Owning An Airbnb in Costa Rica: Is It A Good Investment Strategy?

May 13, 2023 in Discover Costa Rica, Discover Costa Ballena, Real Estate in Costa Rica, Life in Costa Rica

Owning a vacation rental Airbnb in Costa Rica is an investment strategy that many of our clients are considering in 2022. But is it really a good strategy with a strong return on investment? We talked to three property managers to get the full scoop on investing in South Pacific Costa Rica’s vacation rentals market.

Vacation rentals in South Pacific Costa Rica are the best way to enjoy the ‘pura vida’ while on holiday. Staying in a hotel can be a fun way to meet other travelers. But for those who want to experience the ultimate in rest and relaxation while on holiday, a luxury rental home offers the most extraordinary living experience.

There are currently 1041 Airbnbs in Costa Rica’s Bahia Ballena market, where our Osa Tropical Properties real estate office is located. There are no restrictions on owning Airbnb investment rentals in Costa Rica and many have taken to using this platform to earn an income while they themselves are not using their home away from home in Costa Rica. Some of these homeowners have found that their return on investment is so good that they have added multiple vacation homes in Costa Rica to their real estate portfolio.

Shannon Thomas of Pura Villas, and Christine Schiferl of Jaguar Property Management, are two successful operators of luxury travel concierge and property management services in this South Pacific region. They both have substantial rosters of clients who enjoy a healthy income from their luxury home in Bahia Ballena — where the mountains meet the sea. They have witnessed a growth in the popularity of vacation rentals in Bahia Ballena in recent years and are excited about the potential that this market has to offer in the future.

Tourism in Costa Rica’s South Pacific

Nature in Costa Rica continues to be the number one draw attracting travelers. This tiny country the size of West Virginia in the U.S. or Denmark in Europe is home to 6.5% of the earth’s biodiversity. The landscape features lakes, rivers, waterfalls, mountains, volcanoes, and hundreds of miles of beautiful beaches on both the Pacific and Atlantic coast. This is a place for people who love the outdoors and plant and animal lovers are not disappointed with the diverse wildlife visible everywhere in this nation.

The growth in tourism in Costa Rica in recent years is a significant factor in inspiring seller confidence in our South Pacific Costa Rica real estate market. Prior to Covid, Costa Rica received 3.1 million tourists in 2019, signifying a 4.1% growth in tourism over the previous year.  By the end of 2021, Costa Rica received over 1.3 million international tourists – about 40% of the visitors who crossed the border in 2019. According to Costa Rica’s Tourism Institute, ICT, this figure increased with the start of the high season, which began in the last week of November of 2021, and will conclude at the beginning of March 2022. Costa Rica reopened to tourists early on in the pandemic.

Today, passengers from all countries may enter. Travel restrictions in Costa Rica are light, with no proof of a negative test required for travel into the country. Some establishments do request to see vaccination QR codes to enter but there is no mandate for this as of yet. Currently, travelers can fly directly to Costa Rica through the U.S., Europe, and Latin America, with over two dozen carriers traveling directly through numerous hubs. Travel experts forecast that the travel trends poised to shape the upcoming year include the desire for more nature, workcations, active holidays, and a return to socialization – all of which can be fulfilled in Costa Rica.

Costa Ballena’s Rental Market Analysis

According to Airdna, a rental market analysis platform, the area known as Bahia Ballena (Dominical, Uvita, and Ojochal) holds a B+ market grade (79/100). This score is calculated by comparing this market’s performance with the top 2000 global Airbnb markets. This is a market where there is moderate rental demand throughout the year that experiences seasonality, with a high revenue growth year-over-year.

  • The average daily rate in this market is $220 with a high in December ($255 average)
  • The average occupancy rate is 61% throughout the year (January of 2022 had an average occupancy of 83%)
  • 77% of the market is entire home rentals (as opposed to private rooms or shared rooms)

Airbnb is the most popular rental channel with 69% of the listings in this market and VRBO is the second most popular, hosting 20%. Of the 1041 available Airbnb rentals in Bahia Ballena, the average rental home size is 2.6 bedrooms with the ability to host 6.3 guests on average.

