Safe Investment | Real Estate Due Diligence
The political and economic climate in Costa Rica is stable. A National Property Registry makes due diligence transparent and clear for all properties. Purchasing under a Costa Rican legal entity reduces personal liability, simplifies transfer upon death, and offers a straightforward structure for shared ownership.
Costa Rica’s Low Cost of Living
The cost of living and quality of life are the main factors influencing foreign buyers in the Costa Rican real estate market. The low annual holding costs of real estate are a plus with very low property taxes—.25% of the declared value ($250 per $100,000) per year. High-quality healthcare and dentistry are 50–70% cheaper than in other countries. Phone, cable, and high-speed internet are available in the most developed areas of the country. In contrast to other international destinations, the water throughout Costa Rica is drinkable. Costa Rica offers affordable living without compromising quality of life.
Life Quality: Climate and Landscape
Costa Rica has something for everyone! Within a relatively short distance, you can discover diverse climates and landscapes, including cooler mountains, beaches, dry regions, and rainforests. The coast features year-round tropical beaches with temperatures ranging from the high 70s to the mid-90s. The central valley and mountain highlands offer year-round spring weather with mid-60s to mid-80s breezes.
The “Green Coast” is the Central and Southern Pacific coast (Jaco, Esterillos, Manuel Antonio, and Dominical, Ojochal, all the way down to Pavones), which is green year-round. The “Gold Coast” is the Northern Pacific or Guanacaste peninsula (La Cruz, Playa del Coco, Hermosa, Playa Panama, Tamarindo, and Playa Negra heading towards Nosara and Sámara), which is dryer and resembles Southern California hillsides. And the Caribbean is still mostly underdeveloped, with it’s crown jewel, Puerto Viejo, just south of Limon.
The mountains and Central Valley climate change with elevation, including Orotina, Atenas, Grecia, San Ramon, Heredia, Alajuela, Escazu, Santa Ana, La Sabana, and the up-and-coming Curridabat. There are coffee farms on mountain tops, cloud forests, and San Jose, the urban jungle where most Costa Ricans live. Still, because environmental reserves cover 25% of the country’s land area, nature is accessible wherever you are in Costa Rica.
Property Market Values and Influencers
The overall economic health of Costa Rica influences property values. A stable or growing economy can lead to increased demand and higher property values. Nevertheless, both domestic and foreign demand can have an impact on the Costa Rica real estate market. The country is popular among expatriates, retirees, and investors, which can drive up prices in certain areas.
Location continues to be a key factor when it comes to the resale value of property. Properties in or near popular tourist destinations, beaches, and national parks tend to have higher values. Easy access to roads, airports, and other transportation facilities can increase property value. Additionally, the availability of essential services like electricity, water, internet, and cell service is also important. Proximity to amenities such as beaches, golf courses, shopping centers, restaurants, and hospitals can also affect property values.
In the current market, properties that offer potential for development, either for personal use or commercial purposes, can be more valuable, particularly if they are in areas zoned for tourism or commercial use.
Buying and Owning Costa Rican property
Since the Costa Rican constitution grants foreigners the same property ownership rights as nationals, foreigners and foreign entities can buy property without restrictions. One can buy “Fee Simple,” fully titled property with the same ownership rights as in North America. Any beachfront property registered before the 1977 Maritime Zone Law currently has its own title. Otherwise, it is a concession of ownership. Furthermore, if you buy a condo, you’ll be subject to the community’s bylaws, which may include pet restrictions, voting rights, monthly home owners fees, front yard or terrace restrictions, etc.
The first 50 meters from the mean high tide mark are government property, so no one can build or encumber it. The next 150 meters in 95% of Costa Rica is the Maritime Zone, which can be developed with municipal “concessions.”. This means that the property is leased land from the government, so it is not fee-simple. The concession term is usually 20 years, with an annual fee.
Proper property registration and transfer deeds are crucial when buying Costa Rican real estate. The National Registry holds public records of all Costa Rican property, including its location, measurement, boundaries, survey map, liens, and mortgages. To transfer registered property, the owner must appear before a Notary Public and grant a public conveyance deed that is presented and recorded with the National Registry. The National Registry protects registered property rights.
Buying property with corporations
Foreigners can buy titled property in their own name, but a Costa Rican corporation has advantages. The main benefit is that corporation ownership limits personal liability for property. A power of attorney can then be granted to buy or sell property. Foreigners can also obtain utilities through a Costa Rican corporation if they cannot do so themselves.
The annual tax for corporations depends on whether they are “active” or “inactive.” An active corporation has income-generating activities like vacation rentals and pays $190 in taxes. Inactive companies pay $115. Both Sociedad Anonima (S.A.) and Sociedad Responsabilidad Limitada (S.R.L.) corporations are common in Costa Rica. An attorney can help you choose the best structure for your goals and situation.
