Have you ever dreamed of owning a slice of paradise? A place where you can escape the daily grind, soak up the sun, and potentially earn some extra income? Well, you’re not alone! Investing in a Costa Rica vacation rental property has become increasingly popular, and for a very good reason. But before you immerse into this tropical adventure, let’s give you our expert perspective on things to know.
Contents
- 1 Why Invest in Costa Rica’s Vacation Rental Market?
- 2 Key Factors to Consider When Choosing a Vacation Rental Property
- 3 Understanding the Costs: Expenses to Expect
- 4 Occupancy Rates and Seasonal Fluctuations
- 5 Property Management: DIY or Professional?
- 6 Maximizing Success on Vacation Rental Platforms
- 7 Return on Investment: Managing Expectations
- 8 Condos vs. Stand-Alone Homes: Weighing Your Options
- 9 Tax Implications for Vacation Rental Owners
- 10 Exit Strategy: Selling Your Investment Property
- 11 Vesting Options: Personal Name vs. Corporation
- 12 Expert Assistance: The Value of Local Real Estate Professionals
- 13 Is a Costa Rica Vacation Rental Right for You?
Why Invest in Costa Rica’s Vacation Rental Market?
Costa Rica has long been a favorite destination for tourists and expats alike. With its stunning beaches, lush rainforests, and laid-back “pura vida” lifestyle, it’s no wonder that the country’s tourism sector has been growing steadily. According to the Costa Rica Tourism Board, compared to 2.4 million in 2023, the ICT predicts a record 2.8 million tourists by the end of this year. North America accounted for three out of every four visitors to Costa Rica, with the United States in the (61%), followed by Canada (10%) and Mexico (2.8%).
The Appeal of Playas del Coco and Guanacaste
While Costa Rica offers many beautiful locations, the Guanacaste province, particularly areas around Playas del Coco, has become a hotspot for vacation rental investments. Why? Let’s break it down:
- Proximity to Liberia International Airport (just 30 minutes away). Liberia Airport or Guanacaste Airport is one of the newest and most comfortable international airports in Latin America. As of this date there is still free parking with many spots available for travelers and commuters to leave their vehicle at.
- Playas del Coco is a full-service town with gas stations, main national banks, top choice supermarkets, medical clinics and doctors, specialty stores, and amazing selection of restaurants and bars.
- Beautiful beaches short distance away and coastal scenery with great paved roads to get to these. Beaches in Playas del Coco area are calm and are perfect for swimming, kayaking, paddle boarding. If you like surfing, beaches of Flamingo, Playa Grande and Tamarindo are a short drive south (40 min.+).
- Developed infrastructure and amenities – major shopping options nearby like PriceSmart (equivalent to Costco), Walmart, and AutoMercado right in town.
- Growing expat community and expat oriented services and events.
- Great private bilingual schools for kids of all ages catering to expat families.
- Year-round warm weather – Guanacaste is the warmest and dryest part of Costa Rica.
Key Factors to Consider When Choosing a Vacation Rental Property
Location and Accessibility
When it comes to vacation rentals, location is everything. Here’s what you should prioritize:
- Beach proximity: most renters prefer to be as close to the beach as possible; ocean views are also in high demand
- Close to amenities: restaurants, shops, and attractions
- Airport accessibility: Liberia International Airport is a major plus, with daily international and national flights to many locations
- Security: most foreign travelers prefer properties with added security; that’s why our gated developments are so popular here
Property Features and Amenities
Your rental property should offer the comforts of home with a touch of luxury.
- Modern appliances and fixtures
- Air conditioning (a must in Costa Rica’s tropical climate)
- High-speed internet (essential for remote workers and digital nomads)
- Outdoor spaces like balconies or patios
- Swimming pool (private or community)
- Parking – preferably secured
Security and Safety
Safety is a top concern for travelers. Look for:
- Gated communities or buildings with security
- Safe neighborhood reputation and popular with expats
- In-property security features like safes and alarm systems
Understanding the Costs: Expenses to Expect
Owning a vacation rental isn’t just about collecting rent. There are various expenses you’ll need to factor into your budget.
