The Ultimate Guide to Buying Property in Costa Rica: A Step-by-Step Process and Commonly Asked Questions

Introduction

Are you dreaming of owning a piece of paradise in Costa Rica? The beautiful tropical weather, laid-back lifestyle, and affordable real estate make it an attractive destination for many. Whether you’re looking for a permanent home, a vacation property, or an investment opportunity, buying property in Costa Rica can be a lucrative and fulfilling endeavor. In this comprehensive guide, we will walk you through the process of buying property in Costa Rica, covering everything from legal considerations to finding the perfect location. So, let’s dive in and explore the steps to make your Costa Rican property dream a reality.

Can Foreigners Buy Property in Costa Rica?

The good news is that foreigners, including U.S. citizens, have the same rights as Costa Rican nationals when it comes to buying property in Costa Rica. You don’t need to be a resident or have Costa Rican citizenship to purchase land or real estate. However, there are a few exceptions to keep in mind. For instance, acquiring land within the maritime zone, which is between 50 and 200 meters from the high-tide line on any beach, requires special considerations and the involvement of a Costa Rican national. Apart from that, you can buy, build, rent, or sell property in Costa Rica just like a local.

The Buying Process in Costa Rica

Finding the Right Real Estate Agent

When looking to purchase property in Costa Rica, one of the most important steps is finding the right real estate agent. This person will be your guide through the buying process and help you identify that perfect home. Costa Rica doesn’t have an MLS, Zillow or Trulia, hence it’s paramount to partner with an experienced real estate agent.
Look for an agent who specializes in the specific area you are interested in. Local expertise is invaluable.
Interview several potential agents before selecting one. Make sure your personalities mesh. Ask about their background, years of experience, number of sales, and professional approach. You want someone responsive who will have the time to dedicate to your purchase.
A seasoned agent can navigate inevitable hiccups. They’ll work closely with lawyers, inspectors, developers, and other professionals involved in Costa Rica real estate transactions. This local network helps ensure a smooth buying process.
For luxury real estate in the Papagayo area, Tony and Anna Velez of Coldwell Banker Coast to Coast Properties come highly recommended. With over 15 years of combined experience selling high-end homes in this region, they are true experts.
Take your time finding the perfect agent for you. They will be your ally securing your dream home in paradise!

Engaging a Real Estate Attorney:

An experienced real estate attorney is invaluable for navigating a Costa Rica property purchase. Here’s how they can help:
Ask your agent for recommendations. An attorney who regularly works with foreign buyers will have the expertise to guide you. Speak with a few to assess their knowledge and personality fit. This is a critical advisor by your side.
Your attorney will review all contracts to ensure terminology protects your interests. They’ll also keep close tabs on the escrow company, a neutral third party handling the money flow.
A key role is overseeing the title search. Attorney ensures no liens or encumbrances, debts or other issues are tied to the property that could become your liability. If the property you are buying is owned via a corporation, the attorney team will research it to ensure no issues exist that may affect the sale or property ownership down the line. It’s worth the peace of mind.
Your attorney will also assist with establishing a corporation structure if buying under a business entity rather than as an individual. This provides liability protection many foreigners seek.
Finally your attorney will prepare and oversee the closing process and paperwork, and ensure that the deed is registered in the Registro Nacional (national registry). In Costa Rica the deed must by notarized and not all attorneys are notaries but all notaries are attorneys, unlike other countries.
Your attorney team can also assist with post-closing activities like switching the utilities into your name, opening a bank account and ongoing legal support while you enjoy your investment property in Costa Rica.

Identifying the Right Property

Once you’ve found a real estate agent you click with, the fun part begins—touring potential properties! Your agent will ask you for a wish list of your ideal home. Ocean view or mountainside? Penthouse apartment or private villa? Knowing your must-haves and nice-to-haves helps them select listings to show. Tell your agent your search criteria:
– Price range
– Type of property – house, condo, land, etc
– Number of bedrooms/bathrooms
– Preferred location
– Special requirements:
– Gated community
– Pet friendly, e.g. large dogs
– Ocean View
– Walking distance to the beach
– Golf course proximity
– Etc.