Costa Rica Real Estate Purchase Process
What should I expect when buying Costa Rican property? If you have a good real estate agent, a reputable attorney, a safe third-party escrow account, qualified home inspectors, and the like, buying in Costa Rica is simple. Nevertheless, Costa Rica has no Multiple Listing Service (MLS) or real estate licensing requirements, so it’s important to work with a qualified and experienced agent who knows the market. RE/MAX offers this extra level of accountability and training to assure that each deal is handled with care and diligence.
Once you find a property you want, the agent will draft a formal purchase agreement that you will sign and present to the seller via the seller’s agent. The seller often counters, and we negotiate until we reach an agreement. The purchase agreement will list the deposit, closing date, who pays closing costs (see Closing Costs), if there will be a home inspection, the inventory, and other legal details. The contract also requires payment of utilities, property taxes, HOA fees (if applicable), and other operational expenses until closing. The buyer and seller can negotiate the closing date, but once the attorney has completed due diligence and given the go-ahead, it can happen quickly. However, 30-day closing contracts are common. US dollars are usually used to negotiate the purchase price.
After signing a purchase agreement:
To transfer the title without issues, you must hire an attorney to perform due diligence on the property. The attorney usually has 10–15 days to complete this process, during which time any deposit is fully refundable. The attorney should give you a detailed report of their findings and recommendations, and we can recommend an excellent English-speaking real estate attorney. We would open an escrow account with a third-party company to hold all funds until closing and distribute them per the buyer and seller’s signed instructions.
Escrow Companies & Third Party Holding Accounts
The escrow company will collect all the necessary documents and provide account information for national or international wire transfers. These documents will likely include 2 years of tax returns and 3 months of bank statements to prove the source of funds due to money laundering regulations. Escrow services are used to protect the buyer and seller through the closing process.
An alternative to an escrow account is paying a deposit to the seller or attorney. Pre-due diligence deposits to sellers are never a good idea. Even at closing, deals can fall apart, and getting a deposit back can take years in court. Attorney deposits are risky because their accounts are unregulated. Few attorneys have account insurance either. Secure Title has $5 million in error and omissions insurance.
Most sellers feel more comfortable having funds held by a non-biased third party than the buyer’s attorney. There have been cases where the buyer backs out after funds are non-refundable and their attorney gives them their money back, forcing the seller to sue for the deposit. The escrow company holds or distributes funds per the purchase agreement.
Without an Escrow Company
Without escrow funds, closings can take hours because everyone must go to the bank and wire funds while signing the transfer deed or share transfer. The escrow agent can immediately release funds after signing the transfer deed. If due diligence goes well, we can deposit the remaining purchase funds with the escrow company to close. The Purchaser and Seller must sign a final closing statement detailing wire distributions. The Purchaser and Seller or their representative with special power of attorney, will sign the transfer deed and execute the wire transfers immediately. After both parties sign the transfer deed, the property is legally transferred. The National Registry will update the new ownership within 7–10 days after the attorney files the deed.
CLOSING COSTS
Closing costs are usually split 50/50 between the buyer and seller or paid for by the buyer, but any variation is possible. Two scenarios exist for buying or selling property.
Share Transfer Agreement:
The corporation that owns the property buys it from the seller. The corporation owns the property and will add the buyer to the board of directors at closing. New shares of stock will reflect the buyer’s property interest. You avoid significant Costa Rican National Registry fees by not changing the owner. Typical Share Transfer Agreement Closing Costs:
Legal Fees:
1.25% + VAT Transfer Tax: 1.5% + Escrow $550 + VAT for transactions under $500,000 + $200 to record
Example of $200,000 Purchase/Sale:
Total: $6,646.50 (Legal Fees $2,500 + $325 VAT, Transfer Tax $3,000, Escrow Service $550 + $71.50 VAT, Recording Costs $200)
Both Buyer and Seller would pay $3,323.25 if fees were split 50/50.
The share transfer agreement was popular in the past because it avoided transfer tax by transferring the corporation. However, recent law changes require a transfer tax when selling a property. Due to the risk of inheriting unforeseen liabilities from the corporation that owns the property, attorneys now recommend property transfers over share transfers.
Property Transfer:
The Costa Rican National Registry registers the new owner after the property is sold. A property transfer occurs when a corporation sells a property to another corporation or the buyer. An attorney will draft a transfer deed and register the new owner in the Costa Rican National Registry.
A typical property transfer closing costs:
Legal Fees: 1.25% + VAT Transfer Tax: 1.5% + Escrow $550 + VAT for transactions under $500,000 + Recording costs approximately 0.85%, depending on transfer value and property type.
