SHOULD I RENT OR SHOULD I BUY IN COSTA RICA?

SHOULD I RENT OR SHOULD I BUY IN COSTA RICA?

A very common question I receive when people begin looking at moving to Costa Rica is, “Should I Rent or should I Buy in Costa Rica”? People make the point that you should rent in Costa Rica for a while, to make sure you like it before you buy. There is obviously some merit to this and of course each person has a different opinion.  Personally, I have always been a firm believer in home ownership as that is the American Dream right?  
 
I have owned many properties in my life, buying my first house at 29 years old. I have never wanted to rent a property for quite a few different reasons.  First of all, it isn’t MY property.  So I can’t do what I want. I am at the mercy of the owner and must live by their rules.  Now, if the owner happens to be a great guy, who is very flexible, then that might work out ok.  But what if the owner isn’t easy to deal with?  We have all heard the horror stories of crazy landlords and I have never wanted to put myself in that situation.  
 
There are also some things you have to remember about Costa Rica. We are not your normal real estate market like you might have in Omaha, Nebraska.  The majority of people who buy real estate here in Costa Rica are planning to use it themselves.  They have searched the world and picked Costa Rica as their destination.  They toured all over this gorgeous country and found our little paradise here in Playa Hermosa and the Papagayo.  They are planning to use this property as their vacation home or their retirement home.  So the last thing they want to do it rent it out on a long term full time basis. 
 
There are 3 types of buyers:

  • The first are people who are going to live or retire in Costa Rica.  Even if they are only going to be snow birds, they will spend at least 6 months a year in their home, but many live here full time year round, only going back for various holidays and family events.  There is the ability to rent or lease the property to visitors and make some revenues from the property.
  • The second type of buyer is someone who is purchasing this home as only an investment and they want to maximize their return.  If you spend any time on the internet, talking to property managers and rental companies you will quickly find that the rental market is doing GREAT.  Most people who own a condo or a house here have a company that rents it to tourists for short term rentals.  The majority of my clients, who are renting their homes this way, are getting anywhere from 20 to 25 weeks a year of vacation rentals, and sometimes MORE.  This of course depends on the quality of the property and the skill of the manager, and your commitment to making it happen, by spending the money it takes to make the home appealing.  And usually they can get as much for one week to a vacation renter as they can for a month, to a long term renter. 
  • The buyer has the ability to use it, during the vacant weeks and months.  This is the most common buyer’s profile.  They want to be able to use this property anywhere from 4 to 8 weeks a year or more and have the home making them money when they aren’t. There are some fantastic vacation rental agencies in town who can give you more information on what you can expect to make on a property.

          Jeffry at Milagro Management and Rentals http://www.milagrorentalscostarica.com/
          Tim at Zindis http://www.zindis.com/Yannick at Special Places Costa Rica http://www.specialplacesofcostarica.com/
          Dean and Sandy http://www.emeraldcostarica.com/
 
  • The third buyer is someone who is purchasing the home today, with the plan to move here fulltime in the future. They usually have a 5 year plan of action and have to make a decision on what to do with the home in the meantime.  They are purchasing today because it is a Buyer’s market now and they want to get the absolute best price they can.  If they wait 5 years to buy, many people feel they won’t be able to afford the same quality of home they can get today, in a down market.  And the majority of these people always say the same thing to me.  “I don’t want someone sleeping in my bed” so they leave the house empty, and just occasionally come down and use it until they are ready to make the jump fulltime.  The Majority of these buyers DO NOT rent their homes out at all but instead choose to have a property manager look after the house while they are not there.  Some of these people do occasionally rent their homes long term yet many of them still choose the second option of vacation rentals when they see the potential for income.  If they choose to rent this home long term, we tend to have a problem. Here is what it is.

Many of these homes are not your basic rental home.  They are very nice properties, many of them worth substantially more than your average rental property in the USA or Canada.  If someone has $500k invested in a retirement property, they surely aren’t going to rent it to someone for what most renters want to pay.  The average long term renter wants to spend $1000 to $1500 per month or LESS on their home or condo.  Obviously, someone who has spent alot of money on a gorgeous retirement property is not going to allow someone to live in it for this small fee.  So they choose instead to leave the house vacant and just have a property manager look after it for them, especially since the carrying and operating costs on properties here in Costa Rica is relatively small compared to North America or Europe.  There are a couple great property managers who can give you an idea of the costs to maintain an empty home.
Wes and Lisa Rintelen lisa@zindis.com
Chuck Levanchy chuckl7@aol.com
Most renters find out very quickly 3 things:
  1. Most properties are not available for long term rent.
  2. The properties that are available are much more money than they are willing or capable of paying.
  3. They must settle for living in a home way below their standards.

This is what I usually find out happens to most people who come here and rent.  They end up staying in what we would call a Tico home.  It is a very simple home, nothing like you would rent back in your home country.   There is no swimming pool or beautiful yard.  Many times the property doesn’t even have hot water.  There is no dishwasher or dryer and very rarely does it have AC.  The house or condo is usually located in a less desirable location, and this lends itself to other potential problems, such as break-ins and crime.  If they are one of the few lucky ones who do find a suitable North American style home for rent, they have to worry about other potential inconveniences.  The owner or landlord NEVER wants to rent the house for more than a year lease, thus people have to almost immediately start trying to figure out where they will live next year.  
Also, the market is definitely coming back and prices are rising.  So you have to worry about the landlord or owner raising the rent substantially on the second year lease or even selling the house out from under you, as the prices here climb back up the ladder.   The new expansion of the Liberia airport is bringing more and more people every day to the Papagayo.  So the homes that might be sitting for sale, and available for rent, are being sold and coming off the market.  Inventory is shrinking, as it becomes harder and harder to develop in Costa Rica.  This country makes it incredibly difficult for a developer to take a project from raw land to completion.  So we are not going to see a constant flow of new inventory like you might in other countries.  This of course will create more demand than supply, and inventory will shrink and prices will rise.  Just recently, I have had 3 different clients try to find a long term rental, and every single property manager told them the same thing: “Sorry, we have nothing available.”
 
South America is also now a direct destination to Liberia airport as COPA airlines bring buyers direct from Argentina, Brazil, Chile, Colombia Venezuela and Panama.  There is a tremendous amount of wealth in South America and we are very excited about seeing that money here in our back yard.  Also, remember, May to September is South America winter, so our slow season will become a second high season, as those people want to get away from the cold and enjoy a nice Costa Rican beach vacation. This will allow year round vacation rentals to flourish, drying up any other long term rental opportunities.
 
Also, I have found, that probably 95% of the people DO fall in love with Costa Rica and end up wanting to make this their residence.  But by the time these people figure it out, the Buyer’s market will be gone and they will pay substantially more for the same house that they could have bought it for today.  So let’s say you find a nice home that you can buy today for $300,000.  If you rent that house for 2 years at $1500 a month you just burned up $36k.  In two years you will probably pay a minimum of 10 to 20% more for this house, as we are just flat out running out of inventory. Which means renting for 2 years just cost you somewhere between $66 and $100k.  I don’t know about you, but that doesn’t seem to make good financial sense to me.  I would rather buy that house now, while the market is a Buyer’s market, and then if for some reason I decide to return to the USA, sell the property and make that money myself.
 
The reality is, most people who are telling you to rent before buy, are probably saying that because they just can’t afford to purchase.  People, who can afford to purchase homes, ALWAYS buy and never rent. Remember, successful people got wealthy by BUYING at the right time and SELLING at the right time. Don’t wait a couple years to come down here and purchase.  The deals will be gone and you will be kicking yourself for missing out on the opportunity.
 
 Pura Vida