Spend time seeing different options in person. Photos hardly do these homes justice. Feel the breeze on a terrace overlooking the Pacific. Meander tropical garden pathways. Indulge your senses. Your agent will arrange the showings for you. Please ensure to give them as much notice as possible on when you will be available for the tour, as it takes time to plan an effective property tour and most places require a 24 hour notice.

While in person viewings are the best, many buyers have purchased Costa Rican properties over video calls, this has become a trend since Covid and is a great option for those who can’t travel at the moment but want to secure the deal on their dream home in Costa Rica.

For each property consider proximity to beaches, restaurants, banks, hospitals, airports. What’s the neighborhood vibe? Low-key local or touristy expat? Imagine this as your new community.
Consider these questions – are you going to live there full-time or will you rent it out part of the year? Most tourists and renters prefer to be close to the beach, shopping and restaurants, and while some off-the-grid homes may seem appealing, these could be harder to rent out in the long run.

Making an Offer

Once you’ve fallen in love with a listing, it’s time to make it official with a purchase and sales agreement prepared by your agent. This agreement states your proposed purchase price and terms.
Earnest money shows you’re serious. This deposit is usually 10% of purchase price. It goes into escrow once the offer is accepted. The rest is due at closing.
Outline your vision for contingencies. Common ones include home inspections, financing clauses, topographer’s report, review of HOA rules, inventory report, confirmation that everything is up-to date and no liens are registered on the property. This protects you if issues arise.
Negotiating requires give-and-take. Don’t get too attached to your first offer. The seller may counter, asking for a higher price or to adjust terms. Work with your agent to craft a deal satisfactory to both parties.
Align on a timeline realistic for both.
These are the most commonly seen purchase agreement conditions in Papagayo region of Costa Rica:
– Deposit is due within 7-10 days (normally 10% of the purchase price)
– Due Diligence lasts 21-30 days
– Closing is after 30-45 days
– Holdback of $500-$2,000 from seller’s proceeds for 30 days after closing to cover any bills undiscovered during the due diligence
– Buyer pays all closing fees. At times escrow fee is shared. (see more on Closing Fees below).

Opening Escrow

Once your offer is accepted, it’s time to open escrow. This process is more involved in Costa Rica than North America due to anti-money laundering laws.
Your escrow company will request numerous documents to verify identities and funding sources. Having these ready to go prevents delays.

 Escrow Requirements:

1. Copy of Client’s passport (picture, signature and stamps of last visit to Costa Rica).
   2. Know Your Client form
   3. Latest tax filing or tax assessment in order to comply with FATCA law (U.S Citizens) or CRS Reporting Standard for other nationalities.
   4. Documents that support the origin of funds to be sent to Escrow. This may be, but not limited to, proof of property sale, salaries, dividends, inheritance, or any other document considered to support where funds have originated.
   Please consider:
   – If the origin of funds are salaries and/or savings from salaries:
   – Paystubs or W2 declaration
   – Account statements that reflect recurring incoming wires regarding salaries
   – At least three months of account statements where salaries are received or savings are allocated
   – If the origin of funds are dividends payments:
   – Proof of ownership of shares*
   – Financial statements (certified by public accountant) or tax filings from the corporation*
   – Proof of dividends payments
   – At least three months of account statements where funds are allocated
   – If the origin of funds is a real estate sale:
   – Closing documents (sale deed and closing statement)*
   – Proof of payment (incoming wire to your bank account)
   – At least three months of bank statements where funds are being held
   – If the origin of funds is inheritance:
   – Legal document that confirms inheritance or beneficiaries*
   – Proof of funds being received
   – At least three months of bank statements where funds are being held
   – If the origin of funds is a bank loan or line of credit:
   – Documents that confirm loan amount or available balance from LOC
   – Disbursement proof to bank account
   *Legal and financial documents need to be certified and apostilled for bank’s purposes. You may visit www.apostille.net or the service you consider best for this purpose.