The top three requested amenities are internet, air conditioning, and parking. Surprisingly, only 53% of rentals in the area offer a pool. However, Christine Schiferl of Jaguar Property Management says that the top features that people want in a great Costa Rica vacation rental do include a pool. Christine’s list of top features that a luxury rental home must include for her company to take on a listing are:

  • At least 3 bedrooms, equal size, and hopefully equal view. Preferably more bedrooms, as there is a shortage of homes to host larger groups.  
  • Ensuite bathrooms
  • An ocean view
  • Pool
  • Covered (protected from sun and rain) outdoor lounge and dining spaces  
  • A/C (at least in the bedrooms)
  • Convenient location to town and beaches, preferably less than 10-minute drive and not a challenging road
  • High-speed internet
  • Stable cell service connection
  • TV/Satellite
  • Privacy
  • Sightings of wildlife and birdlife
  • Modern, contemporary, luxury, clean-line design and modern/stylish decor
  • Professional photography and drone shots are a must for website listings and marketing

Shannon Thomas of Pura Villas luxury property management agrees that great listing photography is one of the most important things for the success of a vacation rental in Costa Rica “I will say that a lot of my clients rent vacation homes based on the photos,” says Shannon. “I tell my clients that you can write beautifully, you can have a beautiful property, but the photos are the main selling point for most people.” 

Rental Income Comparisons

Christine says that the bulk of her property management clients have high-end luxury homes that rent solely for short-term vacation renting. “Luxury short-term rentals command high prices per night and have a higher occupancy rate. Hard economic times do not impact luxury vacation homes because the people renting luxury homes have money.” 

She says that hard times seem to particularly affect the lower range and midrange vacation homes. “Luxury homes seem to be more impervious to recessions and the stock market ups and downs.”

Shannon agrees that she prefers to work with luxury vacation rental homes that have at least three bedrooms. “You can have a great two-bedroom but the costs of running it are not so different. So if you have a two-bedroom rental, you're still going to have to pay for the pool, whether it's two or four bedrooms, they still charge you about the same for the pool, the garden, and other maintenance. So, with the cost associated, I would say three and four is where you're really making more money." 

A midrange, three-bedroom vacation rental home in Uvita has an average gross annual revenue of $66,100 with an average daily rate of $266 and an occupancy rate of 68%, according to Airdna. Comparatively, a luxury three-bedroom home in Uvita has an average daily rate of $322 has a gross revenue potential of $101,500 with an 86% occupancy rate. The average four-bedroom home in Uvita has an average daily rate of $534 with gross annual revenue of $176,700 and a 91% occupancy rate. The top revenue potential for a four-bedroom luxury vacation home in Uvita has the top revenue potential of $207,300 (gross revenue) at $725 per night at a 79% occupancy rate.

Top Rental Properties in Bahia Ballena

Rental prices in Bahia Ballena have a range that can be difficult to nail down. But looking at the revenues of the top properties in Bahia Ballena can show what this region is capable of offering real estate investors looking to get into the vacation rental market. The current top five properties for rental revenue in Bahia Ballena (in gross annual income, according to Airdna):

  • $318,500 for Villa Mareas in Dominical: A 36 acre, luxury, ocean view property with nine bedrooms that is popular for weddings and wellness retreats (rents for $1,264/night on average)
  • $313,700 for Art Villas in Uvita: A boutique hotel with five bedrooms (rents for $899/night on average)
  • $285,200 for Ombak House in Uvita: A five-bedroom luxury home (rents for $1,256/night on average)
  • $244,000 for this ocean view getaway in Dominical: A six-bedroom multi-level sunset views home that is popular for family vacations (rents for $942/night on average)
  • $255,200 for this ocean view home with private beach access in Uvita: a four-bedroom modern home (rents for $793/night on average)

Villas Mareas, which is for sale now, has a net rental income of around $176,000 annually after deducting annual expenses, giving this property a 5% return on investment. The sales price is set at $3,490,000.  

Luxury properties have the highest annual income, however, well-managed mid-range rentals have the best return on investment. This Ojochal property with rental cabins is a mid-range rental complex that could garner an 11.8% return on investment with an annual net income of around $73,000 if renting all four cabins at a 70% occupancy rate.

Setting Prices on Vacation Rentals in Costa Rica

Deciding on the price of a short-term rental involves checking around at other rentals in the area, comparing features, size, and location. Shannon Thomas says that her market rates depend on quite a few things. “We use the help of software and do market research before we set rates,” she says. “Then we do quite a bit of marketing. We will take the price down if it hasn't been rented in thirty days. If it's renting a lot, we might inch up the price. So we are a little bit flexible and don’t do static rates.”