Recurring Expenses
- HOA fees: If your property is in a complex or gated community. These may range significantly depending on the services, amenities and infrastructure offered by the community.
- Utilities: Electricity, water, and internet. Water if very inexpensive compared to North America. Internet is also cheaper in general and many low-priced options are available. Electricity depends on consumption. Check if your home/condo has split air conditioners or central air. The second will cost you more in utility bills.
- Property taxes: Generally lower than in North America. Main tax is 0.25% of the assessed value, which is the purchase price in most cases. For certain homes a luxury tax may be added with an additional 0.25-0.55% of the assessed value. Garbage collection is usually included in the property tax bill.
- Insurance: Both property and liability insurance are available and best price can be secured by shopping with an insurance broker.
- Property management fees: If you choose to hire a manager. There’s usually a fixed fee to cover the bills’ payment, inspections, repair and cleaning coordination. When renting it out, commissions are usually 20-30% on short term and 10% on long term rentals.
- Maintenance: Regular upkeep to keep your property in top shape. It pays to keep your investment in good shape to avoid expensive major renovations later on.
- Accounting: Tax filings are required for rental properties and most expats use local accountants to help with that.
One-Time and Occasional Costs
- Property purchase costs: Including legal fees and transfer taxes. Closing fees can be expected to run at 4-5% of the purchase price and are paid by the buyer in our region.
- Furnishings and decor: To make your rental stand out. Most homes on the market come fully furnished and equipped. However, many new homes will need to be furnished, as well as older properties that could use a makeover.
- Major repairs or renovations. A good property manager will be able to put you in touch with reliable providers and oversee the successful completion of the renovation.
- Marketing expenses: To promote your rental
Occupancy Rates and Seasonal Fluctuations
Understanding occupancy patterns is crucial for projecting your income and managing your property effectively.
High Season vs. Green Season
Costa Rica’s high season typically runs from December to April, coinciding with the dry season. During this time, you can expect:
- Higher occupancy rates (often 80-90%)
- Premium pricing potential
- More competition for bookings
The green season (May to November) brings:
- Lower occupancy rates (usually 30-60%)
- Potential for longer-term rentals
- Opportunity for property maintenance and upgrades
Holiday Peaks
Certain periods see exceptionally high demand:
- Christmas and New Year
- Easter week / Semana Santa
During these times, rates can increase by 50-100% or more compared to regular high season rates.
Property Management: DIY or Professional?
One of the biggest decisions you’ll face is whether to manage the property yourself or hire a professional.
Self-Management Pros and Cons
Pros:
- Greater control over your property
- Higher profit margins
- Direct interaction with guests
Cons:
- Time-consuming, especially if you’re not local
- Requires constant availability
- Need to handle all aspects of rental management
- Hard to manage from a far
Professional Property Management Considerations
Pros:
- Hands-off approach for owners
- Local expertise and connections
- Handling of guest issues and maintenance
- Quick response to guest issues
Cons:
- Management fees (typically 20-30% of short-term rental income, and 10% on long term rentals, plus a fixed fee e.g. $100/mo for inspections, bill payment, etc.)
- Less direct control over day-to-day operations
For many investors, especially those not living in Costa Rica full-time, professional management is worth the cost. It allows you to enjoy the benefits of ownership without the stress of daily operations. We are happy to provide you with reliable property management options.
Maximizing Success on Vacation Rental Platforms
Airbnb, VRBO, and Booking.com Strategies
To succeed on these platforms:
- High-quality photos and detailed descriptions
- Competitive pricing based on season and local events
- Quick response times to inquiries
- Positive reviews (encourage guests to leave them)
- Special touches or amenities that make your property unique
- Disclose any negatives upfront so there are no surprises. E.g. steep stairs
- Go above and beyond. It’s better to under promise and over deliver.