Example of $200,000 Purchase/Sale
Total: $8,146.50 (Legal Fees $2,500 + $325 VAT, Transfer Tax $3,000, Escrow Service $550 + $71.50 VAT, Recording Costs $1,700)
Both Buyer and Seller would pay $4,073.50 if fees are split 50/50.
Other Notes and Fees:
The share transfer agreement costs more than the property transfer because a new owner must be recorded.
For reasons explained in the next section, owning property in a corporation is recommended. Creating a new corporation costs $650.
Buyers often pay the full Escrow Service.
If you buy the property with a Costa Rican corporation, you can easily grant a special power of attorney to anyone you want if you can’t attend the closing. Normal power of attorney costs $200.
Everyone buying property in Costa Rica should consider holding costs. Taxes, management, utilities, repairs, etc. are holding costs. Here’s some starting information.
Costa Rican taxes
Property Tax:
Low property taxes in Costa Rica make property ownership attractive. Paying here.25% of the registered value per year, or $250 for a $100,000 property. Property taxes are due quarterly, but you can pay until the end of the year and save 5%. Most urban districts charge for garbage collection and maintenance, and in Garabito County, the fee is $10.50 per month and included in the property tax statement. Pay taxes at the municipality or by wire transfer.
Luxury Tax:
Homes and condos over $230,000 incur a 2.5% to 5.5% luxury tax. The finest 3-bedroom+ homes in our area usually have a luxury tax of only.25%. The total property taxes on a luxury home would be normal.25% property tax + 0.25% luxury tax = 5%.
Inapplicable capital gains.
Since July 1, 2019, capital gains have been taxed. A primary residence is exempt from capital gains tax, but investment properties are taxed at 15% on value gains from purchase to sale. Properties bought before July 1, 2019 can pay 2.25% of the sales price instead of 15% on value gains.
All Costa Rican goods and services are subject to a 13% value-added tax, including hotel rentals. Most property managers charge renters and pay the government for owners.
Income Tax:
Only Costa Rican residents and corporations pay taxes on income earned there. Vacation rental property owners must file annual tax returns and pay taxes on their net income. Depreciation, travel expenses for 1% of gross income, insurance premiums, and income-producing costs can be deducted.
The tax year ends on September 30 and is due by December 15.
Your retirement income in Costa Rica is likely taxed, regardless of your origin. This shields you from Costa Rican income tax. Yes, Costa Rican retirees pay no taxes on foreign retirement income. Income tax is only due to profitable businesses.
Rental Management | Income | ROI
Many buyers do not live full-time in Costa Rica and need a property manager, of which there are many options. These managers perform preventative maintenance, respond to issues, and generally offer accounting services, paying owners’ utilities, property taxes, HOA fees, etc. Some managers charge $100 per month for these services, while others do them for free if the owner exclusively rents with them. Managers cannot limit how often owners can stay at their properties.
Most top-producing managers in our area charge 35% commission on short-term rentals and 20% on monthly rentals. Management usually promotes their properties on popular websites, personal websites, social media, and local and international advertising. Luckily, websites like www.airbnb.com, www.vrbo.com, www.booking.com, and others have increased demand for homes and condos in our area.
Some owners can generate their own rentals, so most managers charge a “key fee” or “check-in fee” instead of a percentage of the rent. For $30 to $125 per reservation, depending on the length of stay and property quality, the manager will check guests in and out and usually offer concierge services like transportation, tours, and other services.
When guests leave, the manager will clean and check inventory for damage, theft, or staining. Suppose an owner books a $1,000 one-week reservation on their own and sends the guest to the manager, who takes care of them. Let’s say the manager charges $75 for a “check-in fee” and the owner keeps the rest. The manager would arrange cleaning and bill the owner.
Depending on where you want to buy, we can recommend management companies that perform well at certain developments and communities.
Buyer or seller of property in Costa Rica?
Whether you’re buying your dream home or selling a cherished property, it’s a venture filled with potential and promise. Choosing a RE/MAX agent for this pivotal journey isn’t just a decision—it’s a partnership with seasoned professionals who bring a world of experience, local expertise, and unwavering dedication to your doorstep.
RE/MAX agents in Costa Rica stand out for their deep understanding of the unique and diverse Costa Rican property market, offering insights that go beyond the surface. They don’t just facilitate transactions; they create experiences tailored to your individual needs, ensuring that every step is taken with confidence and clarity. You can access a wealth of knowledge as well as a variety of resources that will make your real estate experience successful and seamless, thanks to their commitment to excellence and the strong global network of RE/MAX.
From the lush rainforests to the serene beaches, let a RE/MAX agent in Costa Rica be your guide, your advocate, and your partner in turning your real estate dreams into reality. Contacting a RE/MAX agent is not just a step towards achieving your property goals; it’s the beginning of a journey filled with possibilities, guidance, and unparalleled support.
