Land in Costa Rica, good investment?
Flipper/Rehabber · Lenox, MA · Member since 2019 · 18 posts · 8 votes
Hi BP community! My partner and I have been given the opportunity to purchase some land (around 1 acre) in southern Costa Rica about 8km from the airport. We’ve always wanted to go there and have many friends and family who have traveled to CR and loved it, but have never gone ourselves. We’d travel there (at some point when Covid isn’t so damn scary) first before deciding. But for now are doing preliminary research and wanted to reach out to see if anyone here owns land/property in CR, has any insight into things we should be particularly cautious about, or just general advice on making such an investment?!?
Thank you all!
I have been investing internationally for a few years now. I'm very familiar with Costa Rica but have never invested there for reasons I mentioned below. Yet, I could mention a few points that could help you in making a decision even without going there.
Let me first make two preliminary remarks:
a. You give us very little information, which makes it much harder to give you a quality answer. One of the many things you don't tell us is what your is objective with the property. Do you even know yourself? This is the first thing you should know. However, in this specific case, it mightn't matter that much because one could pretty much come to a clear conclusion in this case.
b. I'm not sure what you mean by having the opportunity to buy some land in Costa Rica. It's a free market. Anybody can buy any property that's on the market.
Here are a few points that could help you:
1. One of the fundamental rules of investing is "Don't fall in love with your investments". The purpose of an investment is to make money. So as a pure investment, the facts that Costa Rica is a beautiful country and a popular tourist destination shouldn't matter if they don't make you any money.
2. Even though Costa Rica is beautiful and increasingly popular with tourists, that doesn't make it a great investment destination necessarily. I have the necessary knowledge and connections to invest in Costa Rica and yet I prefer to invest in other "neighbouring" countries like Mexico or the Dominican Republic because the returns on investment there are much higher there (and they're beautiful countries too). Why is that? Firstly, Costa Rica has become very expensive and properties will therefore cost you much more. The time to profitably invest was Costa Rica is decades ago when it was cheap and an emerging tourist destination; people who invest today are late to the party, in the main touristic parts of the country at least. Secondly, unlike Mexico or the Dominican Republic, Costa Rica doesn't have mass tourism as a result of a decision the country has made to limit the growth in development and tourism. While you might like this as a tourist, snowbird or retiree, it means that the occupancy and income you derive from your property will be much lower. Thirdly, a country like the Dominican Republic, which has invested massively in its tourism infrastructure, has had a much higher economic growth than Costa Rica and, as a result, has created its own middle class. This means that, if you invest there, you are not entirely dependent from the international clients because you have a domestic clients as well. Costa Rica is a very egalitarian society that hasn't done that well economically and, as a result, it doesn't have a real middle class to speak of and, therefore, you are entirely dependent from international clients, which makes it more risky. So your cost/investment and your risk are higher and your profit is lower. To have a great investment, it should be the other way around. A friend of mine developed a villa project in Costa Rica and is selling the villas. He's promising a 5% return on investment. The project is gorgeous and the buyer would end up with a beautiful villa. However, he'd have to pay 100% in cash and only make 5% on his money, with very low odds of a serious capital gain, given the price he's paying. It's so easy to make a higher return in the US, why anybody would take all the risks of investing in Costa Rica for a lousy 5% return makes no sense to me. Of course, in this case, the buyer would probably buy for its own use and might not even bother renting the property or might just be happy to rent just to recoup his costs. However, in that case, it's not an investment.
3. Land in Costa Rica, with the exception of a few strategic locations, is very illiquid. It might be very difficult to sell it at a profit, let alone sell it at all. Unless you have a strategically located piece of land, it's very risky.
4. In Costa Rica like anywhere else, it's still location, location, location. At first glance, the fact that the property is close to the airport is a good idea. Generally, when investing internationally, it's recommended to be within maximum 2 hours of an international airport. Indeed, people who have a 1-week holiday don't want to loose too much of it traveling. However, being too close to the airport isn't a good idea. Nobody goes to Costa Rica to hear the noise of planes.
5. Vacationers, snowbirds, retirees and digital nomads are your potential clients to monetize your investment. They go to Costa Rica for the beaches and/or the nature and the jungle. In Costa Rica, you can easily have all of them together so any property that isn't close to the beach and within easy access won't probably make a great investment. The only exception is the Central Valley that is popular with certain retirees but there is plenty of land available there and land isn't much valuable. Knowing where the airports are in Costa Rica, there is no way that you can be in a sought after location 8 kms from the airport. You can do a test that doesn't lie. Try to find a vacation rental anywhere 8 kms around the airport and you probably won't find any. That alone should tell you pretty much everything you need to know.
6. There might still be some investment opportunities in Costa Rica in the Costa Ballena because the access to it has recently become easier and quicker, which helps develop tourism. However, it'll never be as profitable as other countries like Mexico, the Dominican Republic or even neighbouring Panama.
Obviously, it's an other ballgame if you plan to use the property for yourself, in which case it wouldn't really be an investment. I'm not sure you'd want to stay at a place that is that close to the airport and that far from the beach though.
