Are you thinking about making a major lifestyle change and moving to a foreign country?
I know how you feel!
Perhaps one that is famous for its unsurpassed natural beauty, eco-friendliness, untouched beaches, verdant cloud forests, incredible biodiversity, laid-back lifestyle, friendly people, a historically peaceful and stable democratic political clime – and unbelievably fantastic coffee? Then you should probably be thinking about moving to the land of “Pura Vida” – Pure Life – that is the Republic of Costa Rica!
Costa Rica is a wonderful place for people of all ages who like to live life at a slower pace, take the time for a deep breath of fresh air, and be more connected with the tropical outdoors and nature in general. In fact, in Costa Rica, the “outdoors” is just another “room” of your home.
Here, just about everyone has a veranda, balcony, porch, courtyard or rancho with some outdoor furniture, a grill, and the requisite hammock or two that – in addition to the kitchen – is the hub around which all domestic life revolves.
Living in Costa Rica is a dream for people who get bored easily. In the morning, you can enjoy the brilliant sunshine on a gorgeous beach, where the tropical dry forest tumbles down hillsides like giant broccoli florets to meet the deep blue Pacific. At lunchtime, you can be up in the clouds, on the side of an active volcano, having some lunch where it’s 10 degrees cooler. We’d recommend a casado con pollo, a national favorite.
The variety of microclimates here is a dream for anyone trying to find exactly the right fit for their personal comfort zone. And, if you want to change it up, you can always move a couple of hours (or kilometers) up or down the road and be in a completely different outdoor world.
So maybe now you’re thinking, “Wow! Costa Rica sounds like a really wonderful place to live. Can I, as a foreigner, purchase my own little slice of paradise there?”
The short answer to the question is, “Yes!” Under the Costa Rica Constitution, foreign citizens, as well as Costa Rican residents and nationals, have equal rights to buy and own property. You can buy property in your own name or put the property in the name of a Costa Rican corporation. There are two types:
-
S. A. (Sociedad Anónima), which translates to “Anonymous Society”; or
- S.R.L. (Sociedad de Responsabilidad Limitada), which means “Society of Limited Liability” (as in, Limited Liability Corporation)
Putting property in a corporation is popular among residents because it allows them to share ownership of the property with other people, such as family or investment partners. Each entity owns shares of the corporation; shares can be divided, as specified by those setting up the corporation.
Setting up a corporation is not overly expensive or complicated. But, you will need an experienced and reputable attorney to make sure the corporation is set up correctly.
- Sidebar: Some attorneys will offer to sell you an “off the shelf” corporation to save you some money. Do not buy one! There is a risk that the corporation may not be “clean”. In other words, there could be liabilities, such as liens or litigation, against the corporation for which you would assume responsibility, if you were to purchase it.
Now, you may be asking yourself, “OK, that’s great news! But how do I go about finding my monkey-adjacent tree house with the zip line to the waterfall (yes, it exists)?”
Well, in addition to a reputable lawyer, you’ll also need a trustworthy and experienced real estate agent. It is important to know that the real estate profession in Costa Rica is not regulated. Real estate agents do not need to pass a licensing exam. There is no universally adopted and comprehensive Multiple Listing Service (MLS), though a few regional ones do exist such as the Costa Rica Global Association of REALTORS (CRGAR).
Though there is not specific licensing for real estate agents however they must be registered with two Costa Rican government entities: Hacienda de Tributación (similar to the Internal Revenue Service in the USA), and the Superintendencia General de Entidades Financieras (SUGEF) which verifies the legality of an individual to work and that they are registered and, if under a corporation, shareholders are registered.
We have two professional associations in Costa Rica.
So, what does that mean to you? It means anyone in Costa Rica can call themselves a real estate agent – and that you should be cautious. In addition to finding a good lawyer, it is of paramount importance that you find a real estate broker who is reputable, knowledgeable, and experienced. Do some homework online and make a few calls before diving into the deep end.
So, let’s say you’ve found your dream home on an emerald mountain, overlooking a lake with three volcanoes on the horizon (yes, it exists)…
Now what? Well, if you’re a foreigner looking for financing from a Costa Rican bank, there’s some bad news. It is both difficult (though not impossible) and expensive for foreigners to secure bank financing.
Financing is technically available to non-citizens of Costa Rica through several banks including Banco Lafise, Banco BCT, BAC Credomatic, Volo Loans, and Grupo Financiero Desifyn. Terms vary and you’ll have to jump through hoops with paperwork. But the one thing they all have in common is high interest rates, typically 8.5% and up. Loans may be fixed for a period, and then switch to an ARM (Adjustable-Rate Mortgage) for the rest of the term of the loan. There are usually penalties for paying the loan back early, but not always. You’re typically better off borrowing in your home country and transferring the money here to Costa Rica to buy property.
Seller or developer financing is also frequently available and can be a great buying incentive. But be sure to read the fine print. As stated above, interest rates may be higher than what you’re accustomed to.
But, let’s say you have the cash and are ready to pull the trigger on the purchase of a new income-generating, cliff-side, ocean-view vacation rental property with an infinity edge pool (yes, it exists)…
Fret not. Your down payment money goes into a government-certified escrow account, as required by law. There are a number of escrow services available in Costa Rica. Make sure the one you or your real estate agent uses is SUGEF government approved. Your reputable agent and lawyer will know this. Do not accept substitutions.
