Costa Rica – 1999:
The year that I arrived here with my family. There just weren’t that many Gringos, or foreigners of any flavor really, in Costa Rica’s southern pacific zone. Many of the foreigners that were here shared a similar idea. Land was so cheap that you could buy several hectares (one hectare = 2.47 acres) of land, cut off a piece, and sell it for nearly what you put into the whole piece. I used to call this “The Costa Rican Formula”.
If you think back over any real estate cycle anywhere on planet earth, lets say San Francisco, or Denver, it started out with families owning large tracts of essentially valueless land. Governments typically gave land away at this stage of the cycle. Homesteading laws had some rather liberal restrictions that, if followed, enabled a family to take possession of the large tract of land. These families then used the land to live on and sustain themselves.
Costa Rica real estate was in that part of the “the cycle” a surprisingly short while ago.
I say this to help establish the paradigm here. We are early in the cycle. The majority of my career has been selling raw, undeveloped land. To this day there isn’t a large selection of houses, but there are getting to be more all the time. We are simply heading into that phase of the cycle.
“The Costa Rican Formula” is the obvious way to develop and make money on land. Buy a larger piece, cut it into smaller pieces and sell them. It is so obvious in fact that it enjoys a very brief period of the real estate growth cycle.
For the purpose of this article, I’m not writing about big developers that buy and develop large parcels. I’m referring to your normal joe, back in the day, slopping into an 8-ish acre piece of land. Then, they find out that they can cut off 3 of those 8 acres and bahdah-bing bahdah-boom, they own their 5 remaining acres for free.
With the new lower prices, pretty much across the board, on land in Costa Rica, and specifically in Costa Rica’s southern pacific zone, a number of speculators, reminiscent of the boom of 2004 have appeared, looking for their piece of land to subdivide and develop.
The Formula has recently enjoyed a new surge in interest. Land prices have come down around here and there is a large inventory of well priced, ocean view properties – single family lots. The difference now is that they are, for the most part, not sub-dividable. In other words, they sit in their final size.
This is due to a number of factors that we have written about in other articles. Increased consciousness of the value of the eco-systems being intact and unmolested from rampant development. The radical topography of The Zone that is self limiting – new Costa Rican laws and municipal agencies that now “sit vigil” on the doings of developers.
Don’t Despair:
There is still gold in them thar’ hills – just not with that old strategy.
I’ve got a new one for you.
We have a number of ocean view, or otherwise “desirable” pieces of property that have already been subdivided, have access to them provided, and all services in place. These properties sit there ready to be built on. I am thinking that there is an opportunity sitting there with the lower end (under $100k) ocean view lots, of which we have several.
Rod & I are seeing an up-tick in the number of folks looking to re-locate, or who are going to retire in a few years. These folks want to rent out their house here until they retire, and then relocate. Or there are those who just want to have the income generating property where they can come and vacation a couple times a year – escape the cold winters of North America and Europe, spend Christmas in Costa Rica, that sort of thing .
For the most part, these folks aren’t looking for the big luxury homes, although there has been some action in that sector of the market recently as well. (check out our new Costa Rica Luxury Homes section at Dominical.biz) In Uvita, we seem to be talking about houses in the $200,000 to $350,000 range.
Mini Developer Strategy:
Buy 2 or 3 of the currently available, under $100k lots and build a well-thought out, well-constructed house there. Sell it, and move on to the next one.
Scenario:
Right now we are calculating the cost of such a house at $70 – $85 per foot. Let’s say that you put $85,000 into your lot, which right now I know you can, and you can have a great ocean view. Let’s calculate our house at $80 per foot and make the house 1,500 square feet. The house, when all is said and done costs right around, let’s say $205,000.
I like this size. I know it sounds small by US standards, but this is Costa Rica. We don’t live inside here. Build a house that has a big roof overhanging an open patio-like area to keep the rain and sun off of you. This design is very inexpensive, and you can calculate a much lower per square foot construction price the more open you go. Our number of around $200k can accommodate the property and house of this strategy.
A pool can add $15,000 to $25,000 to the tag, but I feel is indispensable to the strategy. A house with a pool will sell faster than one without.
In Uvita Costa Rica alone we’ve got several under $100k lots that enjoy tremendous ocean views.
- Jeff’s
- El Sereno
- Bella Vista #6
It is difficult to know what the near future holds for real estate values in The Zone. It could be that we benefit from either a “recovery” scenario, where people have money and come here to take advantage of the low prices and amazing properties, or the deep second dip of the recession. It may sound strange but some are saying “the heck with it, I’m doing it now” and they go ahead and move to Costa Rica. Or I suppose that folks might just sit and do nothing, but I’m not inclined to think that’s going to happen.
The current world situation makes it difficult to know what is going to happen next. We talk a lot with folks that are endeavoring to take intelligent next steps in their life plans. Recognizing where we find ourselves in the real estate cycle can help us move forward with a rational “new-ish” strategy that could put Costa Rica into our not too distant future.