Once compliance documents are submitted, escrow will review the documents and submit a request to the receiving bank for it to approve the transaction. Said bank will inform escrow once the financial due diligence is cleared, and the client may then wire the remaining funds.
It’s important to note that the sent wire or wires need to be consistent with the origin and accounts provided for compliance purposes. If you plan to send the initial deposit and final closing amount of funds from different banks or financial institutions, all documentation from each bank/financial institution, must be supplied in the beginning process to make the final closing as smooth as possible. Please specify if you are using funds from more than one bank/financial institution.
Compiling all this paperwork can take a few days. Be sure to get it to your escrow agent as quickly as possible. The bank needs to comb through everything to approve opening a file, which can take up to a week.
If you find yourself without a requested document, speak to your escrow agent and they most likely will work out a work around for that requirement.
Once approved, escrow will draft the escrow contract for both parties to sign. Only then can you wire your deposit to secure the property. After months of searching, these funds make it official!
If you’d like to be proactive, you can open escrow before selecting a property you want to make an offer on, this way your escrow file will be already approved and you can expedite the process of buying your Costa Rican dream home.

Conducting Due Diligence

After an offer is accepted, the real work begins! This is when you dig into the property’s details before closing. Known as due diligence which last normally 21-30 days, it covers:
• Title search – Verify no other claims on the land.
• Lien search – Ensure no debts tied to the property.
• Seller’s corporation docs – If owned through a business entity, review paperwork.
• Permits and land use – Confirm zoning allows your plans.
• HOA rules – Review bylaws if part of a homeowner’s association.
• Rental commitments – review any rental commitments past the closing date of the property.
You’ll also want fresh inspections. Your agent will recommend a reputable home inspector to perform a detailed inspection and prepare a report for you identifying any issues found. In some cases you may want to bring in architects and engineers to check out more complex properties. Identify problems before closing.
If purchasing a vacant land parcel or a stand alone home, you might want to request an up-to-date survey report and have the corners staked to ensure the boundaries match the description. You don’t want surprises later.
Inventory verification is key too. Seller will remove any excluded items, like decorative fixtures or personal items. Review the inventory document what remains through photos and written lists.
Due diligence takes time but brings peace of mind. Don’t skip steps even when eager to close. A few weeks upfront prevents major headaches down the road. Lean on your agent and attorney to check all boxes.
With paperwork in order, required fixes completed and belongings sorted, you’ll be ready for the big day – keys in hand!

What if issues are found during the Due Diligence?
Most issues are minor and can be quickly addressed or negotiated with the seller. Say, the inspection report uncovered several minor repairs needed. This is the time to take this back to the seller and either negotiate a credit on the purchase price or have them repair the deficiencies. In most cases sellers take care of these, although it really depends on the price negotiated, if they seller has already given you a steep discount on the property price, they may assume the conditions of it is “as is” and will not budge any more.
In any case, the Due Diligence phase is there to protect your interests and you are within your right not cancel the deal and receive your deposit back if one of the due diligence terms is not met.

Closing the Deal

The big day is finally here! Closing is when you officially take ownership.
Ask for pre-closing property inspection with your agent. This adds a piece of mind to ensure all is in order and any deficiencies that were to be fixed by the seller are addressed.
Scheduling the closing appointment with your notary should happen weeks prior. They will transfer the property title into your name and register it with the National Public Registry.
Ensure the remaining funds are received by escrow, they normally ask for 5 days prior to closing to have all the documentation ready. Don’t forget ID and essential documents. The ID that you must present at the closing is the same ID that’s indicated in the purchase documents. For most foreigners, it’s their passport.
The notary will review all contracts and read out the deed before both parties sign. Read thoroughly even though you’ve seen these before. Initial any last minute changes.
Once signed, they keys are handed over – cue the celebratory dance!
You might want to change the locks especially if the property was handled by many people with multiple key sets.
Congratulations, you now own a home in paradise! Break out the Imperial cervezas and get ready to make lifelong Costa Rican memories. Pura Vida!

How Does the Title Transfer Work?