I own a house on a double lot and also 2 condos. The good news is that it is relatively easy for foreigners to own land or property, and there are plenty of expats there locally who can help you out. Also, a large amount of the land in the country is protected, and so there generally should be less development than other countries, making land more valuable. However, there is still lots of available land to purchase, and plenty of high end developments selling lots to people so that they might one day build on it. Hard to say if that is a good investment or not, especially now given COVID-19. Depends on whether you'd eventually flip the land, or build something to sell, or as a rental. Very hard to make the numbers work for long term rentals given the price to buy/build vs monthly rental. Also, it can be very hard to manage construction projects there long distance, and it can take a long time to build. So a better investment might be to buy something already built out.
Things to be cautious about - there are many micro-climates in the country, and many remote areas where the roads are not good. So, you really need to understand the location, how rainy it can be (the southern zone has a longer rainy season than other parts), how remote it is, and what the roads and other infrastructure is like. My husband and I opted to buy in the beach areas of Guanacaste, after visiting both regions, because we thought the remoteness and longer wet season in the southern zone would make a house harder to rent, and also shorten the ideal times of year for us to visit. But at the same time, some people love the remoteness in the southern zone, and some of the areas are quite nice and thriving.
@Lisa Dreher
Not worth it. More risk. If you ever have to visit, it will take a day to get there and a day to get back, expensive flights (only cheap now). Have lots in Nicaragua and it’s been an absolute nightmare. Some never got registered properly and still dealing with that. Costa Rica could be easier, but when you really factor all the costs do you expect the long term reward/return to be better than investing in the US?
Unless you plan on retiring there, I’d pass....
@Lisa Dreher I dont own they're but I do know someone who invests Guanacaste, he purchased land prob 15 to 20 years ago, fairly close to Liberia airport and was offered a pretty penny for it. He also own several rentals in which hes done extremely well on. I know it got pretty expensive to invest they're since it's become a hot spot destination. I've been they're several times and would love to own they're. If the numbers make sense I'd do it in a heart beat. Costa rica will only grow in the future. My first time they're liberia airport didnt have terminals yet, once they built the airport year after year the area only grew and will kee growing.
I have been investing internationally for a few years now. I'm very familiar with Costa Rica but have never invested there for reasons I mentioned below. Yet, I could mention a few points that could help you in making a decision even without going there.
Let me first make two preliminary remarks:
a. You give us very little information, which makes it much harder to give you a quality answer. One of the many things you don't tell us is what your is objective with the property. Do you even know yourself? This is the first thing you should know. However, in this specific case, it mightn't matter that much because one could pretty much come to a clear conclusion in this case.
b. I'm not sure what you mean by having the opportunity to buy some land in Costa Rica. It's a free market. Anybody can buy any property that's on the market.
Here are a few points that could help you:
1. One of the fundamental rules of investing is "Don't fall in love with your investments". The purpose of an investment is to make money. So as a pure investment, the facts that Costa Rica is a beautiful country and a popular tourist destination shouldn't matter if they don't make you any money.
2. Even though Costa Rica is beautiful and increasingly popular with tourists, that doesn't make it a great investment destination necessarily. I have the necessary knowledge and connections to invest in Costa Rica and yet I prefer to invest in other "neighbouring" countries like Mexico or the Dominican Republic because the returns on investment there are much higher there (and they're beautiful countries too). Why is that? Firstly, Costa Rica has become very expensive and properties will therefore cost you much more. The time to profitably invest was Costa Rica is decades ago when it was cheap and an emerging tourist destination; people who invest today are late to the party, in the main touristic parts of the country at least. Secondly, unlike Mexico or the Dominican Republic, Costa Rica doesn't have mass tourism as a result of a decision the country has made to limit the growth in development and tourism. While you might like this as a tourist, snowbird or retiree, it means that the occupancy and income you derive from your property will be much lower. Thirdly, a country like the Dominican Republic, which has invested massively in its tourism infrastructure, has had a much higher economic growth than Costa Rica and, as a result, has created its own middle class. This means that, if you invest there, you are not entirely dependent from the international clients because you have a domestic clients as well. Costa Rica is a very egalitarian society that hasn't done that well economically and, as a result, it doesn't have a real middle class to speak of and, therefore, you are entirely dependent from international clients, which makes it more risky. So your cost/investment and your risk are higher and your profit is lower. To have a great investment, it should be the other way around. A friend of mine developed a villa project in Costa Rica and is selling the villas. He's promising a 5% return on investment. The project is gorgeous and the buyer would end up with a beautiful villa. However, he'd have to pay 100% in cash and only make 5% on his money, with very low odds of a serious capital gain, given the price he's paying. It's so easy to make a higher return in the US, why anybody would take all the risks of investing in Costa Rica for a lousy 5% return makes no sense to me. Of course, in this case, the buyer would probably buy for its own use and might not even bother renting the property or might just be happy to rent just to recoup his costs. However, in that case, it's not an investment.
3. Land in Costa Rica, with the exception of a few strategic locations, is very illiquid. It might be very difficult to sell it at a profit, let alone sell it at all. Unless you have a strategically located piece of land, it's very risky.
