Do As I Say, Not As I Did
Against all the conventional wisdom repeated ad nauseum to potential expat real estate buyers, we bought our property on our first trip to Costa Rica. It’s a lengthy story as to how that happened, but not for telling today.
Knowing what we know now after having lived here for five years, I strongly advise others not to do what we did. In our case, it worked out incredibly well, better than anyone had a right to expect. In hindsight, we realize we luckily avoided many potential pitfalls that others found themselves in.
Compared to what Norteamericanos are used to regarding buying residential real estate back home, the “system” in Costa Rica feels like the Wild, Wild West.You are much more on your own with regard to researching property, calculating a fair price and ensuring the property has clear title. It is not completely laissez-faire, however. Patience and due diligence will go a long way to making a good deal.
Though our experience with real estate outside of the U.S. applies to Costa Rica, many principles apply to other Latin American countries though surely they have unique quirks all their own.
The phrase “whatever the market will bear” could not be truer than in Costa Rica. There is no truly universal MLS system here, so comparable sales are difficult to find. Unless you are buying into a fixed price development, you may be astonished at the variance in asking prices here. In part, that is due to a large variance in property characteristics.
The bigger factor, however, is the imagination of the Tico owner. Every Tico has heard some story of so-and-so who got some outrageous price for some old farm. Even if their own property is junk, they will set their asking price high hoping to get lucky. It is not unusual for asking prices to be three, four or more times what the property is actually worth. For this reason, savvy gringo real estate agents use Tico “hunters” to locate realistically priced properties without the gringo “surcharge.”
The bottom line is that if you rent first and buy later, you have a much better chance of stumbling upon a real buy from Ticos who have a cash crunch or have inherited land (very common here) that they’d like to turn into a new car. Luckily, we had a very motivated seller of our farm, which made dickering down the price relatively easy.
Do Not Rely on Promises of the Owner or Agent
The byword when evaluating property is “Trust and Verify.” You may feel a personal affinity with your real estate agent, if you are using one, but they are motivated to paint a rosy picture of any property. They may speculate about things to which they do not have the answer with a positive, unrealistic spin.
For example, if your prospect property does not actually have an electric meter (functioning!), but there is a line within sight of the property border, do not assume you can easily gain access to it or that accessing it will be cheap. You will likely deal with a utility company with little sympathy for your urgency, or you will pay a private contractor to get the job done more quickly. The same goes for landline telephone service and especially so for Internet access.
If property is in a town, water access will probably not be a problem, but again, verify that yourself. In rural areas, very often water comes from a spring or an open source. In the latter case, get the water tested and plan on a filtering or decontamination unit in your budget. If the property has spring water, you must verify the flow at the height of the dry season to be sure it is adequate. It is common practice for families to buy permanent shares in water sources, but do not assume they will share even if you have a nodding agreement from them.
Prepared flat building sites are called plantels here. If your property has one or more plantels and the owner has assured you they were scraped out, i.e. there is no fill, do not take his word for it. Any plantel should sit undisturbed for at least three years before building on it. Most municipalities will ask for a soil compression test to assure the site can support a house, but if your area does not, do it anyway. Pay a few hundred bucks to have the borders surveyed as Costa Rican plat maps are infamously inaccurate. With the help of an environmental engineer, make sure your site is not threatened by potential slides, which are common throughout Costa Rica.
Verification goes triple for roads. If the roads to your prospect are bad, then expect them to remain so for years despite promises to the contrary. Or, expect to pay for their refurbishment out of your pocket. Any rock road that looks to be in good shape, will quite possibly be impassable in two years or less due to the heavy rains.
One of the main reasons you would want to settle in Costa Rica is the generally superb weather. It is such a small country – the size of West Virginia – that many people assume the climate is more or less uniform. However, there are literally dozens of micro-climates here with different characteristics. Some factors affecting the local weather include elevation, proximity to the coast and whether or not you are in the path of the Trade Winds.
Thus, while our area is breezy but not windy, other areas have strong wind several months of the year. Areas within ten kilometers of us have strong winds every afternoon. Rainfall amounts differ from 40 inches to over 200 inches in various parts of the country. The dry and wet seasons differ for each coast.
Unfortunately, even if you were to rent in one area for a whole year, it might not give you the whole story weather-wise as there is variance between years. Querying the neighbors and visiting an area for an extended time or several times throughout a year is your best bet.
There are agents from well-known agencies here, but that is not the norm. Real estate agents are all supposed to be registered but I would not rely on that. In the end, you are going to have to hire a lawyer to complete the transaction and you should also get a good accountant so that you do not run afoul of some taxation event down the road. See my other column about how to choose professionals you can trust. Depending on the terms and price of your real estate buy, it is also a good idea to have a good accountant in your home country as well especially with the new reporting laws that the U.S. is imposing on other countries regarding foreign assets.
To protect your property, most expats put their real estate holdings into a corporation. The corporation’s purpose is just to hold the assets and protect them from any personal liability situation you might be unfortunate enough to find yourself in. Your lawyer may offer you a “shelf corporation” although those are becoming more rare now since all corporations are subject to an annual tax now. If you have planned ahead, it is better to create a new corporation, which will cost you less anyway.
Because everyone wants a piece of the pie in any real estate transaction, it is not unusual to pay 15 percent of the sales prices in taxes, lawyers and agent fees. Be prepared for that. In our case, I structured the deal as a set price, which included any fees incurred by making the seller pay those. Some sellers might balk at that, but if they are motivated, they will go along.
Do the Legwork and You Can Make a Terrific Deal
With a little luck, patience and research some great deals on land or houses can still be found in Costa Rica. Many people neglect the mountainous regions for the coasts where prices are much higher, but we prefer the scenery and cooler climate at higher elevations. Every spot has its drawbacks but each location’s unique charms usually make up for those easily. Good luck in your hunt!
by Casey Bahr
Casey writes part-time on a variety of topics, including his family’s move and their ongoing adventures in Costa Rica, chronicled in his blog, A Dull Roar. In addition, he authors two other blogs and contributes articles to Hubpages about do-it-yourself projects, science and technology topics, amateur radio, life and humor.
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