8 Questions to Ask Before Buying a Vacation Home in Costa Rica
Costa Rica Real Estate – Costa Rica is a popular vacation spot and is a great option nowadays for buying a vacation home. But before you dive in the deep end and make the purchase, you should consider a few things first.
In this article, we will cover some questions that you should ask yourself before buying a vacation home in Costa Rica.
1. Is it affordable for you?
This is a critical question to ask yourself because you could put yourself in a world of financial hurt if you pull the trigger too quickly.
Make sure that you know the annual maintenance costs, HOA fees, all of the taxes (property, corporation, luxury home), closing cost, home insurance, and property management fees before you go through with the purchase.
2. Do you need to finance?
If you’re not a cash buyer, then you’ll need to mortgage the home, and, in order to do so, you need to be a legal resident of the country before you get any banks to finance the deal.
In Costa Rica, the bank financing will cost you between 6.5% to 8% in annual interest in U.S. Dollars. There are other costs, like formalization which is 1.5%, that you need to keep in mind as well.
You can also finance it privately, but this is a much greater cost at 12% to 18% in annual interest.
There are other vacation homes that offer owner financing, and sometimes buyers can use an equity loan to finance their property back home to help with the Costa Rica purchase.
Also, if you are buying the vacation home just as a rental unit, you can use a 401(k), self-directed IRA, or other retirement funds.
3. How is the home security?
Before buying the home, you should also check to see whether the property has enough security to prevent theft.
Another option is to have a full-time caretaker on property, which will add additional costs, which include the caretaker’s salary, social security, and insurance. Or you could look into purchasing a condo instead, which would mean that you would just pay your HOA fees and not have to worry about any of the other fees.
4. What are the rules and restrictions?
Oftentimes there will be rules or bylaws that can restrict you from doing certain important things, like bringing your pet with you, having a barbecue on the balcony, or renting out your vacation home to third parties.
Make sure that you get a copy of the covenants, conditions, and restrictions (CC&Rs) and go through it carefully before signing the purchase agreement.
5. Are you planning to rent it out?
If you’re thinking of renting out the unit, then ask for advice from existing property managers to see what they think of the rental unit and how it would fare among vacationers. See how much they think it would rent for and see what additions would make it into a lucrative vacation rental.
6. Do you want someone to manage the property for you?
A local property manager can help you immensely with planning out your purchase. They can tell you how much the home can rent for, how to market it, and even smaller things like how to pay the bills. They can also help you with identifying some hidden costs that you weren’t anticipating initially.
7. What are the taxes?
Consult with your realtor or property manager to see which taxes you need to pay and how much they are. Also, make sure to ask your CPA about having a foreign income and how that affects your typical tax payments.
8. Do you have a lawyer?
You will need an attorney who is also a notary public so that you can close the purchase. You should find one who is bilingual and specializes in real estate to make the purchase as smooth as possible.
Make sure to ask yourself all of these questions before going through with buying your dream vacation home in Costa Rica!