How to FI/RE in Costa Rica: The Basics

May 12, 2023

Financial independence and early retirement (FI/RE) are two linked dreams that have become a reality for many who choose to retire early in Costa Rica. When you think retirement age, you probably think of someone in their late 50s or 60s. While this has been the standard age for decades, people who strive for FI/RE retire much earlier, usually in their 40s, 30s, and even 20s.


Imagine for a second that you are able to afford your dream life in Costa Rica, no matter your age. Creating your plan for financial independence and early retirement can involve kicking back on the pristine beaches of the Costa Ballena most afternoons with a cooler of beer, warm friends and a colorful sunset. Perhaps learning how to surf on Costa Ballena's consistent breaks might be your way of maximizing the extra hours offered by our early morning, vivid blue sky sunrises. You, too, can live your most vibrant life by focusing on your health while managing your wealth from within a growing real estate and rentals market.


Economies are changing all over the world. Resourceful people are choosing to be more self-sufficient. When it comes to obtaining lasting financial fulfillment from a long-term career at one company, our trust is waning. Instead, people who FI/RE are choosing to focus on building investments and passive income streams so that we can live our best lives as early as possible.


What is financial independence (FI)?


Financial independence is typically defined as having enough income (from investments, passive businesses, real estate, etc) to pay for your reasonable living expenses for the rest of your life. You have the freedom to do what you want with your time (within reason). Working (full or part-time), hobbies which generate income, or other activities are optional at this point.


There are three main paths for achieving FI/RE:


  • Reducing expenses - Minimizing living expenses to a reasonable level is the most critical step. Five-star restaurants, vacation homes, and jets are generally not achievable as a reasonable financial independence goal. But if you can realize contentment with significantly lower expenses, your ability to reach financial independence is greatly improved.
  • Increasing income - Forget get rich quick schemes. There are solid choices each of us can make to increase our ability to generate a more steady and predictable income.
  • Investing - When heading towards financial independence, you need your money to work for you. You want long term sustainable investment returns and passive income streams. Money in a savings account won't grow at the necessary rate for FI/RE.


“Financial independence ultimately means that you can shape your life without taking money into consideration,” said Tanja Hester, a recent FI/RE graduate and founder of the website Our Next Life. “Most of us have to consider our finances in nearly every decision we make or maybe even make decisions solely based on money. But once we reach financial independence, we get the freedom not to be bossed around by what we earn or what we have saved.”


Why choose Costa Rica for FIRE?


Retiring overseas can provide a more fulfilling and less expensive lifestyle. Compared to some of the more popular retirement destinations within the United States, Canada, and Europe, South Pacific Costa Rica can be much less than half of the cost of living with the right FI/RE strategy.


There are a number of reasons to FI/RE in Costa Rica. Our South Pacific region, locally known as the Costa Ballena (Whale Coast) is a great example of a growing real estate and rentals market. Just in the last 5 years, tourism has grown by nearly half a million visitors. For a country of only 4 million to receive over three million foreign visitors last year is impressive and the trends in ecotourism are pointing to continued growth.


To accompany this growth in tourism, there are increasing examples of entrepreneurs who have chosen Costa Rica as a part of their investment strategy. Below, we will focus on our top three reasons why we recommend Costa Rica as a safe financial plan for financial independence and early retirement (with caveats).


Spend less/save more


Residing in Costa Rica is not the least expensive place that you can choose to live abroad. But if you are from any major city in Canada, the United States or Europe, you will likely pay significantly less for property taxes in Costa Rica. The average three-bedroom ocean view home situated in the gorgeous mountain communities above Uvita, Costa Rica costs around $700,000 (this number skews high because the incredible view lends itself to high-end luxury homes). Regardless, this works out to around $1800 annual property taxes for a beautiful, modern home with a dazzling ocean view. Compare this to paying $8100 USD in annual taxes for a similar property in the popular retirement communities of Lagos, Portugal. Or nearly $10,000 USD for a standard three-bedroom home in Orange County. Ouch.


Reduce your living expenses on everyday things like healthcare, food, water, and electricity. Many couples who live in Costa Rica spend less than $25,000 annually while renting a home in Ojochal, Costa Rica.


Learn self-sufficiency by spending more time doing things for yourself. Our Costa Ballena communities are still growing and so it is not always possible to find that part of that person who can help in a pinch. It is often that we end up waiting or finding solutions for ourselves. Many who FI/RE in Costa Rica end up becoming more resourceful and growing their skills in daily maintenance and typical repairs.


Earn more


Our growing Costa Ballena communities are seeing significant increases in expats and tourists over the last five years. This means that real estate can be a truly viable option for achieving FI/RE with the help of your investments in Costa Rica.


Most real estate investors who FI/RE will want to sell their real estate investment after growth of around $100-$150k. Despite seeing a few inflated prices in the local real estate market, our recent sellers who have also bought their properties in the past few years have seen considerable growth in quality property value over the last five years. Those entrepreneurial enough to build can expect to pay around $125/sq.ft for today's beautiful modern builds (blueprints, building permits, pool and landscaping installations, furnishings and appliance costs are additional). Place that lovely new home on a gorgeous, two-acre, ocean view lot in Dominical and you have yourself a recipe for real estate investment growth in our Costa Ballena real estate market.


Our Costa Ballena rentals market is thriving with many of the regions best offerings seeing an average of 70% annual occupancy rates. Some recent buyers of ours are seeing immediate rental returns of 8-10%, which is comparable to the US stock market average returns for a far more fun investment opportunity. Imagine receiving a steady rental income from a place that you truly enjoy visiting, too (in the off-season, if you don't want to impede your maximum FI/RE pace). Many investors prefer investing in real estate because it is a tangible asset you can use.


Boost your quality of life (while cutting your budget)


The purpose of moving to Costa Rica for a vast majority of us was to enjoy a healthier lifestyle. Here, you can experience more travel, adventure, and fun within your neighborhood. There are numerous natural wonders to visit in and around the Southern Zone of Costa Rica. This is a place where life can feel like you're on holiday every day thanks to the warm sun, fresh air and plentiful, beautiful wildlife.


In the Costa Ballena, we live in a part of the world where it is easy to feel inspired; to wake up and seize the day, every day. We live in a community where small business people feel supported by their local community. Many have turned their hobbies and passions into fruitful entrepreneurship. Handy gardeners may turn their crops into successful small businesses by selling jams, pickles, cheeses, and bread. And skilled craftspeople have found a sizable market of people looking for something new and exciting. No matter your passion, Costa Rica is a place that welcomes you to explore your potential.


Caveats to achieving FIRE in Costa Rica


Not every financial plan is a good plan, no matter the location. Every investment decision requires careful consideration. There are often the right ways and wrong ways to invest your money. Expert advice is essential for those who are not educated in an investment market and Costa Rica is unfamiliar ground for most people. Talk to our knowledgeable agents who are also experienced investors in Costa Ballena real estate. Please contact our office to learn more about our local real estate and rental market trends and the full cost of living in the Southern Zone.


Stay tuned for next week’s article about a few Osa Tropical Properties clients who have found FIRE in Costa Rica.


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