Do You Have to be Rich to Buy Land In Costa Rica?

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I received the below e-mail last week and have been working with “Jim” (name is changed to protect…).  His situation is one that I think a lot of folks will be able to relate to.

Reading through your blog it appears that purchasing a home or property in the southern zone is now just for the wealthy. Those who have 5 or 6 other houses and for which one more is just another investment. There are those of us who would like to make Costa Rica our new home and leave the corporate hassles behind. We just may not have the $300K – $1M in cash for such a move. What do you recommend for those of us who are a little ahead in the US real estate game and are looking for a quiet, secluded, place to raise some fruit, veggies, etc. and settle down?

Money in Hand

Nicely put, and meaty. I wrote back:

I hate to do this to you, but I’m going to answer your question with some questions. Nearly all of our deals here are cash deals. What amount of cash would you be able to put into the deal, and what sort of terms would you need? How much land would you like to see for the fruit and veggies? Does the property need to be ocean view? How close to the beach? Does it need to have a home on it, or would you build? What would a deal need to look like for someone in your position? Owner financing? Lower prices on property? Costa Rica financing? I’ve got a number of motivated sellers right now that would be open to some creative deal making, provided it put some cash in their pocket now. If we were to home in on some of the above details, I could perhaps help with finding you a property. We can structure a deal in such a way that it works for you, and then approach a seller with those terms and see if he bites.

Jim’s question got me thinking.  I’ve had a number of sellers come to me lately saying that they need to sell something.  As a result, they are lowering prices, or at least, indicating to me that they’ll listen to offers.  So now I’ve got this idea of working with a buyer and really getting a good understanding of what their capability is financially (how much money they’ve got) and if we can set up an owner financing situation that will result in folks like Jim, who would like to own a spot of Costa Rica, with a view to some day being able to re-locate to here. Jim and I might go ahead and post the process that we’re working through here for other reader’s benefit.  In a sense, what we’re doing here is spinning straw into gold.  Taking a limited budget and working it in a down market to make it happen.

13 thoughts on “Do You Have to be Rich to Buy Land In Costa Rica?”

  1. Hi Ben:
    As usual, I believe you are "right on".
    Those fortunate enough to be able to offer owner financing are in a fairly good position in the current economy.
    As you know I live in the States and I own 20 hectares of investment property in Uvita, Costa Rica.
    Due to a family situation my dream of retiring in Costa Rica has become difficult.
    I have become one of those that will listen to an offer and I am fortunate enough to be in a position to finance.
    As for investment real estate I know of no finer potential for appreciation than the Uvita, Costa Rica area for all the reasons you have listed in your posting.
    Jim and others that have traveled to Uvita know why so many want to relocate in the Southern Pacific zone.
    For those reasons I would also like to offer the idea of a partnership in land banking as another incentive for the "Jims".
    Pura Vida,
    George

  2. Hi Ben:
    As usual, I believe you are "right on".
    Those fortunate enough to be able to offer owner financing are in a fairly good position in the current economy.
    As you know I live in the States and I own 20 hectares of investment property in Uvita, Costa Rica.
    Due to a family situation my dream of retiring in Costa Rica has become difficult.
    I have become one of those that will listen to an offer and I am fortunate enough to be in a position to finance.
    As for investment real estate I know of no finer potential for appreciation than the Uvita, Costa Rica area for all the reasons you have listed in your posting.
    Jim and others that have traveled to Uvita know why so many want to relocate in the Southern Pacific zone.
    For those reasons I would also like to offer the idea of a partnership in land banking as another incentive for the "Jims".
    Pura Vida,
    George

  5. Well, it looks like a topic whose time has come.
    Since starting to work with this idea (all of 1 week ago), I have been met with nothing but POSITIVE responses from sellers. It's not a new idea. In fact, I think that nearly all the early investors down here that purchased the large tracts of land, that we are now seeing as subdivided lots, structured their purchases this way. Somewhere along the line, the luxury of EXPECTING that the seller would carry some of the note was lost in our lot transactions. I suspect this may have been due, to some degree, to the huge demand that we have enjoyed on our properties in Costa Rica's southern zone over recent years. The sellers, as well as us real estate agents, have perhaps been a bit smug as we have enjoyed the convenience of the: 10% down / 21 day due diligence / 30 day full price close program.

    I have been involved in a few such owner financed transactions, and they worked beautifully. The interest rate has been between 8% – 10%, and the terms have ranged from 6 months to 2 years. I suspect that in the new world economy that we are seeing unfold, these terms will be re-adjusting themselves to accommodate the changes in the market.

    What we have are: sellers that would like to/need to sell, and buyers that are more motivated than ever to move to Costa Rica, albeit with less available cash than they used to have. Interesting times.

    The two seller financing vehicles that I have worked with here are mortgages and trusts. I also was involved in one deal where a Costa Rican article of law made both seller and buyer comfortable with doing such a deal with nothing more than the Purchase and Sale agreement that detailed the terms of the sale.

    I'll be posting the details of how these work in a future post.

    Meanwhile, I am excited to be working with buyer and sellers on these not-so-new terms.

    David, if you would like to see view George's property and discuss how to structure a deal that would work for you both, please feel free to drop me a line. I also have his property listed on my web site. I'm not sure if I can put links in this comment (new comment script) so I may need to send it to you in an e-mail.

    Dave, thanks for your well informed comments.

