Is Investing in Costa Rica Vacation property a good idea?

the pros and cons in beach property investments

Is investing in vacation property in Costa Rica recommended?

All the info: pros, cons, returns, taxation, expenditures, rent cycles and our top 5 tips for buying safe!

As in all questions regarding real estate investments there is no simple right or wrong answer. The simple answer is that it is probably not the best kind of investment for highly leveraged and cash poor buyers, but can possibly be a very good long and medium time range investment for a more experienced and economically stable buyer awarding rental income, long term price appreciation and a lovely tropical family getaway or retirement home to sweeten the deal.

As stated throughout the site, Costa Rica is a very credit poor environment favoring cash deals. Being so, cash buyers with patience have access to fantastic investment opportunities rewarding high possible yields and value appreciation through investment and remodeling.

Click here for more info on investment opportunities in the Bahaia Ballena and Osa area.

Most beach or vacation rentals in Costa Rica in general, and in the Dominical, Osa and Costa Ballena region, where we operate and specialize, also have the advantage at being in areas that are only now beginning to tap into their potential.

This point leading to the most important part of the answer:

Many of Costa Rica’s lovely tropical hideaway vacation rentals are situated off the beaten path, and as such, marketing and guest service is a vial consideration to be taken in consideration upon investment – and henceforth why it is vial to understand that to make a profit a vacation rental must be managed as a business, either by you, or by a second party.

We of course highly suggest securing for that end the services of a professional property management that also specialize in VACATION RENTAL MANAGEMENT.

Average Returns on Vacation Rentals in Costa Rica

Returns on investment, when discussing well maintained and marketed rental properties in general, on a nationwide level, gross average between 18% to 25%.

On a net income level, most vacation rental properties will net profit between 8% to 12% yearly on investment, after deducting all expenses including taxes, management, maintenance, utilities, repairs, wear and tear, and advertising and marketing fees for vacation rental platforms such as airbnb, hotels.com, Expedia and so forth.

Common Vacation Rental expenditures

As in all businesses vacation rentals come with many common expenditures that are important to take into consideration when investing.

General Upkeep and Maintenance:

Primarily, general up keeping and property maintenance, which is more so in tropical zones such as Bahia Ballena and the South Costa Rica Pacific Beach Zone.

Gardening and Landscaping:

Gardening will be another one of your recurring monthly and sometimes bi monthly expenditures, especially when dealing with ownership of a property situated in a tropical Jungle.

Gardening work will consist not only of planting but also trimming, maintaining lawns, cleaning of leafs and other garden waste, and also Arborist jobs such as tree trimming and removal of dangerous branches and trees in the property area, and also landscaping, hardscaping, water drainage and more.

Pool maintenance:

Pool maintenance will usually be another monthly expenditure, especially for vacation rentals that are a bit removed from the beach and therefore will compensate for lack of beach access by installing luxury pools.

Although luxury pools are quite expensive to install and also come with monthly maintenance fee, including higher electricity bills, many vacation property owners decide to install pools nonetheless because it sometimes makes the difference between a viable vacation property with income to a nice house that does not get rented outside of high season peaks.

Cleaning:

The property will need to be cleaned regularly and between all visitor changes, therefore requiring constant maid service.

Utilities:

Regular payments for Cable TV, internet access, and monthly bills for water, electric and waste removal.

Guest Amenities:

Everything from toilet paper, shampoo and soaps, clean fresh (new) towels and bed linen, coffee, coffee filters, oil, spices and other pantry items, and more.

Insurance:

Annual home insurance costs that are relatively reasonable in Costa Rica.

Wear and Tear:

All things, including electrical appliances in the tropics have a relatively short life span. Buying extended insurance on all major appliances is well worth being considered.

Property tax:

Annual taxation on a property in Costa Rica includes the not high payment of property tax which is calculated at only 0.025% of property value. Or in other words only one quarter of a percent of the declared property value to be paid annually to the local municipality. Read more on taxation.

Rental Tax:

Over the last year and coming in to 2019, taxation on vacation rental property in Costa Rica is changing. These changes come from local municipality pressure and government understanding that small Bread & Breakfast or Airbnb type rentals have been constantly gnawing away at Hotel profitability and sustainability. As they have in many parts of the world – look for example of new airbnb ban bills around the world.

Sales Tax:

As of 2018 local municipalities in Costa Rica have been approaching property owners that have advertised the rental units as short-term rentals on the internet, demanding that these previously unregulated rental units undergo all the processes required of hotels, including business licensing and registering the properties with Costa Rican Income Tax (La Hacienda).

Moreover, as of 2019 government decision states that rental properties focused on short-term rentals for less than one month units also have to pay a mandatory sales tax of 13%. The same amount as charged by hotels in Costa Rica.

Occupancy levels for vacation rental units in Costa Rica’s Southern Pacific Zone

Although Costa Rica’s southern pacific receives less tourism than its central and north pacific regions, the competition is also much smaller.

Moreover, the south pacific Osa region and Costa Bahia Ballena, have been slowly gaining fame thanks to their relative proximity to San Jose and also to their greener year round environment.

