Investing In Costa Rica Vacation Rentals - Is It The Right Move In 2021?

May 13, 2023 in Real Estate in Costa Rica, Tips for Buyers

Vacation rentals in Costa Rica were one of the most searched topics on our website in 2019. In that record-busy year, over 50% of Osa Tropical Properties’ buyers purchased properties for use as short-term rentals. Those who bought vacation rentals in Costa Ballena were tending to use the property themselves when they visit on holiday and rent it the rest of the year to offset some or all of the costs of ownership. Their eventual goal for this property was to be their retirement in Costa Rica.  In 2021, after a year of global lockdowns, most rental homes are being used as long-term rentals because of the restrictions on travel. According to our newest Osa Tropical Properties realtor, Richard Owens, who doubles as a property manager, “the current rentals market in Costa Ballena is dominated by long-term renters. For short-term rentals, at the moment, we are really only getting bookings for the high season, which starts around Christmas time.” Rebecca Rowntree, long-time realtor for Osa Tropical Properties, says that she “constantly has people looking for long-term rentals. The majority are looking for something between $1000 and $1500 a month price point. There are so many people looking for that and it’s very hard to find, especially when they are trying to get in now for the high season.” On that note, we want to spend some time going over what our office is seeing today from buyers looking for income properties for sale in Dominical, Uvita, and Ojochal, and what we think will happen in the local rentals market in the near future.

What is the rentals market like in Costa Rica in 2021?

The start of this year has been very busy for our team of agents and the year continues to trend towards being even busy as travel restrictions ease. Rentals at the start of 2020 were close to 90% in some areas and then completely dropped off after March. But as Costa Rica’s borders open to more of the world, we are seeing rentals trending higher in 2021 than ever before. Those who were operating short-term rentals in 2020 saw next to no bookings for almost a year and many of these properties have been put up for sale, if they weren’t already. Osa Tropical Properties’ broker, Kevin Champagne, thinks that “because of Covid, people coming here right now want to live here full-time and so short-term rentals are having less success at the moment. I’m not seeing as many investors currently looking to buy properties to use primarily as short-term rentals for this reason.” However, those who are switching their rental M.O. from short to long-term are finding that having a long-term rental in Costa Ballena can be lucrative, too.

What makes a short-term rental different to a long-term rental in Costa Rica?

Short-term rentals are different to regular homes in Costa Rica because they are geared towards providing the fullest vacation experience in a short amount of time. They will be more about the views and proximity to attractions and less about year-round livability. For instance, most home buyers in Costa Ballena are looking for an acreage that will offer them privacy and space to garden or build. A short-term rental home, will sacrifice property area in exchange for views and will have A/C in every room to mitigate the heat from being located on a sunset cliffside. A long-term buyer is more likely to choose a slightly shadier or breezy property that has less impressive views but is designed more for comfort. A short-term rental is also less likely to have a shed or bodega for tools and extra storage, which is pretty necessary for full-time living at the property. And vacation rental houses often have an owner's closet that has their personal items stored away in a dry and safe area. According to AirDNA, a rentals analytics tool, the most important features in a short-term rental home in Costa Ballena are air conditioning, parking, and internet. The least important are heating, cable tv, and a hot tub. The analytics site also shows that the most popular average vacation rental size in this area is about 2.6 Bedrooms and able to house 6.2 guests.

Who is renting in Bahia Ballena in 2021?

Right now, long-term rentals dominate our coastal market. Families, digital nomads, and business owners who stay long-term in Costa Rica are coming with big budgets, ready to spend thousands of dollars on rent every month. Whether they are thinking about moving here for good or just looking for a different way of life for a little while, they are able to afford the expensive rental fees of some of the best vacation rentals, which would normally only rent to short-term renters because of the higher rental yields. Most, if not all, long-term rentals in Costa Ballena are booked for the foreseeable future, even though travel into the country has yet to fully manifest. The typically short-term rentals are either sitting vacant at present, or they taking on long-term renters at a decreased rate to their normal luxury prices, but with much more consistency, and much lower property management costs. Many more types of people are working remotely in 2021 and they are taking advantage of this new lifestyle by incorporating some vacation qualities into their everyday lives by moving to a more beautiful location. There’s nothing like making your office in the fresh air, with green and blue vistas all around you, dotted with color, and teeming with life. These are the types of welcome distractions that make water cooler banter feel like a thing of the past.