    Ben

  6. Ben, George, David…..
    I'm glad to see a discussion such as this…. This is the first receptive discussion I have seen regarding creative real estate transactions in Costa Rica. THANK YOU BEN!! I have traveled to the southern zone and have attempted to negotiate transactions whereby a trade or owner financing was involved. ….. my ideas were not well received at the time (2007 & early 2008). Owner financing is by no means risky, provided the financing party is comfortable with the collateral and the buyer has something vested (down payment, exchanges, cross collateralized security etc.) As the holder of owner financed paper one can trade the paper, hypothicate the paper, sell the loan in its entirety, or sell a portion of the payments in order to generate cash at any point in the future provided the transaction is created properly. Typically the rate of return on the loan will far exceed any cd, money market or stock unless we see 16-18% cd's again or you get lucky in the stock market. Typically, over time, the collateral is going up in value which further increases the security position for both parties. In the event the transaction, terms and security agreements are structured properly, both the buyer and seller win. The importance lies in the security instrument being structured such that it's merchantability is sterling so the holder is not stuck holding paper in the event their position changes in the future. There are many sources of buyers for paper secured by real property. Insurance companies and pension plans are the largest buyers as well as banks, finance companies and the private sector. A steady income stream is always nice to have. The paper is considered an asset on all financial statements and banks also make loans with a pledge of collateral called a hypothication agreement. Another bonus for the seller in the states is the way the transaction is taxed, however I have zero knowledge on Costa Rica tax law regarding how a transaction such as this is treated. I am interested in buying in the Uvita, Dominical, Ojochal area. I would be interested in owner financing or trading since I am trying to sell my properties in Florida in order to move. My surf boards are in their flight travel bags and I'm ready. Hola, Ruthie if you're reading this..
    Dave

  7. Hey Ben, Thanks for bringing up a topic Bea and I feel strongly about. As you know,we bought 200 acres in the Dominical area in 98. (In Lagunas) We built our dream home and put 90 acres into a nature reserve to protect the wildlife we love.When we came to Costa Rica we were lucky enought to run into a seller who was willing to hold a private contract. Otherwise the farm we now have would have been beyond our reach. When we decided to sell some lots of our own, we figured we should offer others the same chance to buy into the Costa Rica dream. Selling with owner financing has not only been profitable, but has been the basis for many long term friendships. Banks such as Banco Nacional and Scotia Bank are getting better at US style property and home loans, but they are still very time consuming and the rates as of last week were running at 9-11%. A owner contract is simple(especially through a CR corporation) and in our case we have always meet or gone under the banks' rates.

  8. Hi Dave,
    Please contact Ben directly as he has requested.
    He has been my go to guy and has personally visited the property.
    His team is hard working and quite expert.
    As for some more input on Uvita:
    If you are not up to speed on the construction of the Pacific Highway Ben can advise.
    Matter of fact I believe he has written about the progress.
    I don't know the name of the other highway under construction from San Jose to Jaco but, my Gringo instincts tell me the completion of these roads alone will be huge for potential appreciation.

    George

  10. Hi Troy,

    You don't have to have a corporation to buy a property in Costa Rica, but most do.

    Some opt to put the property in the personal name and the law allows for that. It is probably one of the reasons that Costa Rica is so appealing to foreign investors. It's easy to own property here.

    Putting the property in a corporation will add a level of insulation between you and your asset, so it is the path that most land buyers take in Costa Rica. The cost of a Costa Rica corporation ranges from $200 – $600, the higher end being for shelf corporations that the lawyer has ready to use, sitting on the "shelf" in his office. The shelf corporation will have no history at all and will likely have a strange name. You pay the higher price for the convenience of having it available now, instead of the three weeks or so that it takes to have one made for you.

  11. Ben, George, David…..
    I'm glad to see a discussion such as this…. This is the first receptive discussion I have seen regarding creative real estate transactions in Costa Rica. THANK YOU BEN!! I have traveled to the southern zone and have attempted to negotiate transactions whereby a trade or owner financing was involved. ….. my ideas were not well received at the time (2007 & early 2008). Owner financing is by no means risky, provided the financing party is comfortable with the collateral and the buyer has something vested (down payment, exchanges, cross collateralized security etc.) As the holder of owner financed paper one can trade the paper, hypothicate the paper, sell the loan in its entirety, or sell a portion of the payments in order to generate cash at any point in the future provided the transaction is created properly. Typically the rate of return on the loan will far exceed any cd, money market or stock unless we see 16-18% cd's again or you get lucky in the stock market. Typically, over time, the collateral is going up in value which further increases the security position for both parties. In the event the transaction, terms and security agreements are structured properly, both the buyer and seller win. The importance lies in the security instrument being structured such that it's merchantability is sterling so the holder is not stuck holding paper in the event their position changes in the future. There are many sources of buyers for paper secured by real property. Insurance companies and pension plans are the largest buyers as well as banks, finance companies and the private sector. A steady income stream is always nice to have. The paper is considered an asset on all financial statements and banks also make loans with a pledge of collateral called a hypothication agreement. Another bonus for the seller in the states is the way the transaction is taxed, however I have zero knowledge on Costa Rica tax law regarding how a transaction such as this is treated. I am interested in buying in the Uvita, Dominical, Ojochal area. I would be interested in owner financing or trading since I am trying to sell my properties in Florida in order to move. My surf boards are in their flight travel bags and I'm ready. Hola, Ruthie if you're reading this..
    Dave

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