Purchasing property in Costa Rica can be an exciting and rewarding venture. Whether you’re looking for a vacation home, investment property, or a place to retire, Costa Rica offers stunning landscapes, a welcoming culture, and a growing real estate market. However, navigating the property market in a foreign country comes with unique challenges and pitfalls. Here’s a comprehensive guide to avoid common mistakes when buying property in Costa Rica.
21 Common Mistakes
1. Not Researching the Area
Ensure the location suits your needs:
- Visit during different seasons to assess weather conditions. Ideally, you’d want to visit the area during its dry and then during its rainy season to see the difference and ensure that you like it.
- Research accessibility to schools, hospitals, and amenities. While some locations are like a dream come true with pristine beaches, access there, roads conditions, and time it takes to just do a basic grocery trip may be a big disappointment down the road.
2. Ignoring Climate and Environmental Factors
Costa Rica’s diverse climate can impact your property:
- Avoid flood-prone areas during the rainy season. That’s why it helps if you visit the location during different seasons.
- Steep lots may require costly leveling before construction. Many beautiful ocean view lots are located on the cliff sides offering amazing views. If buying an ocean view parcel that’s not leveled, the construction costs may supersede your original estimate.
3. Choosing the Wrong Real Estate Agent
Anyone can act as a real estate agent in Costa Rica, so select carefully:
- Read reviews and check experience. Interview the agent to ensure they are knowledgeable and are a good match for you.
- Work with experienced agents familiar with local markets. Ensure they live and work in the area where you are buying.
- Avoid agents who prioritize their agency’s listings over your needs. The right agent will present All possible options, and not just the ones that his/her agency represents.
4. Waiting too long to make the move
Don’t miss out on the property you love at a great price by waiting too long.
- Property values have only been going up over the last few years and many clients have regretted not making the decision sooner.
- Homes and condos can easily be rented out for that extra income, in case where you are not ready to move here full time.
5. Being Aware of Local Knowledge
Understanding Costa Rican laws, culture, and property market dynamics is crucial:
- Property Laws
Learn about titled properties versus concessions (common in beachfront zones).
Verify zoning regulations and land use permits. - Cultural Norms
Business transactions may move at a slower pace, don’t be surprised if the transaction dates get extended. Approach dealings with respect and patience.
6. Being Aware of Scams
While scams are rare, they do exist. Avoid:
- Deals that seem “too good to be true.”
- Properties without proper documentation.
- Unverified sellers or agents.
Always work with trusted professionals and verify credentials.
7. Visiting the Property Multiple Times
Photos and videos can be misleading. Visit the property several times to assess:
- The condition of the home or land.
- Accessibility during different seasons.
- The surrounding area and neighborhood. Especially if the home is not in a gated community, check out the area at night time.
8. Understanding Property Ownership Laws for Foreigners
Foreigners can own titled land but should also understand:
- Maritime Zone Restrictions: Beachfront properties often fall under concession laws.
- Shared Title Structures: Some properties are sold as shares in a corporation rather than fully titled land.
9. Understanding Financial Implications
Key Costs to Consider:
- Purchase Price and Payment Plans
Have a clear understanding of the total cost, timelines for the deposit and final balance. If financing is part of the deal, understand the payment structure and schedule and any additional costs associated with financing. - Closing Costs
Typically, buyers pay 4-5% of the purchase price in closing costs. This covers the government transfer taxes, attorney due diligence and escrow. Additional fees apply for mortgages and financing arrangements. - Currency Exchange Rates
Prices are in USD most of the time. Fluctuations can affect your overall costs. Plan for potential changes in the Costa Rican colón or US dollar. - Maintenance and Property Management Fees
Include recurring costs such as upkeep, HOA fees, and property management in your budget.
10. Overlooking Additional Costs and Timelines
Don’t underestimate:
- Construction and Renovation Costs
Building timelines may extend due to delays, and materials are often pricier due to import taxes. Permits take a long time, at least 3 months on average. Then add various delays due to holidays, extreme weather, materials shortage, etc. Most builders say 12-15 months but it can take longer for a stand alone home. Always partner with a reputable builder, get regular updates, invest in onsite cameras/monitoring, and have an independent party do regular inspections.
- Furnishing Costs
Furniture and appliances are more expensive in general, and there are fewer options, compared to North America or Europe.
11. Overestimating Rental Profits
If buying an investment property, research local rental markets thoroughly. Consider:
- Seasonal fluctuations and demand. Rental rates are higher during the busy season, December through April, and decrease during the slower season, May – November. Holiday weeks (Christmas, New Year, Easter) charge premium rates. Adjust your rates accordingly to maintain higher occupancy throughout the year.
- Rental commission. When using online platforms like Airbnb and VRBO, don’t forget to budget for their fees and commission. Rental manager onsite will charge commission as well – normally 20% on short term rentals and 10% on long term (6 months or more).
- Management and upkeep costs. Property management fees will vary depending on the type of property and normally include weekly inspections, bill payment, maintenance and repair coordination.
12. Considering Ownership Options: Personal Name vs. LLC
Decide whether to purchase property:
- Under your personal name: Suitable for simple transactions.
- Through a Costa Rican LLC: Offers tax benefits, liability protection, and easier transfer of ownership.
13. Ignoring Property Inspections
Skipping inspections can lead to unexpected costs:
- For homes or condos, hire a licensed building inspector.
