A Practical Guide for Property Buyers in Costa Rica

Herman Duarte HD@simple-legal.consulting | Lunes 15 julio, 2024

About the Author

Herman Duarte, founder of Simple Legal Consulting, is an immigrant from El Salvador who, after living in Costa Rica for 13 years, is now a proud Costa Rican. He holds master's degrees from Stockholm University and the London School of Economics and Political Science. Passionate about writing and research, Herman is widely recognized as one of the top lawyers in the region and a leading expert in investment and immigration law in Costa Rica. Drawing from his personal experience as an immigrant, Herman uniquely understands the challenges of navigating the immigration system and is dedicated to helping others successfully transition to life in Costa Rica.

Contact: www.simplecr.com / hd@simple-legal.consulting

Introduction

Dreaming of owning a slice of paradise? Costa Rica offers not only lush landscapes and a stable political environment but also a friendly investment climate. At SIMPLE Real Estate, by Simple Legal Consulting, we offer conscientious and honest legal advice, ensuring a smooth transaction for buying or selling properties. Here's what you need to know—and remember, our legal experts are here to assist you every step of the way.

1. The Importance of Due Diligence and understanding the type of property you are acquiring

Due diligence is essential and typically spans 30 to 60 days. But, what is a due diligence process? It’s a process of collecting, analysing and interpreting information to serve as an input of your decision making process to decide to buy or not buy.

This process includes verifying property titles, ensuring proper zoning, land use, confirming access to essential utilities, compliance with municipal taxes, review of any pending litigations. If applicable, the review of construction permits, to make sure that the property only has constructions that were duly authorized. It also allows the coordination with other professionals such as topographers and engineers to conduct site visits to verify different aspects of the property such as a verification of its dimension, the type of soil, the current status of the infrastructure, and verification that the property is outside a natural reserve or protected area.

For instance the property could be an amazing beach front house, with incredible access, but did you knew that typically beach front houses are just granted in a form of concession? In Costa Rica, property ownership is categorized into three main types, Concession Properties pertain to beachfront areas regulated by the Maritime Zone Law of 1977. The first 50 meters from the high tide line are public, while the following 150 meters can be granted under a government concession, typically for 20 years or more. Foreigners are not allowed to directly own these concessions; however, they can hold 49% of the shares in a Costa Rican company that holds the lease, with the remaining 51% owned by a local partner.

There are plenty of hotels that are structured respecting the 49-51% legal structure by having two or more corporations, where they use one to hold the concession and develop beach front amenities likes pools, restaurants, bars; and use another one, owned 100% by them to develop the infrastructure for the hotel. This is the only restriction that foreigners have in matters of land acquisition. However, it is expected that more restrictions will be legally implemented due to ongoing discussions around gentrification (see section 7).

Other than concession properties, in Costa Rica you can also acquire Registered Title Properties and properties based on possession rights. Registered Title Properties offer the highest level of ownership security, each assigned a unique identification number (folio real) and official map or plane (plano), recorded with the National Property Registry and guaranteed by the government, verifiable online through the Public Registry website. Despite their security, a thorough Property Title Search by a lawyer is prudent to uncover potential issues, such as incongruences that can happen in the dimension of the land.

Conversely, Right of Possession Properties lack formal registration, with ownership based on possession rights (simply someone stating that they owned the land for a certain period of time) in an unregistered Notary Public Deed, allowing squatters to gain ownership if they occupy the property for a certain period unchallenged by rightful owners. These happens in quite extreme circumstances, as there are two forms of property possession: regular and irregular. Regular possession requires continuous, public, and peaceful occupation for at least ten years, with the possessor believing they are the owner and holding an apparently legal document, while irregular possession involves at least twenty years of occupation without necessarily having legal documentation. While both can lead to ownership, regular possession is quicker and more secure due to stricter conditions, though both types carry risks of unrecorded claims.

Once its clear what type of property is it going to be object of a real estate contract, the process starts with a legally binding agreement that outlines the terms and conditions of your transaction, price, object of the contract, timelines, essential elements to review in due diligence, guarantee deposits, representations by the buyer and seller and of course, a dispute resolution clause (arbitration is suggested). This is the first crucial step in securing your investment.

Our team at Simple Legal Consulting expertly navigates these complexities, safeguarding your decision to invest.

2. Legal Representation

Navigating Costa Rican real estate requires expert legal guidance that will help you understand all the misdemeanour that are found in a due diligence process and to make sure you are actually purchasing what you are thinking you are purchasing. Our lawyers at Plan B by Simple Legal Consulting are pivotal in coordinating due diligence, involving other necessary professionals like topographers, escrow agents, engineers and notaries, to ensure a thorough evaluation of the property.