She says that her team constantly reassesses their home roster’s prices throughout the year. “Keeping the rates competitive and reflective of the season is important to a rental home’s success.”  Long-term rentals are another story.

Osa Tropical Properties realtor, Rebecca Rowntree, who manages a handful of rental homes in Ojochal for her real estate clients says that her roster of rental homes are all long-term rentals and they are basically 100% occupied throughout the year.

Shannon says that this is because there is a shortage of long-term rental homes. “At this point, long-term rentals basically rent for $1000 per bedroom per month. So if you have a two-bedroom, you can at least get $2000 USD.”

Long-term rentals have become so popular in Bahia Ballena in the last couple of years because there has been significant growth in the real estate market here and many people want to rent for a few months to a year before deciding on where to build or buy their Costa Rica home, according to Rebecca. Many more families are moving to Costa Rica and require more bedrooms than the average long-term rental had just a few years ago.

“Depending on the view and the amenities, a four-bedroom home rents for at least $4000 per month plus utilities,” says Shannon. Short-term, nightly rates, however, depend on the season, says Shannon.

“Generally speaking, on average, it's about $100 per bedroom per night. But if you have a four-bedroom, I'd say per night, it starts at about maybe $350. These prices increase depending on the view and the season, escalating up to $800 during New Year's, Christmas, and other premium times. Really, there's quite a range on rental prices in Bahia Ballena.”

Most Popular Areas For Rentals in Bahia Ballena

In her experience, Shannon doesn’t think that a rental home's location is what sells first-time travelers to the Bahia Ballena.

“Most short-term rental clients don’t necessarily know the area and they're renting based on the look of the house and maybe the views and the idea that it's close to beaches. They don't necessarily know if it's Dominical, Ojochal, or Uvita,” says Shannon.

When looking at numbers alone, rentals in the most upscale part of Dominical, in Escaleras, collectively received an annual gross rental revenue of $46M in 2021, significantly dwarfing the average vacation rental rates in Uvita and Ojochal.  Escaleras has a higher number of luxury vacation homes on average. But rental demand is actually stronger in Uvita and Ojochal, according to Shannon. 

“Generally speaking,” says Shannon, “we've seen a lot more demand for the Uvita area. In Dominical and Ojochal, the occupancy rates have historically been a bit lower in my experience. That is starting to shift and this year we have seen a lot more interest in Ojochal. There are a lot of families moving here. A lot of the retirees who live in Ojochal have family that comes to visit and this sleepy village is starting to make more of a name for itself.”

She says that her returning clients are a bit more discerning about where they stay but most people renting for the first time don't necessarily distinguish or know the area enough to say where they want to be situated. 

“What they know is that the house looks awesome. The views are awesome. They like what the description says and that it has enough bedrooms to fit everybody. It has A/C in the whole house. That's more what they look at rather than the location,” says Shannon.

Airbnb as an Investment Strategy

Owning a rental property in Costa Rica may seem like a smart way to boost your passive income. There are, however, some challenges that need to be addressed.  Airbnb, VRBO, and HomeAway are just a few of the popular rental platforms that people turn to for a lucrative real estate investment strategy. Short-term renting through online platforms is preferred to long-term renting in many cases because, not only are nightly rates higher than monthly rates, there is also less commitment with a short-term renter.

With short-term stays, a homeowner need not be as concerned about their tenants being financially reliable or worrying about personality conflicts. Short-term rentals also allow homeowners to use their property whenever they want throughout the year. Renting a property to a long-term tenant may be a better option for those who are looking for more stability and fewer maintenance issues.

Long-term rentals decrease the homeowner’s involvement in managing the property, turning it into a minimal effort endeavor. Typically, long-term tenants are responsible for paying bills, keeping the home clean, and doing some basic yard work. Long-term property managers tend to only perform property maintenance or handle the occasional emergency.

Shannon says that short-term rentals are more work-intensive and must be kept in immaculate condition to receive great reviews. They will benefit greatly from having high-quality furnishings, decor, appliances, and amenities. Some owners provide basic food and beverage items like fresh eggs, coffee, milk, and condiments. You will also want to have cable TV and wifi.

“It can, however, take longer to start earning money for a new short-term rental property since bookings are often generated through the owner’s reputation and guest reviews,” says Shannon.  Property managers can help alleviate this challenge since their reputation is more formidable and they know the ins and outs of what rental clients are looking for. And building up great reviews is where property managers show their strengths.

