Acquiring Your  Dream Tropical Retreat: A Comprehensive 2024 Guide to Buying Real Estate in Costa Rica

If you're contemplating ownership of a slice of paradise in Costa Rica, you're in the right place. In this guide, we'll address the essential aspects of purchasing and owning real estate in this idyllic destination, catering to both seasoned investors and those seeking their dream retirement home.

1. Can Foreigners Buy Real Estate in Costa Rica?

Absolutely. Whether you're a legal resident of Costa Rica or not, the doors to property ownership are wide open. Your passport serves as your primary identification throughout the acquisition process, whether you're looking for a retirement haven, an investment property, or a commercial venture.

2. How is Property Ownership Registered in Costa Rica?

All real estate properties in Costa Rica are meticulously documented in a centralized computer system known as Folio Real, which acts as the property title number. As part of your due diligence, it is imperative to perform a title search in the Public Registry. A thorough title search reveals vital information such as property ownership, boundaries, location, and any existing mortgages or liens. At Osa Tropical Properties, we ensure all titles are spotless before listing a property for sale.

3. Understanding the National Registry

The National Registry, headquartered in San José, is the authoritative body responsible for maintaining records of all titled properties in Costa Rica. This digital repository holds registered surveys, certifications of property, corporate documents, and property survey maps. You can access the National Registry's online services here.

4. Exploring Title Insurance and Financing

Title insurance is not currently available in Costa Rica, which is why foreign financing options are limited. At Osa Tropical Properties, we guide our clients through the due diligence process to ensure a clean title. When you're considering purchasing property in Costa Rica, it is standard practice for your Costa Rican attorney to confirm the following in the due diligence process:

- Ownership issues
- Liens, mortgages, contracts, and encumbrances
- Fraud and forgery safeguards
- Right of access to the land
- Covenant limitations
- Transfer-related complications

When exploring title insurance, be sure to validate the reputation of the title company, seeking referrals from trusted sources. Financing options are available within Costa Rica but the rates and terms reflect the difficulty in securing a safe financing transaction for both borrower and lender. Rates can be anywhere from 6% to more than 14% with at least a 50% down payment. Our team of realtors has first-hand experience working with financiers in Costa Rica and it is a complicated process with both pros and cons. If you'd like to learn more, we'd prefer to explain our thoughts on the subject one-on-one in a phone call or online chat. Contact us via email now: info@osatropicalproperties.com

5. Zoning Rules and Restrictions

Costa Rica places a strong emphasis on conserving natural beauty, designating numerous areas for nature preservation. These conservation areas are officially annotated in the National Registry. Additionally, certain communities like condominiums and gated communities might have their specific rules and regulations. Carefully review these guidelines to ensure they align with your preferences.

The most notable zoning restriction in the coastal regions of Costa Rica is the Maritime Zone. This specific zone governs the first 200 meters from the high-tide line on coastal properties. The first 50 meters are public, and the next 150 meters are subject to concessions and specific regulations. Additionally, certain areas in Costa Rica have specific environmental regulations. Check whether the property is in a protected zone and whether this affects your plans to build now or in the future. This can require an INVU study to assess if there are any environmental concerns that would impede building permits being issued. Various environmental regulations might affect property ownership and development, including Protected Areas and National Parks Maritime Zone Law Water Protection (Rivers, streams, wetlands, springs.

6. Retaining a Real Estate Attorney

Engaging a seasoned real estate attorney is crucial for ensuring a smooth property transaction. Look for an attorney with the additional credential of a Notary Public (Notario Publico), as they are vital for certain transactions. In Costa Rica, a Notary Public is distinct from North America, requiring the individual to be an attorney who undergoes specialized training and examination to attain this status.

Only a Notary Public can record a property purchase in the National Registry. Moreover, it's essential that your chosen attorney maintains a SUGEF-approved escrow account and collaborates with reputable private or title companies to secure earnest money held in escrow. Ask your trusted realtor for their recommendations of notaries since they will have worked with all of them and know which ones have the most satisfied clientele as this process can be challenging for some buyers and a notary can make or break deals depending on how they operate.