In Costa Rica, properties are officially transferred from seller to buyer through a transfer or conveyance deed signed before a notary public. This lawyer then records the deed in their official notary book and registers it with the National Registry.
On closing day, the buyer, seller, or their representatives, and notary sign the transfer deed. The notary registers it in their records and submits to the National Registry.
If you can’t attend in person, you can authorize someone with a power of attorney to sign on your behalf before the notary. If you are buying with a corporation, most likely your attorney can sign on your behalf via proxy.
The registry reviews the deed to ensure it’s legally valid. Once approved, the property is officially registered under the buyer’s name.
The registry won’t accept the deed until all fees are paid – transfer taxes, stamps, notary charges, and any outstanding property taxes. The municipality must also certify the seller’s taxes are current through closing.
It can take up to 30 days for the National Registry to reflect the new ownership.

Buying with Corporation or in Personal Name:

Buying with Corporation:

When purchasing property in Costa Rica, you have two options – buy in your personal name or under a corporation. Many foreigners actually go the corporation route. Why? A few good reasons:
If co-owning with family or partners, a corporation simplifies joint ownership. Also, if one owner passes away, avoiding probate through a corporation is easier.
Owning through a business entity provides more flexibility for estate planning and tax purposes. It can limit personal liability too.
Incorporating in Costa Rica is surprisingly uncomplicated and affordable. A lawyer can walk you through the pros and cons.
There are definitely other advantages to the corporation approach.
The corporation decision requires some thought. But know it’s a common choice among foreign buyers in Costa Rica. And for good reason – it adds protection and eases ownership in many cases.

The two most common corporation structures: the S.A. and the L.L.C. Attorneys recommend to their foreign clients to buy the desired property under a Costa Rican limited liability corporation (L.L.C) instead of an S.A. Just to name some benefits; the L.L.C., requires just one officer (you may have more than one though), while the S.A. requires at least four. Additionally, the expenses incurred under a Costa Rican L.L.C can be reported under your tax declaration before the IRS, which is not possible under an S.A.
Decisions include:
• Capital amount – Higher capital means higher registration taxes.
• Number of shares – Can’t divide shares so have enough for future distributions.
• Company representation – At least one rep with power of attorney to act on behalf. Can limit powers if desired.
It’s a hybrid system – incorporation docs are public record but share transfers are private. This provides some protection.

Buying in Personal Name:

If you register the property in your personal name but later wish to transfer it to a corporation, you will incur additional taxes and fees. The transfer tax alone is 1.5% of the property value. Notary fees will also apply based on the price of the land.
Therefore, if you may want to start a rental property business on the property someday, it likely makes sense to register under a corporation initially. This avoids paying the 1.5% transfer tax and extra notary fees in the future.
However, if you plan to use the property solely for personal residential purposes long-term, holding the title in your individual name is simpler and may suffice. When closing in personal name, you will need to be present at closing or have a power of attorney with someone who can attend on your behalf.

Closing Costs – How much do buyers pay in Papagayo region of Costa Rica?

Buyer pays all closing costs in most cases in the area of Papagayo in Guanacaste, Costa Rica. Sometimes escrow fee can be split between the buyer and the seller, but most times it’s the buyer that has to pay these. The sellers expect this too, as they had to pay these costs when buying the property.

Closing fees range around 4-5% of the purchase price and here’s the breakdown:
Transfer Tax 1.50%
Registry Stamp Tax 1,10% (this varied a bit and depends on the price)
Notary Fees 1.30% +13% VAT
These are the mandatory amounts.
Further are non-mandatory but highly recommended fees:
Escrow services: 0.25% with a minimum of $650/$750 + 13% VAT
Due Diligence: Depends on the kind of DD and what is investigated. The average fixed amount is $1250 + 13% VAT This includes 1 our free consultation.
Corporation: varies
The last three amounts may vary depending on the provider.

Some important notes in this regard:

1. Any charge based on percentage of the value (ea.: transfer tax, registry tax, notary fees) are based on the highest amount. This means either the registered one or the purchase price. When buying a property at below assessed value, the transfer taxes will be based on the higher assessed value, not the actual purchase price. This can be disputed with the corresponding tax authority.

   2. Before closing, certain other amounts need to be prorated such as but not limited to property and municipal taxes, and utilities.

Is Financing available to foreigners?