Furthermore the growing expat community and also music festivals like Envision (held annually in February) have helped peak interest and drive traffic to the region.

Currently rental trends in the region depend on month and season

High Season:

High season usually starts in December lasting into March, with Christmas week and New Year week being the most expensive weeks of the year.

During high season months occupancy levels will usually be high ranging between the 60 % to 85% occupancy level.

Spring Season – Easter

The beginning of spring in April (Easter vacation or as it’s called in Costa Rica Semana Santa) is another highpoint for vacation rentals.

Occupancy levels tend to be high usually up to 100% (also do to high levels of local tourism in the country).

After Semana Santa rental levels will usually go down to 25% to 45% occupancy levels until the beginning of summer vacation in North America, when occupancy levels will heighten again to a 40% – 65% occupancy rate.

Green Season (Rainy Season)

September signifies the end of the season with heightened seasonal rains (the rainy season is sometimes also referred to in Costa Rica as the green season). These daily tropical rains usually occur in the evenings and are a pleasant and refreshing way to end the day.

But they also usually bring rentals to a stop. Many property owners utilize the rainy season for private use and also for repairs and upgrades.

The Return of the North American Winter Birds

November will slowly show rise again in occupancy levels round 25% to 50% signifying the beginning of High season and a new rent cycle.

Our top tips for buying vacation rental property

Investment info and numbers on Vacation Property investing in Costa Rica

Many vacationers to Costa Rica find themselves falling in love with this country. Not only are the locals, the Ticos, warm and gracious hosts, Costa Rican nature is powerful and overwhelming and very easy to fall in love with.

Coupled with low property prices, and multiple opportunities many make rash investments without knowing what to expect on expenditures or income. If you too are thinking of investing in Vacation Rentals in Costa Rica here are some numbers and tips for making a sound investment.

Top 5 tips for buying profitable vacation property in Costa Rica.

Tip number one

The most important tip in all real estate deals is to never buy a property sight unseen. In Costa Rica even more were small minute differences in even distances of only a few hundred yards make a serious difference between a good, a mediocre, and the bad deal.

Moreover, topography is a big issue in Costa Rica which is known for its many mountains and valleys, or in other words, even very big lots may contain large of uneven broken land that is not good for building purposes – you need to walk the grounds – looking at it from the road when it’s all covered with jungle growth will not let you appreciate the land qualities.

Therefore, we highly recommend seeing every property personally, looking at its location, its surroundings, and other commercial or natural anchors that will attract future tourism.

When buying a built house due diligence is also important, including structure status, future repairs and legal issues that may be affecting the property.

Tip number two

As in all real estate deals, the proverb states: “location, location, location….”, this being the case even more so when dealing with vacation properties.

Prime location is a must: Preferably with prime views (prime ocean views is always a plus), and with enough nearby attractions to keep your guests satisfied. Preferably also, private and enveloped in nature

Importance of natural or commercial anchors in close proximity is a must and vital for success. We therefore recommend searching for prime locations close to beach, surf spots, nature reserves, rivers, waterfalls, hip areas and local hotspot favorites, and so forth.

Also, when dealing with a vacation rental the facility must be prime to. Things that your property should ideally include:

– View – Ocean View preferable

– Pool or beach or river access

– Multiple bedrooms and flexible sleeping arrangements to maximize compatibility

Guest amenities including TV (With English Viewing), Internet, books and local guide information, well equipped kitchen, AC, Fresh quality linen and towels, beach kit, outside seating areas and hammocks, and more.

– Secure parking

Tip number three – Access is key

Access in Costa Rica is a complicated and ever-changing thing. Dirt roads which may seem perfect during the dry season may become inaccessible unless by four-wheel drive in the height of the green season.

Also distance is a relative matter in Costa Rica. Things that may appear close on a map and only a short drive away can result in a long hard passage drive.

Also, access to utilities that you may take for granted in the modern world are not always easily accessible in Rural Costa Rica.

For example, internet service and moreover fast internet service are not always available especially in rural areas.

The same goes for other utilities such as telephone, cable tv, water service and even electric if not yet installed.

So when buying property intended for future development for vacation housing it is important to check and make sure that all access needs can be met in the future otherwise your investment may be in jeopardy. At least as a money-making venture in the near future.

Tip number four: Security

Although security in Costa Rica southern pacific zone is not usually a serious matter, unmaintained and unattended properties call for problems anywhere in the world.

This even more so when dealing with properties that are located in tourism rich zones. Tourist areas have a way of attracting petty theft, and if left improperly maintained may become a problem that affects your guests. Maintaining a well secured property and above all investing in secure areas is vital.

Tip number 5 : ROI

The last tip could actually have been the first and it deals with the bottom line. In order for your property be successful and a profitable investment, the numbers have to work.

Can you rent the property at a competitive price and still make money? That should be the first and last question you should ask yourself before committing to any deal.

Unless of course, you want to buy property for your own personal use and enjoyment and for long-term price appreciation over the years (or also through buying and holding future development land.