7. Starting Your Property Search

Begin your property search by exploring a wealth of information available online. Our Osa Tropical Properties website is a valuable starting point. But, nothing beats visiting Costa Rica and immersing yourself in the local lifestyle to gain a real sense of your future in paradise.

8. Why Choose Osa Tropical Properties?

Osa Tropical Properties proudly boasts 20 years of experience in Costa Rica's real estate market. As members of CCCBR, the official regulatory body for the industry, we provide unparalleled expertise. Our in-house marketing efforts include a versatile and productive social media presence with strong followings across numerous platforms including our proprietary database. Audiences can preview our exclusive listings in a variety of formats, including professional real estate photos, realtor-led video tours, drone tours, and detailed property descriptions.

Osa Tropical Properties is a family-owned business, with licensed real estate agents fluent in English, Spanish, and French, who are committed to serving a diverse clientele. For real-life testimonials, visit our website and read what our satisfied customers have to say about us.

9. Understanding Real Estate Commissions

Real estate commissions in Costa Rica can vary based on the services rendered. It's crucial for both buyers and sellers to discuss these fees with their real estate agent to ensure transparency and clarity. Typical real estate commissions range from 6% to 10% of the property sales price (the percentage value depends on the type of property) and this is most often paid for by the property seller.

10. Purchasing Investment Properties (Rental Homes, BnBs, and other Accommodations)

Increasingly, expats are pursuing rental properties in Costa Rica for income generation and a change in lifestyle. Over 50% of Osa Tropical Properties’ property buyers are now looking for rental properties, aiming to leverage their investments in a lucrative market.  Costa Rica's strong tourism industry, booming digital nomad community, and growing popularity among travelers make it an attractive location for rental properties.

Property investors purchasing the right type of income properties (typically new, modern, ocean view, with resort-like amenities, etc.) can expect annual returns of 6-10% or more on their property investment. However, it's important to note that immediate returns on investment may require renovations and property upgrades as well as consistent maintenance costs.  While owning rental properties in Costa Rica can potentially provide a steady income stream, property maintenance, property management, and tax responsibilities are common expenses to consider that can become burdensome if the property is not experiencing success with rentals. Investor buyers should be prepared for ongoing maintenance and management costs and tax responsibilities that make income property ownership more about business than pleasure.

11. Making an Offer

When making an offer on a property in Costa Rica, your offer should be in an official written format, clearly stating all terms and conditions. Once both parties agree on an offer, a real estate broker's notary will draft a purchase and sale agreement. This agreement serves as the legal document governing the transaction. It's customary for the buyer to deposit the agreed-upon amount into an escrow account upon signing the agreement. If you're traveling to Costa Rica to make an offer, consult your local banker before leaving home to ensure you're prepared for a wire transfer. This step is essential because a purchase and sale agreement is not legally binding until your deposit is secured in an escrow account.

12. Handling Escrow Funds

Escrow funds are typically transmitted via wire transfer, although the process may take a few days due to banking procedures in Costa Rica. Rely on your real estate attorney to guide you through the steps to ensure a smooth transaction. When engaging in real estate transactions in Costa Rica, it's crucial to be aware of the 'know your customer' (KYC) process. The KYC form is a standard requirement in the country's real estate industry. This form might appear intrusive, but it's a necessary step to ensure transparency and adhere to Costa Rica's strict money laundering regulations under SUGEF. By understanding the significance of the KYC form, buyers and investors can be better prepared for its requirements and navigate the process with ease, ultimately contributing to the country's efforts to combat money laundering.

13. Purchasing with an IRA or other overseas retirement program

You can use your IRA to buy rental property in Costa Rica for retirement income. This can also be done by loaning money as a mortgage backed by real estate. Considerations:

- It's complex, so work with a qualified tax accountant to follow IRA rules.
- Use SDIRA funds for property expenses.
- Property earnings must return to the SDIRA account.
- After 59½, you can withdraw the property, making it taxable income in the U.S. unless you use a self-directed Roth IRA.
- Consult your financial planner, attorney, or tax accountant before proceeding.

This allows you to invest in Costa Rican real estate using your IRA, but it requires careful financial planning and adherence to IRA rules.