Remember, your online presence is often a guest’s first impression of your property. Make it count!
Return on Investment: Managing Expectations
Here’s where we need to have an honest conversation. While owning a vacation rental in Costa Rica can be rewarding, it’s important to have realistic expectations about returns.
Most properties in this market see returns of less than 5-8% annually. This can vary based on factors like location, property type, and management efficiency, but it’s crucial to understand that this is typically not a high-yield investment.
The real value often comes from:
- Personal use of the property. Most owners block off times for their family and friends to enjoy the property yearly.
- Long-term appreciation potential. In the past few years the prices have only been going up, after Covid, and many of our clients have seen substantial return on their investment in such a short period of time.
- Lifestyle benefits of owning in Costa Rica. Enjoying a more relaxed, “pura vida” lifestyle has amazing health and life benefits.
Condos vs. Stand-Alone Homes: Weighing Your Options
Each property type has its pros and cons:
+ Lower maintenance
+ Often have on-site amenities
+ Generally easier to secure
– Less privacy
– Usually smaller in size
+ More space and privacy
+ Potential for larger groups (higher income)
+ Freedom to customize
– Higher maintenance responsibilities
– May require more security measures
Tax Implications for Vacation Rental Owners
Rental Income Taxation
Costa Rica taxes rental income at 15% on the 85% of the rental income generated.
Capital Gains Tax Considerations
When selling your property, you may be subject to capital gains tax. As of 2021, this is typically 15% of the gain. However, properties acquired before July 1, 2019, may be subject to different rules.
Always consult with a Costa Rican tax professional for the most current and personalized advice.
Exit Strategy: Selling Your Investment Property
While we hope your investment is long and fruitful, it’s wise to consider your exit strategy. Selling a property in Costa Rica involves:
- Real estate agent fees (typically 6% + sales tax of 13% on the commission).
- Legal fees for the transaction (usually 1-2%), if legal assistance is needed. Not mandatory.
- Potential capital gains tax.
- Transfer taxes and stamps, and escrow fee – these are usually paid 100% by the buyer in our region but in some parts of Costa Rica these may be split 50/50 between buyer and seller.
The process can take several months, so plan accordingly if you decide to sell. While we have many cases where properties have sold within few days, most take longer as the typical buyers are looking for a vacation home and have no immediate rush, e.g. to be close to school, work, etc.
Vesting Options: Personal Name vs. Corporation
You have two main options for holding your property:
- Personal name: simpler, but may have tax and estate planning implications
- Costa Rican corporation: more complex, but can offer simplified transactions, tax advantages and liability protection
For most foreign investors, setting up a Costa Rican corporation makes sense. It can simplify banking and reduces liability.
Expert Assistance: The Value of Local Real Estate Professionals
Navigating the Costa Rican real estate market can be challenging, especially for foreign investors. This is where local experts like Tony and Anna Velez come in. They can provide invaluable assistance with:
- Finding the right property
- Navigating legal requirements
- Understanding local market conditions
- Connecting with reliable property managers and service providers
Their expertise can save you time, money, and potential headaches in the long run.
Is a Costa Rica Vacation Rental Right for You?
Investing in a Costa Rica vacation rental property can be an exciting venture, offering a blend of personal enjoyment and potential income. However, it’s not without its challenges. Success requires careful planning, realistic expectations, and often, expert guidance.
If you’re drawn to the idea of owning a piece of paradise, willing to navigate the details of foreign property ownership, and excited about sharing your home with travelers from around the world, a Costa Rica vacation rental might be the perfect investment for you.
Remember, the key to a successful investment is thorough research and preparation. Don’t hesitate to reach out to local experts like Tony and Anna Velez to guide you through the process. Your slice of pura vida might be closer than you think!