Financing is definitely available for foreigners looking to purchase property here in Costa Rica. However, it does work a bit differently than what you may be used to.
Banks in Costa Rica are usually willing to lend up to about 60-70% of a property’s value to foreigners. It’s wise to plan on putting down at least 30% if seeking financing.
Interest rates are also quite a bit higher here than the U.S. or Canada, for example. Expect to pay rates of 10% or more, even on mortgages.
If you have already acquired your residency, several banks offer a reduced interest rate to those with Costa Rican cedula.
The loan application process itself takes more time and documentation too. The bank will request things like bank references, income statements, your last few years of tax returns, and proof of assets. Keeping your finances in order makes this easier!
It can take several months to get fully approved and funded. So financing works best when you’re not up against closing deadlines. We suggest exploring options early when buying.
Some sellers are also open to partial owner financing and may offer short term financing of 1-4 years with 50% down, monthly payments, and a balloon payment at the end of the term.
Bottom line – financing for foreigners is readily available in Costa Rica. Just expect higher rates and a more rigorous application process than you may be accustomed to.

Concession vs Fee Simple Title

There are two main types of property ownership available to foreigners in Costa Rica – concession and fee simple. Understanding the key differences and benefits between these two structures is important when deciding which option best suits your needs as an overseas property owner.

A Concession is a long-term lease granted to a foreigner by the Costa Rican government. It allows the holder to utilize land or property for an approved purpose, such as tourism or development, over a set period of time up to 99 years. Most commonly concession agreements are for 20-25 years. The concession holder possesses usage rights but the property itself remains in public ownership. 

Fee simple indicates full ownership rights over a property comparable to those held by a Costa Rican citizen. The owner holds the title deed and has the right to use, sell, lease, or bequeath the property as desired. Ownership continues unless actively transferred. 

The key distinction lies in the ownership rights conferred. Fee simple represents outright private ownership whereas a concession is more akin to a long lease from the state. 

Concession holders must adhere to certain usage conditions set by the government and develop the land as per the concession agreement. Fee simple owners have fuller autonomy over property use decisions. 

Who pays the commission?

The seller pays the real estate commission most of the times unless a special agreement was made with the buyer. This may be the case where a buyer wants their agent to look for properties that don’t pay commission, such as private sales or foreclosures.

Post Closing Steps

– Woohoo, the keys are yours! As a new property owner though, a few tasks remain. Make these a priority to settle into your new Costa Rican life.
– First up, open a local bank account right away. This gives you a place to receive rental income if applicable, pay utility bills, wire funds for renovations – basically manage everything related to your home. Visit banks and bring the required docs to open an account. Costa Rican banks have a more complicated process to open a new account then in North America. Ensure you give yourself sufficient time to get this done, it may take up to a week. It’s a good idea to contact them by email first to get the list of requirements to save yourself time. Your attorney and agent may recommend good banks and connect you with a banking officer to assist you.
– Transfer all utilities like water, electricity and internet into your name. Same with services like pool maintenance or landscapers. Provide copies of your ownership deed – companies will need this verification. In most cases your attorney team will help with utilities’ transfer, make sure to ask, and if not ask your trusted real estate agent for help.

– Prepay any annual taxes or HOA fees. Some of these are minor and can be overlooked down the road, hence getting it out of the way from day one helps to avoid issues.
– While property insurance is not common in Costa Rica, review and update as needed. Property, liability, flood – ensure you have adequate coverage from day one. Shop around for quotes. Ask your agent for insurance broker recommendations.
– If purchasing in a gated/HOA community, let your neighbors and HOA board know about you so you don’t miss out on any important updates and announcements.
– If renting the property out, select a property manager and give them access to the property. Address any missing items or repairs needed before it can be rented out. Ask your real estate agent for recommendations on reputable property managers.
– Start enjoying your new Costa Rican investment property

Conclusion

Buying property in Costa Rica can be an exciting and rewarding experience. By following the steps outlined in this guide and working with experienced professionals, you can navigate the process with confidence. Remember to conduct thorough due diligence, engage a reputable real estate agent and attorney, and stay informed about local regulations and restrictions. With its stunning natural beauty, welcoming culture, and potential for capital gains and rental income, Costa Rica offers a wealth of opportunities for property buyers. So, start your search, find your dream property, and make your Costa Rican real estate dream a reality.