With its 800 miles of coastline and national parks, Costa Rica is a popular destination for tourists and retirees. Purchasing a property in Costa Rica can be a great investment if you plan on turning it into a vacation rental or simply want a quiet spot where you can retire.
Just like with any other real estate transaction, there are some risks to consider. However, there are risks that are unique to Costa Rica and that you might not be familiar with.
It’s important to consider the risks of buying property in Costa Rica to make the right financial decision.
Risks of Buying Property in Costa Rica
1. Avoid Purchasing a Property Alone
Purchasing a property alone can be tempting since you can save on the cost of hiring a real estate attorney. However, you can avoid many of the risks of buying property in Costa Rica by working with an experienced and knowledgeable professional.
There are some differences between real estate transactions in Costa Rica and in other countries. For instance, the buyer and the seller often split the closing costs, and the notary plays a more important role in finalizing the transaction. Besides, you might not be familiar with local regulations and might not be fluent in Spanish.
It’s best to hire a real estate attorney who has worked with expats before and who can walk you through this entire process.
2. Don’t Forget to Check for Liens
Are there any liens on the property you want to purchase? There might be a lien due to unpaid property taxes, or a lien from a bank if the seller didn’t pay off their mortgage.
Before you finalize the sale, you need to make sure the title is clear. You will need to visit the Property Registry in San Jose and conduct a title search. You’ll be able to verify who owns the property, find out about any existing liens, and find information about recent tax appraisals.
3. Don’t Overpay for the Property
The real estate market in Costa Rica is very active and there are a lot of foreign investors who keep driving prices up. It’s important to keep up with the latest trends on the market so you don’t overpay for the property you want.
For instance, house prices increased by 3.7% in 2019 in San Jose. You can expect a good return on your investment if you’re after a rental property since most landlords have an ROI of around 8% in the San Jose area.
However, there are areas like Guanacaste where house prices have been decreasing. You should also know that prices for condos have been soaring in most areas due to the high demand.
Do some research about prices in different areas and for different types of properties so you can compare the seller’s ask price with current trends and pay a fair price.
4. Maritime Zone Law and Beachfront Properties
If purchasing a beachfront property in Costa Rica sounds like your dream retirement plan, you need to be aware of the Maritime Zone Law the country adopted in 1977.
Under this law, the first 50 meters from the high tide mark are a public beach. You can’t build on it, and you can’t restrict access to it. The next 150 meters fall under the jurisdiction of this law. You’ll need to lease this portion of your property from the local municipality and get the municipality to approve any new construction.
5. Find Out About Microclimates
You can expect temperatures between 70 and 80° in Costa Rica. However, some areas have a microclimate that can be much colder and more humid, even during the rainy season.
Microclimates are an important consideration, especially if you want to retire to Costa Rica because of the nice weather or plan on turning the property into a vacation rental.
It’s also important to find out about microclimates because you might need to invest in better insulation for the property you want to purchase.
6. Flooding Risks
Flooding is one of the risks of buying property in Costa Rica. Flooding is common during the rainy season. You can run into dangerous flash floods or experience trash floods. Trash floods are less dangerous but can still result in damage to your property.
You should know that properties located near lakes and rivers have a higher flooding risk, especially if the bed of the river is shallow. The same applies to properties built on low ground.
Before you buy a property, it’s important to inspect it for signs of flooding and resulting water damage. Look for historical data about flooding in the area to figure out what the risks are. Look for features that would protect the property from damage in the event of a flood.
You should also keep in mind that a property with a history of flooding will typically result in higher rates for your home insurance policy. Besides causing damage to properties, flooding can make access difficult by blocking roads. It’s an important consideration for vacation rentals since a blocked road could result in a loss of revenues for you.
Mudslides are another risk to consider. A mudslide or landslide happens when water pools in an area and saturates the ground. It’s a fairly common occurrence during the rainy season, and mudslides can block roads as well as damage properties.
A property that is near a hill or mountain has a higher risk of mudslides. You should inspect the area for signs of erosion and look for historical data about mudslides on the property you’re interested in.
8. Rain Damage
The rainy season lasts from late November to April in Costa Rica. Heavy rainfall can cause damage to homes. It’s one of the risks of buying property in Costa Rica that is unique to countries with a rainy season.
Here are a few things to consider:
- Is there good drainage on the property? Is there a risk of having water pool around the house?
- Is there good drainage on the neighboring properties?
- Have heavy rains or floods damaged the road that leads to the property? Is the local municipality making efforts to maintain this road?
- Are there signs of mold or mildew inside or outside of the house?
- Can you see cracks in the foundation and load-bearing walls?
- Are there leaks or other signs of rain damage on the roof?
Heavy precipitations are a part of life in Costa Rica, but it’s important to assess whether you’ll need to pay for expensive repairs like installing a new roof before investing in a property.
Small earthquakes are a daily occurrence in Costa Rica. On average, there is a major earthquake once every decade.
Earthquakes aren’t a significant risk for your personal safety, but you should know that the small tremors most people don’t notice can cause damage to a property.
Exposure to small tremors can cause the following issues:
- The floor can separate from the walls.
- Cracks can appear between walls and cupboards or around light fixtures.
- You might notice gaps where plumbing pipes enter and exit the home.
- Windows can develop small gaps that let in cold air.
- The doors can become hard to open.
- A damaged roof can result in leaks and other issues.
These problems typically develop over time and can be hard to spot. They can appear days after a small earthquake, and the owner of the home might not notice these issues right away.
It’s best to schedule a thorough house inspection before investing in a property. The inspector will look for these signs and let you know if you’ll have to invest in repairs.
10. Pest Problems
Pest problems are another risk to consider when looking for a property in Costa Rica. Pest infestations can happen anywhere in the world, but you should know that cockroaches and rats are the two most common types of pest in Costa Rica.
It’s an important consideration because cockroaches and rats can cause extensive damage to a property. Getting rid of a pest infestation can be costly.
You should schedule a home inspection. The inspector will look for droppings and other signs of a pest problem, like damage to the walls and flooring, unusual odors, or marks.
You should also be wary of standing bodies of water on the property or in the area. Bodies of water attract mosquitoes, which can be a nuisance and carry dangerous diseases. Mosquitoes are present everywhere in Costa Rica, but a stagnating body of water can impact your ability to enjoy your property.
A property in Costa Rica can be a great investment. It will hold its value well due to the popularity of this destination, and you can expect an interesting return on this investment if you want to turn the property into a vacation rental.
It’s important to consider different risks that are unique to Costa Rica before investing in a property. It’s best to hire a real estate attorney to help you perform the due diligence process so you can find a good investment.