- What is SUGEF? SUGEF is an acronym for “Superintendencia General de Entidades Financieras” (literally translated as ‘Financial Institution Superintendency’). This government organization audits financial institutions such as banks, credit unions, real estate offices, and escrow agencies to make sure they comply with all local and international regulations.
Before signing an offer to purchase letter or a purchase agreement, there are a couple of terms in Spanish you will hear mentioned by your real estate agent and/or lawyer that you should pay close attention to while you’re on your search for your piece of paradise.
- One is “Número Folio Real”, which translates loosely to “Active Page Number”. Costa Rica has a Registro Nacional (National Registry) in which all properties are registered with a unique number. That number is called the Folio Real number.
- The second term you will hear is “Plano Castastrado” (sometimes, “Plano Catastro”), which translates loosely to “Survey Plan”. The Plano Casastrado is prepared by a surveyor or licensed topographer, based on the physical layout of the property, and is registered with the National Registry.
All Costa Rican real estate needs a Folio Real Number and a Plano Catastrado, registered in the Registro Nacional, before they can be bought or sold. If the property you are buying is not listed in the National Registry, you may have a big problem. For example, the seller could be selling something that he or she does not own. Or no one owns it.
Another reason you’ll want both a good real estate agent and a good lawyer looking out for you.
But what if your new ten-bedroom, contemporary, solar-powered family retreat is located right on the beach (again, it exists)?
This could be a bit of a glitch for a foreign investor. In Costa Rica, 95% of the beachfront property is called concession property. It falls under a different set of regulations, contained in what’s called the Ley sobre la Zona Maritime Terestre (ZMT, or Maritime Land Zone Law). Concession property is leased from the Costa Rica government for a specific time period – usually 20 years. Leases are typically renewable.
“What the heck is the Maritime Land Zone?” you’re wondering. The first 200 meters, measured from the high tide line, defines the Maritime Land Zone or Maritime Zone, as it’s more commonly referred to. It is comprised of the:
- Zona Pública (Public Zone), which accounts for the first 50 meters, measured from the high tide line; and the
- Zona Restringida (Restricted Zone), which is the next 150 meters.
No one can own or permanently occupy land in the Public Zone and it is any and every individual’s right to utilize it for personal enjoyment. It is within this Restricted Zone that concession properties lie.
Need to Know: Foreigners are treated differently than nationals when it comes to buying and owning property within the Maritime Zone.
Under the Maritime Land Zone Law, foreigners with more than five years of residency in Costa Rica may be allowed a majority share of ownership of the concession property (you must have residency). If not, the majority ownership must be held by a Costa Rican national or resident.
That applies to corporations, too: The majority shareholder(s) of an S.A. that holds rights to a concession cannot be foreign and must be Costa Rican or have permanent residency. Foreigners and foreign residents with less than five years of residency in Costa Rica may have minority ownership of concession property, but not a majority. And, like the rest of Costa Rica real estate, concession properties must be registered in the National Registry.
And then, there are death and taxes…
Costa Rica is no exception. Make sure your agent or lawyer explains to you your real estate tax obligation. (It’s a bargain compared to many other countries.) Annual real estate taxes in Costa Rica are .25% of the property value. If we use a property valued at $100,000 as an example, that’s $250 a year in real estate taxes.
However, there is a Luxury Tax on homes valued over $500,000 (the land is not included in the value assessment, just the home). That tax is an extra .50%. So, add an extra $2,500 to your annual tax bill for luxury homes. That’s still a great deal, compared to many countries.
OK. So everything is lined up. Your offer has been accepted. The purchase agreement has been signed. Money has been transferred into escrow. Now you’re wondering,
“What kind of closing costs will I have to pay on my new condo, complete with a doggie door for Thor, my poodle?” ;-)
Here’s a breakdown based on that $100,000 purchase price:
- New Corporation: $650
- Escrow services: $800
- Transfer tax: 1.5% of the purchase price or the registered value at the Municipality, whichever is higher ($100,000 x .015 = $1500)
- Registration stamps: .84% of the purchase price or the registered value at the Municipality, whichever is higher ($100,000 x .0084 = $840)
- Legal fees: 1.25% of the purchase price ($100,000 x .0125 = $1250)
So in this example, you’re looking at about $5,040 in closing costs. I tell my Buyers to figure their closing costs conservatively at 5% of the sale price.
The seller pays the real estate commission of 6% of the sale price, as well as a 13% sales tax on the commission. The seller is also responsible for paying their own egal fees, capital gains taxes, etc. I tell my sellers to figure their closing costs conservatively at 10%.
If you are getting a mortgage, add 1.64% of the purchase price ($1,640) to register the mortgage on the property.
Congratulations! ¡Felicidades! You are now the proud owner of a beautiful slice of Costa Rican paradise!
Time for the Champagne and caviar party – or more likely, the ceviche and cerveza fiesta!
As you may have gathered by now, buying property in Costa Rica is not really rocket science. The two most important things that foreign investors should remember are:
- With the exception of Maritime Land Zone concession property, you have the same rights as Costa Rica residents and nationals with respect to buying and selling property, as guaranteed to all under the Costa Rica Constitution – it’s the law.
- You will need a reputable real estate agent and a lawyer experienced in Costa Rica real estate law to guide you through your search and purchase.
So what do you think? Are you ready to make the lifestyle change of your, well……. lifetime?
Buy the ticket! Take the ride! Pura vida!