- For vacant lots, verify boundaries and ensure the land is buildable.
14. Rushing the Buying Process
After you’ve made an offer, take your time to:
- Review all documentation – many buyers have their attorney review the contract before signing it.
- Consult professionals – your agent, attorney, accountant, building contractor, topographer, property manager are great resources to discuss your new property purchase with.
- Ensure the property meets all your criteria – understand the community rules and see if it works for you and the intended use of the property. E.g. some developments may have rules about rentals, pet policies, etc.
15. Not Using Escrow Services
Transactions without escrow services are risky. Certified escrow agents protect both buyers and sellers, serving as a third independent party, ensuring funds are held securely until all conditions are met.
- Ensure funds are deposited into a SUGEF-certified Escrow account within timelines indicated in the contract. Normally 7-10 days for the deposit, and remaining balance 5 days before the closing.
16. Forgetting Ongoing Costs
Be prepared for:
- Property management fees and ongoing maintenance. Do not leave your beachside home unattended for too long. Humidity and tropical climate call for regular maintenance.
- Utility bills, property taxes and HOA fees (if applicable). Electric and water bills need to be paid promptly or the service will be disconnected. It is quite an ordeal to have it restored and in most cases you need to be present to get that done.
- Annual corporate tax payments and shareholder filings (if owning through a corporation).
17. Navigating Bureaucracy
Expect delays with permits, utilities, and registrations. Be prepared to make multiple visits, be patient. We recommend to work with professionals who understand the system to avoid unnecessary frustration.
18. Staying on Top of Property Management
Even with a property manager in place:
- Visit regularly to inspect the property. Or have someone you trust check on your place once in a while.
- Request statements and ensure all bills are paid.
19. Joining HOAs and Communities
When buying in an HOA:
- Review rules, meeting minutes, and budgets. Some HOA have certain strict rules that may affect your daily live or how you can rent your property.
- Ensure there are no hidden fees or future financial obligations.
20. Hiring a Qualified Lawyer
A qualified lawyer is your first line of defense in avoiding pitfalls. They perform critical legal due diligence, handle contracts, and protect your interests. Always work with a recommended reputable attorney. They can save you thousands and alleviate potential issues down the road.
21. Conducting Thorough Due Diligence
Due diligence is critical when buying property in Costa Rica. Many buyers overlook this step, leading to legal, financial, or logistical challenges. Ensure your Due Diligence section in Purchase and Sales agreement covers all the points. Hiring a reputable attorney is essential to ensure that every aspect of the property is thoroughly checked.
During the Due Diligence Process (DDP), your attorney will check:
- Title Verification
- Are there any liens, annotations, encumbrances, or mortgages on the property?
- Is the title properly registered in the National Registry of Costa Rica?
- Tax and Fee Compliance
- Have all real estate property taxes been paid?
- Does the property qualify for Luxury tax and has it been paid?
- Are utilities such as phone, electricity, and internet bills up to date?
- Corporate-Owned Properties
- Is the Costa Rican corporation that owns the property up to date on fees and annual shareholder declarations?
- Employees and Future Commitments
- If there are any existing employees at the property (e.g. cook, pool/garden person), best is for the previous owner to discharge them and pay off any possible liabilities. As the new owner you can rehire them on day 1 if you choose to. Costa Rica has strict employment laws favoring the employees, hence best to not inherit any unknown liabilities from the previous owner.
- If future rental commitments exist that you as new owner are taking over, ensure all documentation and any deposits held by previous owner are transferred to you at closing.
- Condo-Specific Checks
- What are the HOA rules and regulations and do they work for you? Request recent HOA minutes and budgets to identify any potential future expenses.
- Are Homeowners Association (HOA) fees paid and current?
- Permits and Declarations
- Does the property have a valid construction permit? Ensure to receive confirmation from the Municipality directly.
- Is the declared value with the municipality accurate?
- Utility Availability – Vacant Land
- Does the property have water access or an availability letter from the Instituto Costarricense de Acueductos y Alcantarillados (AyA)? Just because there’s a house next door doesn’t mean your parcel will get a water permit, a very common issue in Costa Rica.
- Is electricity available through providers like Coopeguanacaste or the Instituto Costarricense de Electricidad (ICE)? Ask for confirmation as part of the due diligence directly from the source.
- Uso de Suelo – Use of Land
- Requesting this for vacant land from the Municipality to confirm that your intended project can be build on such land, considering it’s zoning and regulations.
Additional Checks by Your Agent:
- Property Inspections
- Hire a qualified Building Inspector for homes or condos. If the property has complicated structures like retaining walls, consider hiring a structural engineer.
- For homes and vacant lots, arrange a survey with a licensed Topographer to confirm boundaries match the National Registry and there are no issues with the plot plan.
- Ask for a final inspection before closing.
- Inventory Verification
- Obtain a photo or video inventory for homes or condos for buyer and seller verification.
- Contract Management
- Your agent will look after and coordinate the transaction and work with attorneys and escrow to ensure all is moving along smoothly.
Final Thoughts
Buying property in Costa Rica is an exciting opportunity, but avoiding these common mistakes is key to a successful purchase. Work with qualified professionals, take your time with due diligence, and understand all the legal and financial aspects involved. By being well-informed and thorough, you can make your dream of owning property in Costa Rica a reality.
