 Costa Rica Real Estate FAQs
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How secure is a real estate purchase in Costa Rica?
It is just as safe to buy titled land in Costa Rica as it would be in the US, Canada, or Europe. The guiding principles of offer and acceptance and the public registration of ownership, leans and encombrances are no different here. Additionally, there are no restrictions on foreign ownership of real estate in Costa Rica as there are in some other countries such as Mexico. So, a foreigner has the exact same rights on titled real estate as does a Costa Rican.
Because of specific laws that govern real estate within 200 meters of the ocean, there are risks that you must take to own real estate in this region that lie outside of the general statement regarding titled land.
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Do I have to worry about squatters?
You don't have to worry about squatters if you take the proper precautions to protect your real estate investment. This begins by getting to know the community where you will be buying. In the vast majority of rural Costa Rica, squatting is practically un-heard of. Neither we nor any of our clients have ever had a squatter problem partly for this reason. The other reason is that we make it a practice to regularly inspect absentee owners' property, to avoid just such a situation. A squatter can gain some rights over your land in just three months of living there; you have to get a court order to kick him off if he can prove that he has been there for longer than 90 days (the police will evict him automatically if the time period is shorter). After a year of living there, it takes a more complex legal proceeding to evict him. Finally, after ten years living there, he can obtain a legal clear title to what was formerly your land.
However, they must live "openly and notoriously" in order to have any rights (i.e. they can't hide somewhere), and/or they must be farming the land. So, you must take at least one of the following precautions:
- Have your land inspected every three months
- Hire a caretaker with a signed contract
- Register your land under the law 7575
- Put an official mortgage on the land
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What is a "Net Listing" and how do I avoid it?
Unfortunately, "net listings" are very common in the Costa Rica real estate market. What is a net listing? A real estate listing that has the price jacked up by a middle man in the transaction. Very often, a seller will tell a real estate house or some third party, "I want a set amount for my real estate. Anything you can get above that, you can keep.".
Although this is legal in Costa Rica, and in a strict business sense could even be considered moral, it puts the buyer at a huge disadvantage. You go to a real estate broker to get help finding a "good buy" and they or some other third party has "snuck" a net listing in front of you.
For a quick example, a Costa Rican seller has a piece of property that they think is worth $100,000. They go to a real estate broker and say, "I want $100,000 for this property. You can keep whatever amount above $100,000 you can sell the property for".
The real estate broker then puts the property on the market for $200,000 and tells their customers it is a great deal. The buyer has no way to tell the real value of the property because usually these listings are not listed elsewhere and they are trusting to some extent the real estate broker. This type of transaction is extremely common...I could say almost commonplace.
To avoid "net listings" and other hidden commissions you should demand, as part of your purchase agreement contract, that all commissions and fees be disclosed. Have the seller bound to disclose all fees or commissions they will pay and do this at the outset before the taste of money is too strong.
Additionally, try to be aware of who is at your closing when the money exchanges hands. Generally speaking, the money is often dispersed to more than one person. Whole families are often involved. Ask who the people are and ask that the audience in the closing be only you, your lawyer, your real estate agent, and the legal seller(s). This will often flush out a nervious "comisionista" who doesn't want to miss out on his take.
As a final note, not all commissions are a bad thing. Very often we have local Costa Rican's find farms for us for which they often get commissions directly from the seller (in addition to the commission we pay them) at closing. This is not a bad thing as long as you are aware of what you are paying. The key, then, is full disclosure.
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Does Costa Rica have a national registry for real estate?
Yes. All publicly titled real estate must be registered with the Costa Rican National Registry by definition. This computerized system is widely recognized as being more advanced, and dependable, than that of many industrialized countries, including the US. But the rules are very similar. For example, the only way a third party can claim rights to titled real estate is if they have a registered lean or encumbrance. If you buy titled real estate, you can be sure there are no outstanding leans or encumbrances by referencing the registry.
This statement does not apply to "maritime" real estate in Costa Rica (those properties located within 200 meters of the high-tide mark). These properties are inherently more risky because they come with what is called a "consession" from the municipality rather than a registered title. However, we believe they can be bought safely if the proper due-diligence is performed. After all, it's the only way to buy beachfront in Costa Rica, and many hundreds of foreigners have done it safely over the years.