“One home isn't equal to another home,” says Shannon, who says that she doesn’t make generalizations to her homeowner clients. “Most folks make more income on short-term rentals. Most of my homeowner clients also prefer to do short-term rentals because they are then able to come to visit the property themselves. What I tell homeowners is that their income from the property really depends on how much they want to come down or send their friends and family down.”

Property owners in Bahia Ballena who decide to spend a lot of time living in their rental home can end up forfeiting a lot of income by choosing to stay at inopportune times of the year. “I have a homeowner who has a beautiful, high-end luxury home in Escaleras,” says Shannon. “But they end up staying a lot during the high season. So their rental income is way down because they themselves are enjoying their home, which is totally fine, too."

"Whereas I have another beautiful luxury home in Dominicalito that makes great income because the owners come when it's the lower season," says Shannon. "And they also take monthly renters in the low season to increase their income generation opportunities. I actually often recommend a hybrid rental strategy where during low season you rent for monthly rates. And during the high season do short-term rentals.” 

Shannon says that a few of her clients prefer to do longer-term rentals for a variety of reasons, including the security of having a trustworthy renter. “Or they themselves plan to move down in a couple of years," says Shannon, who recognizes that short-term rentals do require more maintenance and some homeowners do not want that wear and tear on their future permanent home. 

“Right now, there's definitely a shortage of long-term rental homes available in the area so they're getting much higher rates than usual. Just due to that demand, if you have a long-term rental, you absolutely will rent it, and you will rent it at a very good monthly rate. “

Cost of Managing an Airbnb Rental in Costa Rica

Although some vacation rentals in Bahia Ballena do make a great rental income, property manager, Shannon Thomas, says that she finds it irresponsible for realtors in Costa Rica to tell their clients that they can generate x amount of dollars per year just by looking at the nightly rate and not informing their clients about all of the costs associated. Christine Schiferl of Jaguar Property Management tells us that rental property expenses in Costa Rica include (but are not limited to) the following:

  • Property management fee: around $250 per month (not everyone uses property managers but it is the only way to do business if you do not plan to live in the country and work every day)
  • Property management rental commission: 20% of the rental income
  • Property maintenance cost: between $250 - $600 per month, depending on the size of the property
  • Airbnb commission: 3% of the rental income
  • Annual property taxes: 0.25% of the property value
  • Luxury home tax: 0.25% - 0.55% of the property value
  • Income tax: usually 10% of net income (can be as high as 30% for the top earners)
  • Corporation tax: $380 annually

“Operational costs are much higher for short-term rentals, which need more regular maintenance and payment of utilities,” says Christine, who believes that marketing a property goes a long way in determining what an income property in Costa Rica can earn.

“What I like to tell them,” says Shannon, “is that if we market it well, we really can help them maintain their home here without any added cost. You know, they really can cover the cost of having a home here in Costa Rica and still be able to come to enjoy it themselves.”

“I think we need to set expectations. You can cover the cost of owning a home down here if done right and if you're not spending a lot of time in it yourself. There are so many costs associated, like the IVA income tax and the luxury home tax," says Shannon. "Profits have gone down for homeowners and I do think that real estate agents need to manage expectations. Things also come up that need to be taken care of. If something breaks, you have to fix it.”

Rental Income in 2022

Christine tells us that 2022 has been an amazing year for her business, Jaguar Property Management.

“I normally look at high-season, which is from December to April. Starting in December and January of this season, we have had all-time record-breaking rental income months for ourselves and for our clients. Of course, that being said, we had very few people staying here from March of 2020 when Covid hit and really nobody staying until starting December of 2020.”

“Rates are the same,” says Christine, who offered Covid discounts but no one came. “Offering discounts didn’t really work. People were stranded in the country and couldn’t get home and so we charged discounted rates because they were in a desperate scenario. But it didn't help attract people into the country during the initial lockdowns.”

Buying A Rental Property For Your Real Estate Portfolio

As great as all of these numbers sound, it is important that we mention that Airbnb accounts are not transferable so you will essentially be starting from ground zero when purchasing a vacation rental in Costa Rica. This is because rental platforms believe the reviews are tied not only to the property but the owners who manage it. Buyers are basically starting from scratch, other than being able to keep the name and having a great property that has a history of strong rental potential and clients who have already fallen in love with this property. 

Want to know more about if buying an income property in Costa Rica is right for you? Contact our team via email, or by filling out the contact us form below.

Login or register to comment
Recent articles