14. The Closing Process

Closing involves a meeting between you, your real estate agent, your real estate attorney, and the seller to execute the necessary closing documents. If you won't be present in Costa Rica for the closing, you'll need to designate a trusted individual with a special power of attorney to represent you.

15. Choosing the Right Property Title

Your real estate attorney will offer guidance on how to register your property in Costa Rica. You can register it in your name, jointly with a spouse or business partners, or through a legal entity such as a corporation. Discuss the legal aspects of these options with your attorney to determine the best fit for your situation.

Quick facts for owning a corporation for real estate in Costa Rica:

Types: Two primary corporation types are Sociedad Anónima (S.A.) and Sociedad de Responsabilidad Limitada (S.R.L.). S.R.L. is more common for simple asset holding, while S.A. is for complex businesses. (Click here to learn more on this subject from a Costa Rican lawyer).
Opening: Incorporating a company requires two incorporators appearing before a Costa Rican Notary Public, and a company can be owned by a single individual after registration.

Annual Maintenance:

• Company Tax is around $115 by January 31.
• Shareholder and Beneficial Owner Disclosure Form (form D-101) is around $200 by April 30.
• Annual shareholder meetings must be held and recorded in the shareholder minutes book.

Power of Attorney: Owners may confer a Power of Attorney for certain acts on behalf of the corporation, typically before a Notary Public.

Advantages:

• Corporate Personality: A corporation is legally recognized and needed for various services.
• Limited Liability: Members' liability is generally limited to their contributions.
• Perpetual Succession: A company remains the same entity even with changes in members.
• Transferable Shares: Shares can be sold or transferred.
• Earning Income: Easier for businesses and permits.
• Opening a Bank Account: Simplified with a corporation.
• Dissolving: Can be done but may incur transfer taxes and capital gains taxes upon sale.

Consider the benefits and requirements when deciding to use a corporation for real estate in Costa Rica.

16. Understanding Title Transfer Costs

Title transfer costs in Costa Rica typically amount to between 4% and 5% of the total sales price, excluding financial fees. These costs are traditionally shared between the buyer and seller unless otherwise negotiated in the purchase and sale agreement. These costs encompass legal stamps, transfer taxes, notary fees, and other miscellaneous expenses. Your attorney will provide precise advice on these expenses.

In Costa Rica, closing costs for a real estate transaction can vary. They are typically shared between the buyer and seller but can be negotiated. Here's an overview of the key components:

• Transfer Tax: Usually paid by the buyer, about 1.5% of the property value.
• Notary Fees: Typically falls on the buyer, around 1.25% to 2% of the purchase price.
• Registration Fees: About 0.5% of the purchase price, typically the buyer's responsibility.
• Stamp Duties: Usually the buyer's responsibility, adding up to about 0.05% of the purchase price.
• Legal Fees: Normally paid by the buyer, ranging from 1% to 2% of the purchase price.
• Municipal Taxes: Typically the seller's obligation, prorated for their ownership period.
• Real Estate Commission: Generally covered by the seller, around 8% of the purchase price.
• Title Insurance: If chosen, it's usually the buyer's responsibility and may range from 0.5% to 1% of the purchase price.
• Survey Costs: Often the buyer's responsibility, varying by property.
• Bank Fees: If financing, costs like appraisal fees typically fall on the buyer and vary widely.
• Escrow Fees: These vary by provider and are often shared between the buyer and seller or as negotiated.
  
  

17. Annual Taxes and Additional Costs of Property Ownership

As a property owner in Costa Rica, you will be subject to an annual real estate property tax, amounting to 0.25% of the property's registered value. During your due diligence, your real estate agent and attorney will help you navigate the tax regulations and other potential costs related to your property:

• Condominium fees: If you're part of a condominium or gated community, ensure you receive comprehensive documentation outlining fees and their coverage.
• Utilities: Your attorney can assist in transferring utility services to your name or under a corporate entity after your property deed is registered.
  
  

Conclusion

This guide provides an overview of the crucial aspects of property ownership in Costa Rica. With the support of your real estate agent and attorney, you'll confidently navigate the process. Contact Osa Tropical Properties to work with our team of experienced professionals as you embark on your journey to own a piece of paradise in Costa Rica. 

For more FAQ about investing in Costa Rica answered directly from a lawyer, please visit this article.