In sum, we recommend that you never buy in the public-zone (50 meters or less from the high tide mark), nor in the 200 meter zone unless the concession has already been granted. The only exceptions would be if you are fully informed of the risks and decide to take them anyway.
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What prices can I expect to find for real estate in Costa Rica?
You can buy real estate in Costa Rica for more than you'd pay in California and you can buy it for less than you'd pay in the bad-lands of Nebraska. However, we won't leave you that dissatisfied. Our expertise is in the south Pacific coast of Costa Rica and so the following applies mostly to this region.
As a sweeping generality, you can expect to pay on average between $2500 and $10,000 per hectare (2.47 acres) for raw farmland with very special features (ocean views, waterfalls, etc.). In one case we sold a 10 ha. farm for ~$300,000, or $30,000/ha. This is our most expensive sale to date on a per ha. basis for raw and unimproved farmland (the place was worth every penny and then some due to the views, proximity to the beaches, etc.).
There are four factors that drive the price to the upper limit. The first is, of course, the location. Proximity to beaches, tourist towns, etc. is super-important. Second, is size of the land. If you buy a small parcel, say 1 hectare, then you will pay more per hectare...economy of scale. The third is quality, broadly defined by the big four:
- Features (ocean views, other views, waterfalls, rivers, great topography, etc.)
- Access (close to a paved road with good gravel)
- Electricity (nearby is usually good enough)
- Water (good drinking water can be tricky even in a country with 4 meters of rain per year)
The fourth and final factor involves the law of supply and demand. There are only so many locally-owned choice properties still available in this tiny land, and they are being sold at a rapid pace. It seems that the worse the threat of terrorism gets in the US and Europe, the more folks from there want to come live or at least invest in Costa Rica. The effect has been to drive up prices, although there are still many good deals to be had.
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How much does it cost to build in Costa Rica?
Building costs are much cheaper than in North America or Europe. For a house built to US standards, for example, the cost averages about $50/sq.ft. For "tico style," the price drops by up to half. On the upper end, luxury starts at about $70/sq. ft. and goes up from there.
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What kind of building codes are there in Costa Rica?
Costa Rica actually has fairly stringent building codes, contrary to popular belief. The problem is that these codes are rarely enforced, especially in rural areas. If you want to build, we can recommend professional builders who moved here from the US after spending many years in the construction business. They will build according to North American codes and take care of all required permits for reasonable prices.
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Costa Rica Reforestation FAQs
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How would my investment in growing trees help the tropical rainforests of the world?
When your trees are eventually harvested, a significant number will very likely be sold to international markets, which will reduce the pressure to log the remaining primary rainforests. As the global population continues to expand unchecked, the demand for beautiful and durable tropical hardwoods will surely intensify-even as the natural supply shrinks dramatically. That's why it's crucial to create a sustainable alternative to nature's own precious hardwoods.
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What if everyone decides to begin growing tropical trees in plantations?
At the present rate of consumption, even if the number of tropical tree plantations doubled or tripled, we would only be able to supply 1-2% of the world demand for these woods. Moreover, a tree can only grow at a certain rate per year. Thus participation now in growing tropical hardwood trees insures that you are that much ahead of any future projects. When you consider that the population is increasing at an alarming rate, and the supply of tropical trees has virtually been exhausted, with very few tropical tree farms in existence today, it would seem likely that there will be continued rising demand for these beautiful woods.
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What benefits, if any, would my trees have locally, in Costa Rica?
Your trees you own would help Costa Rica significantly, across the board. One way would be to provide local markets with a farmed supply of valuable lumber. This would have the same positive effect on local forests as noted above on a global scale. Another would be to provide sustainable jobs and education for the local people.
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Will planting tropical hardwood trees actually help the global warming problem?
That is our aim. If enough folks join or follow us in our efforts, we think we can make a difference. Because carbon dioxide emissions can be offset by tropical hardwood plantations. At the very least, you can capture and sequester your own personal share of CO2 production-and every ton counts. This proactive approach will also provide an alternative supply of good tropical hardwoods grown on suitable soil. This will decrease the need to chop down primary forests to meet the ever growing world demand for wood and forest products. And less deforestation equals less carbon output.
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What other benefits are there of growing trees in the tropics?