4. In Costa Rica like anywhere else, it's still location, location, location. At first glance, the fact that the property is close to the airport is a good idea. Generally, when investing internationally, it's recommended to be within maximum 2 hours of an international airport. Indeed, people who have a 1-week holiday don't want to loose too much of it traveling. However, being too close to the airport isn't a good idea. Nobody goes to Costa Rica to hear the noise of planes.
5. Vacationers, snowbirds, retirees and digital nomads are your potential clients to monetize your investment. They go to Costa Rica for the beaches and/or the nature and the jungle. In Costa Rica, you can easily have all of them together so any property that isn't close to the beach and within easy access won't probably make a great investment. The only exception is the Central Valley that is popular with certain retirees but there is plenty of land available there and land isn't much valuable. Knowing where the airports are in Costa Rica, there is no way that you can be in a sought after location 8 kms from the airport. You can do a test that doesn't lie. Try to find a vacation rental anywhere 8 kms around the airport and you probably won't find any. That alone should tell you pretty much everything you need to know.
6. There might still be some investment opportunities in Costa Rica in the Costa Ballena because the access to it has recently become easier and quicker, which helps develop tourism. However, it'll never be as profitable as other countries like Mexico, the Dominican Republic or even neighbouring Panama.
Obviously, it's an other ballgame if you plan to use the property for yourself, in which case it wouldn't really be an investment. I'm not sure you'd want to stay at a place that is that close to the airport and that far from the beach though.
@Caroline C. Thank you so much for your response. I was concerned about the weather and how remote the location would be, so your comments definitely validated those concerns. Really appreciate your time.
@Daniel B. Thanks Daniel, you do make a good point about retirement. We actually were considering it be a long-term retirement investment.
@Michael Gessner Thank you! We were expecting things to keep growing and have only heard great things from folks who have been. Definitely need to go there before making any decisions. Appreciate your input!
@Mike Lambert This was all extremely helpful, thank you so much. Would’ve never thought of or known much of that info. So you have a little better context, here’s more detailed info:
My partner’s coworker owns 1.7 acres and bought it 11 years ago for $50K. He’s not looking to make any profit, so offered us the same price for the land he bought it at. When he heard our plans of putting up a $28K modular through this company https://www.containerhomes-costarica.com/home, he decided he may want to do the same thing and sell us half the land instead which we would be fine with. The land is between San Buena and Tres Rios, if that helps give context or changes anything.
Thank you again, all very important things to consider.
@Lisa Dreher What you're looking at doing is very specific and very different than what most (foreign) investors do in Costa Rica. I just sent you a private message.
@Lisa Dreher
Costa Rica is In my bucket list. Would love to go there.
@Lisa Dreher following! I love Costa Rica and thought it is a great escape for people on the East Coast.
It seemed like there were a lot of Expats there, some of which were doign Air BnB.
I think that this could be a good idea if you use it personally in addition to being an investment.
Hi there
Been in and out of CR fir the last 2.5 years. Reach out and I’ll tell you what I know
@mike lambert
Good points
You forgot one, corruption. We were working with local govt officials , everyone has their hand out
Makes it very difficult to develop
Also make sure it is titled land
@Ed Jesionka I actually voluntarily left corruption out of the equation and this is why.
My adopted home country of Canada is deservedly widely acknowledged as being one of the least corrupt countries in the world. Yet, a recent huge scandal brought to light that there has been systematic corruption in the construction industry in my province of Quebec for decades. However, being in the property development business here has been a home run during all that period. So, had we known about the corruption and not invested then, we'd have missed a huge opportunity.
Obviously, there is generally more corruption in developing countries. Mind you, Costa Rica is by far not the worst in that area. Also, Costa Rica is notoriously known as being a very hard place to get any sort of permits and that's another reason why I prefer countries like Mexico and the Dominican Republic. This is not because of corruption but because of their obsession (right or wrong) to (overly?) protect their environment.
So, sometimes, foreigners think they're victim of corruption even though that's not what it is. Since you've busy there for 2.5 years, I'll take you at your word that there has been corruption in your case. People who have been victim of corruption or ripped off in what place tend to tell others to not do any business there (I'm not suggesting that that's what you're doing). They mean it well, as they don't want other people to have to face the same problem. However, you can be a victim of corruption or get ripped off anywhere. As long as it's not systematic, that shouldn't be a reason for not investing. You won't stop flying because one plane crashed. This is the same thing here. This being said, there are countries in which corruption is way too prevalent but this is the thing. You wouldn't invest in those countries for many other reasons anyway. In all fairness, Costa Rica isn't one of those countries.
If you do business in any foreign country, corruption is a risk that you have to factor in. I don't know what you're doing or what you're trying to do there. I know North American (small) property developers who decide to start doing property development in Latin America on their own. I don't know what makes them think that they're smart enough to beat their local competitors but, of course, they generally can't. They might be thinking that they're better, smarter and/or more sophisticated but, even if all of that was true, that isn't what counts here.
The way that I'm going around this in my projects in Mexico and the Dominican Republic is by working with a local partner. Yes, I'll have two share the profit with them but they'll bring more than their fair share to the table. They know how to deal with permits there so I don't have to be involved.
All Very True
Thank you