3. Choosing the Right Real Estate Agent in Costa Rica

Equally important to having legal representation when investing in Costa Rican real estate, selecting a great agent is crucial. A competent, diligent, and honest real estate agent can streamline the entire process, making your investment journey much smoother. They play a pivotal role in helping you navigate the local market, understand the legal intricacies, and find the best properties that meet your investment criteria.

We recommend working with professional real estate agents which tend to be specialized in areas:

• For instance, in the area of Cóbano, Cabuya, Santa Teresa and Playa Hermosa, we recommend working with Miss Jen Harter from CR Santa Teresa, who exemplifies professionalism and dedication in her work. Her expertise and local knowledge can be invaluable, especially for foreign investors unfamiliar with the region's real estate dynamics. You can reach her at Jen@2crsantateresa.com or visit her agency's website at Langston Realty to explore more about how her services can benefit your real estate endeavors in Costa Rica.

• In the area of Guanacaste, the expert we point out is Miss Rebecca Clower, founder of Blue Water Properties , a very kind, ethical, accesible, knowledgeable and resourceful real estate agent that is considered the leader on her field in the area.

• For the Uvita and Dominical area we had extraordinary experiences with Adrian Mena excels in client service and dedication.

• In San Jose, Michael Lawrence from Lawrence Home Real Estate and Michelle Salas from Property PV have given us evidence of professional and ethical management of their business, so we are happy to recommend and lead clients their direction.

4. Financial Considerations

Understanding the costs associated with your investment is vital:

• Legal Fees for conducting the due dilligence: To be agreed upon

• Real Estate Commission: Typically 5%-6% of the sale price.

• Notary fees for the closing: 1.5% of the sale price

• Transfer Tax: 1.5% of the sale price.

• Stamp Duty, Public Registry and Other Fees: Around 1% of sale price

• Escrow fees: To be agreed upon

Another question that is common is if there is a financing available for foreigners in Costa Rica. The simple answer is yes, either through certain banks that have establish special loan projects or through specialized financing companies, the possibility is real. We can assist you in exploring a wide range of options with various credit providers to ensure you find the best fit for your needs.

One notable example is NAMBI, a company that offers straightforward, direct, and fair financing options tailored specifically for foreigners. Their approach simplifies the process, making it easier for you to secure the necessary funds without unnecessary complications. By working with NAMBI and other reputable providers, we can help you navigate the financial landscape with confidence and ease, ensuring you have access to the resources you need to achieve your goals.

5. Escrow Services

Using escrow services adds a layer of security by holding funds until all conditions of the sale are met. In a simple glimpse an escrow is a company duly registered before the Financial authority (SUGEF) that serves a role of funds custody, so in the context of a real estate transaction the escrow will receive the guarantee deposit that is a standard practice to transfer as a good faith sign at the moment of the signature of the purchase option agreement. The transfer happens few days after the signature of said contract and will be in the hands of the escrow for the period of the due dilligence, in the case the due dilligence provides positive results and the parties decide to move forward, then the buyer will transfer the remaining funds to the escrow company, guaranteeing that the funds are available for the signature or closing date. The escrow, in this sense, plays a pivotal role in providing transparency, trust and peace of mind to buyers and sellers, as it has to serve as an independent and impartial party that merely holds the funds, and fulfills the instructions laid out on the purchase option agreement.

At Simple Legal Consulting, we ensure that your funds are handled with the utmost security and professionalism since we work only with the best Escrow companies in the country, helping you connect with trustworthy professionals. We have worked with different escrow companies in Costa Rica, and we can recommend several, such as Escrow International founded by the insurance and consumer law specialist Alexis Arias.

6. Post-Closing Processes

After closing, property title registration with the National Registry is essential, a process we facilitate to ensure everything is seamless thanks to our outstanding Notaries that have extensive experience in registration of properties for nationals and expats. We also manage the transfer of utilities and services, making your transition smooth and stress-free.

7. Cultural Insights: Involving the Community and Being Conscious of Your Impact

Understanding local negotiation tactics and market dynamics is crucial. Our team provides insights and guidance to help you navigate these nuances effectively, especially in smaller communities or rural areas.

Investing in Costa Rican real estate comes with a responsibility to the local community and environment. Here are some key points to consider to ensure your presence is positive and respectful:

• Engage with the Community: Actively involve yourself in the local community. Participate in local events, support local businesses, and build relationships with your neighbors. This helps create a sense of belonging and mutual respect.

• Understand Your Privileges: Acknowledge the privileges you may have as an investor or foreigner. Be aware that your financial power can significantly impact the local economy and social dynamics. Use this awareness to foster positive changes rather than contributing to displacement or inequality.