Forgetting for the moment the financial profits to be enjoyed, the ecological and environmental benefits produced by a single growing tree have their own high value. What is one tree worth when allowed to grow for fifty years? Answer: $196,250, according to American Forests Magazine, broken down as follows:
- $62,500 in air pollution control
- $37,500 in water recycling and humidity control
- $31,500 worth of oxygen
- $31,250 in soil benefits
- $31,250 in wildlife shelter
- $2,500 worth of protein in bark and leaves consumed by wildlife
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What species of hardwood trees are you planting?
We advocate the use of a mix of native species, with some limited exotics where appropriate. Teak is one example of a very successful exotic, which we believe can be ecologically grown in Costa Rica. Our projections concerning the native species are less definite, due to the lack of historical plantation data. But we have many reasons to believe that these trees will eventually be as valuable, if not more so, than teak.
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When do you plant the trees?
Our trees are grown from specially selected nursery seeds. We move the trees from the nursery to the field for planting in June-July when the rainy season which begins in May is well underway.
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What are the risks associated with this investment?
As with any investment, there are certain risks which accompany the rewards. In general, trees are susceptible to damage by fire, especially during the first two to three years' dry season. After the fourth year of growth, however, the bark of teak trees becomes fire resistant, as do the leaves due to their rubbery quality. Moreover, in our case, the rivers and forests around our plantations are natural fire barriers. In addition, there is a low incidence of forest fires due to the moist, humid climate in Costa Rica, particularly on the Pacific coast where our farms are located.
Insects can also attack the trees. That's one reason why we favor using multuple species.
Our pioneering patchwork quilt style of planting different species in distinct groups throughout the farms, with multiple understory species amongst them, will further discourage any significant insect or disease damage. Even so, our experts will regularly inspect the growing trees for any potential infestation or disease and will have access to holistic pest and disease control methods in the event that they should be needed.
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What about hurricanes?
Hurricanes have historically not been a problem in Costa Rica. On rare occasions they have hit the Caribbean side of the country. However, there is an 11,000 foot mountain range which separates the Caribbean side from the Pacific side where our farms are located. This area acts as a huge buffer zone sheltering us from the heavy winds associated with such storms. We have also been very careful to select land with well drained soil.
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What if I want to sell my farm?
Investing in the growth of hardwood trees is long term in nature. Thus, your farm will only grow more valuable over time. If you do wish to sell it at any stage of its plantation life cycle, we would gladly help you market and sell it. In our experience, stands of precious hardwoods jump in value after the first year of planting.
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Why Costa Rica?
Costa Rica shares a unique position on the planet within a narrow range of the Equator where tropical hardwood trees flourish. The growing season is year round as opposed to regions where a winter season brings a dormant period. Therefore, growth rates exceed those in the United States or other similarly situated regions.
Costa Rica is a leader in offering incentives to reforest land. Resident investor status is granted to any investor in a certified reforestation project for a minimum of $100,0000. Costa Rica also offers tax exemptions and squatter protection to certified reforestation projects.
Costa Rica has been consistently rated as a low risk country for investment by the International Country Risk Investment Guide. In fact, INTEL, one of the most progressive countries in the world today has recently chosen Costa Rica over all other countries to build its new plant. Costa Rica is a democracy known for its predictable laws. Its Constitution guarantees private property, human rights and equal treatment of all people, including foreigners before the law. The country is free of civil unrest and does not have a standing army. In fact, Costa Rica has more teachers than policeman. Its people are hardworking and highly literate which makes for more reliable working partners.
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Is the increase in value of the trees each year subject to US income tax?
No. You do not have to report the increase in value and size of your trees nor do you have to pay any income tax until you actually receive the proceeds from their sale. This is another advantage over many other investments where you must pay taxes on the interest you earn each year, even if the interest is not paid out to you.
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Are there other people growing tropical trees in Costa Rica for investment?
Yes. Several other commercial growers such as U.S. based Stone Container Corp. are growing trees in Costa Rica primarily for paper and cardboard markets. These are not ecological operations, to put it mildly. There are also a large number of other hardwood plantations ranging from newly planted to 16-18 years old. The political stability and ideal growing conditions have also inspired others to grow tropical hardwood trees for interested investors.
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