Why do people rent long-term instead of buying property in Costa Rica?

With the recent passing of a new law that allows foreigners to enter into the path to residency in Costa Rica after investing $150,000 USD into assets in this country (it used to be $200,000 USD), the doors to a long life in Costa Rica have opened for many more people. This feature has more younger singles and couples thinking about moving here, but for a variety of reasons, many are cautious about jumping in head first. Anyone who has visited an expat forum on social media knows that one of the most frequently given pieces of advice is to visit Costa Rica many times before buying, and to travel all over the country first. Some recommend renting for at least a year in the place you are thinking of moving. These people are not the majority but they represent a large portion of buyers who need to make sure that they are not just high on the holiday vibe and that they actually, really, really want to live in Costa Rica. They want to know that they will like the climate, the community, the services, and the everyday pace of life. And the pandemic has allowed for more people to embrace this patient attitude, spending more time renting and waiting for their perfect property to come up for sale.

What is the future of the short-term rental buyer’s market in Costa Ballena?

According to Richard, “it does seem like more people are starting to book now. It seems like more people are coming into the country, too. Southwest started flying back into the country again. According to my clients coming into the country, the lines at the airport and the delays coming through customs are long.” Richard says that “as more people get their Covid vaccines, we’re hoping to see more short-term rentals next high season.” Our website traffic corroborates this idea, with more people searching for Costa Rica properties this year than every before. Our Osa Tropical Properties website traffic is up by 250% over the last two years and 2019 was our office’s best sales year to date. This says to us that as soon as the travel gates open, we will see sales numbers increase dramatically. People have been waiting a whole year to break out of lockdown and they are ready for a change. “Basically," says Richard, "from what I’m hearing from people who are looking specifically for long-term rentals, they are having a heck of a time trying to find anything that is available for the foreseeable future." Rebecca is also confident in the future of rentals in this area. “One of the properties I was having a hard time renting because the internet wasn’t very good. But last week we were able to get a new internet service and now its gone and I don’t think it will ever be vacant for more than a day in the foreseeable future - like this year and next year.”

Should you buy an income property in Costa Ballena?

Although it is not our place to offer you financial advice, we do know what the buyers we work with want and what they are most happy with in a Costa Rica property. House hacking - where you own a property with multiple units and rent what you don’t use - is one of the most popular dreams that people come here with these days. They want to be able to make a life in Costa Rica work and part of that is to be able to earn an income. Many people find that having at least one rental on their property is a way to make this happen. Of course, short-term rental vacation properties in Costa Rica can have a bigger return if done property. But there are a lot of risks and expenses. It’s a game where you can win big and lose big. Although we are slowly rebounding, 2020 showed us that the short-term rentals market can dry up and crush the tourism industry. To be able to use a property as a short-term rental, a buyer needs to be able to make the numbers work with a lower but more steady long-term rental income. When times are better, rental owners can switch to short-term rentals for a higher income. There are currently 935 active rentals in Costa Ballena listed on AirBnb. The average daily rate for a rental home in this region is around $200 per night. In the last three months, the average occupancy rate has been about 40% and was between 60-70% for the first three months of the year. This is in a time when travel into the country is far from its full capacity. This makes for an an average annual gross revenue of about $60,000 USD on a standard rental in Costa Ballena, with numbers going into the three figures in the best rentals in the prime locations in this region. Looking at AirDNA data, since 2018, this region has seen an average of 8% quarterly growth in rentals, including the dip in 2020. And Q1 of 2021 is at the same level of the last tourism high in this region, which was in Q1 2020. Those who are waiting to buy a property in Costa Ballena are finding that the types of properties they are interested in are selling out from under them. In better times, we are in a popular region for tourism and are likely to rebound more strongly than ever when travel restrictions are fully lifted and people feel confident to move about again. Spending a holiday at an ocean view properties in our coastal, hillside jungles is a unique experience that many people want to experience again and again. The rental numbers for this region reflect that.

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