• Support Local Initiatives: Invest in and support community projects and local initiatives. This could include contributing to local schools, healthcare facilities, or environmental conservation efforts. Your support can make a significant difference in the well-being of the community.

• Promote Sustainable Development: When developing land or building homes, prioritize sustainable practices. Collaborate with experts like Ed Zaydelman from Live The Possibility, who focuses on sustainable home development and ecovillages. Sustainable practices not only protect the environment but also ensure that development benefits the local community.

• Balance Gentrification: Be conscious of how your investment may contribute to gentrification. While improving properties and infrastructure is positive, it's important to ensure that these improvements do not displace long-term residents or increase the cost of living beyond what locals can afford. Strive for development that includes and benefits the entire community.

• Cultural Sensitivity: Respect and honor the local culture and traditions. Learn about the customs and history of the area to ensure that your actions and investments are culturally sensitive and appropriate, one way to get involved in this matter is by investing in local Art, for instance, Costa Rica has a thriving list of artists that you can support, such as the eccentric and enigmatic artist Dino Real, that has left positive impressions all over America and Europe.

• Collaborate with Local Leaders: Work closely with local leaders and organizations to understand the community's needs and how your investment can align with their goals. This collaboration can lead to more inclusive and sustainable development projects.

By involving the community and being conscious of your impact, you can ensure that your investment in Costa Rica is not only beneficial for you but also contributes positively to the local society and environment. This balanced approach helps mitigate the negative effects of gentrification and fosters a harmonious relationship between investors and the community.

8. Future Considerations and Development

When investing in Costa Rican real estate, planning for the future is just as important as the initial purchase. Here are some key points to consider:

• Property Management: For absentee owners, property management services are essential to maintain and secure your investment. These services can include everything from routine maintenance and security to handling rental bookings and guest services. A reliable property management team ensures your property remains in excellent condition and generates income while you're away.

• Land and Home Development: If you're considering developing land or building an eco-friendly home, it's crucial to have the right guidance and expertise. Ed Zaydelman, founder of Live The Possibility , is a renowned guru in land development, ecovillages, and sustainable home development in Costa Rica. Ed's extensive experience and innovative approach can help you transform your property into a thriving, sustainable community or a beautiful, eco-friendly home.

By considering these future aspects and leveraging expert advice, you can ensure your Costa Rican real estate investment remains fruitful and rewarding for years to come. Whether you're planning to live on the property, rent it out, or develop it further, having a solid plan in place will help you achieve your long-term goals. In summary, partnering with the right professionals for property management and development, and staying informed about market trends are vital steps to securing and enhancing the value of your investment in Costa Rica. This strategic approach not only safeguards your current investment but also sets the stage for future growth and success.

9. Resale Value Factors

Understanding what affects resale value—like location, property condition, and market trends—is crucial for your investment’s future potential. We provide expert advice to help you make the best decisions.

10. Immigration Benefits

Investing $150,000 can secure temporary residence for you and your dependents, linking real estate investment directly to attractive immigration incentives. Our legal team can guide you through these benefits as part of your investment strategy. Typical requirements to obtain the residency as an investor includes the following:

• Birth certificate with apostille

• Criminal records with apostille

• Registration of your fingerprint before the police station. A previous appointment is needed.

• Consular registration

• Proof of investment: The minimum amount paid by you must be USD$150,000, so that means that you can finance a property that is worth more money but in order to apply, it has to be under your name and you must have paid at least USD$150,000. The property needs to be under your personal name, not a corporation. Certificate of taxes being paid and the value of the property issued by the Municipality.

• Payment of the government fees

It is also important to highlight you can get the residency through owning property in a personal capacity or through a corporation, although is highly recommended to do it through the a personal capacity to reduce the amount of paperwork, but each case has its own particularities to evaluate, so its best to schedule a call to explore.

Conclusion

Investing in Costa Rican real estate is a significant yet immensely rewarding decision. The country's vibrant culture, breathtaking landscapes, and stable economy make it an attractive destination for both personal and investment purposes. However, the intricacies of the local market and legal requirements necessitate expert guidance to ensure a smooth and successful transaction.

With the expert legal support from by Simple Legal Consulting, you can navigate this process with confidence. Our dedicated team will meticulously handle every aspect that must be reviewed, from due diligence and property registration to compliance with local laws and tax regulations. We are committed to safeguarding your interests and ensuring that all legalities are thoroughly addressed, giving you peace of mind throughout your investment journey.

Contact us today at Plan B by Simple Legal Consulting to ensure your journey into Costa Rica’s real estate market is not only successful but also fulfilling. We are here to transform your dreams of owning a piece of paradise into reality, providing you with the confidence and support you need to make informed and rewarding decisions. Let’s turn your vision of a new life or investment in Costa Rica into a tangible success story together!