Buying a House in Costa Rica? What You Need To Know

My wife, Jas, and I can attest that purchasing a home in a foreign country is an exciting and life-changing decision that opens up new experiences and opportunities. Costa Rica has become increasingly popular among foreign buyers seeking real estate investments with its breathtaking landscapes, vibrant culture, and welcoming atmosphere. These factors were three of the reasons that led us to buy a home in this beautiful country.

Throughout our home-buying journey, we learned that successfully navigating the Costa Rican property market as foreigners requires careful consideration and a thorough understanding of local regulations and procedures. In this comprehensive guide, we will walk you through the essential steps of buying a house in Costa Rica, emphasizing the importance of a pre-purchase home inspection, which saved us $15,000 off the asking price of our recent purchase.

Additionally, we would like to introduce you to our company, Costa Rica Dream Home Consulting. We are a modest yet dedicated construction consulting service based in the Central Valley of Costa Rica. Among other Costa Rica real estate services, we provide thorough and reliable American-style pre-purchase home inspections for both local and foreign home buyers in Costa Rica.

The Appeal of Buying a House in Costa Rica

Costa Rica’s alluring beauty, stable economy, democratic republic system of government, and high quality of life make it an attractive destination for foreign buyers, particularly from the United States and other North American countries. The country’s real estate market offers a variety of options, from affordable properties in rural areas to luxurious homes in gated communities. Whether you are seeking a second home or a permanent residence, Costa Rica provides a welcoming environment and diverse landscapes to suit every taste.

Research and Preparation

Conducting thorough research is essential before buying real estate in Costa Rican. Start by identifying the areas of this eco-diverse country that interest you and align with your preferences and needs. Consider proximity to amenities, transportation requirements, climate, and lifestyle offerings. Consulting reputable real estate companies and Facebook expat communities can provide valuable insights and guidance based on personal knowledge of local markets.

Property Tax

Familiarize yourself with the local property taxes applicable to your desired location. Compared to property taxes in the United States, property taxes in Costa Rica can equate to a fraction of what you are used to paying, but these tax rates can vary depending on the region and the property’s value.

A clear understanding of these costs in advance will assist you in budgeting appropriately and avoiding unexpected surprises during the purchasing process. Furthermore, it’s advisable to research property prices in the areas you are considering to develop realistic market expectations and ensure that your budget aligns with the local property values.

When considering purchasing a property in Costa Rica, it is essential to understand the basics of property taxes in the country. Here are some key points to know about property tax in Costa Rica:

1. Types of Property Taxes: In Costa Rica, there are two main types of property taxes: the annual property tax (Impuesto sobre Bienes Inmuebles or “IBI”) and the luxury home tax (Impuesto Solidario para el Fortalecimiento de Programas de Vivienda or “Solidarity Tax”).

2. Annual Property Tax (IBI): The annual property tax is calculated based on the property’s registered value and levied by the local municipality. The tax rate varies depending on the location and type of property, but it generally ranges from 0.25% to 0.55% of the registered value. This tax is typically payable annually.

3. Luxury Home Tax (Solidarity Tax): The luxury home tax applies to properties with a registered value exceeding a certain threshold. The tax rate ranges from 0.25% to 0.55% of the property’s registered value, depending on the property’s value. The luxury home tax is aimed at funding housing programs in Costa Rica.

4. Calculation of Property Value: The property’s registered value is determined by the local municipality and is often lower than the market value. It is essential to note that the reported value may not accurately reflect the property’s current market value.

5. Payment and Deadlines: Property taxes can typically be paid quarterly, bi-annually, and annually, and the payment deadline varies depending on the municipality. Knowing the deadlines and ensuring timely payment to avoid penalties or additional charges.

6. Exemptions and Discounts: Certain properties may be eligible for exemptions or discounts on property taxes. For example, properties used for agricultural purposes or registered as tourism projects may qualify for tax incentives. It is advisable to consult with a local tax expert or attorney to explore potential exemptions or discounts applicable to your situation.

7. Implications for Foreign Buyers: Foreign buyers in Costa Rica are subject to the exact property tax regulations as Costa Rican citizens. However, seeking guidance from a qualified attorney or tax expert who can provide detailed information and ensure compliance with tax obligations is essential.

8. Changes in Property Tax Rates: Property tax rates in Costa Rica can be subject to change. It is advisable to stay updated on any revisions or adjustments to the tax rates and regulations by consulting with local authorities or seeking professional advice.

Ownership Rights 

Foreign home buyers in Costa Rica enjoy the same ownership rights as Costa Rican citizens. The country’s legal framework ensures that foreign buyers have secure and protected property ownership. Here are essential ownership rights for foreign home buyers in Costa Rica:

1. Constitutional Protection: The Costa Rican Constitution guarantees equal rights and protections for citizens and foreigners. This includes the right to own property and enjoy the benefits and responsibilities associated with property ownership.

2. No Restrictions on Property Ownership: Costa Rica has no such limitations, unlike some countries that impose restrictions on foreign property ownership. Foreigners can freely purchase and own property in Costa Rica, including land, homes, condominiums, and commercial real estate.

3. Title Registration: Property ownership in Costa Rica is registered in the National Registry (Registro Nacional), a government institution responsible for maintaining public records of real estate transactions. The registration process provides legal certainty and ensures the protection of ownership rights.

4. Secure Title Transfer: When purchasing property in Costa Rica, the transfer of title is conducted through a notary public. The notary verifies the transaction’s authenticity, ensures proper documentation, and registers the new owner with the National Registry. This process guarantees the transfer of ownership rights from the seller to the buyer.

5. Property Protections: Costa Rican law protects property owners, regardless of nationality. These protections include the right to possess, use, enjoy, and dispose of the property and legally access and defend the property.

6. Real Estate Attorney Assistance: It is recommended that foreign home buyers engage a qualified real estate attorney specializing in Costa Rican law. The attorney will guide buyers through the purchase process, conduct a title search to ensure a clear title, review contracts, and provide legal advice to safeguard their ownership rights.

7. Investment Incentives: Costa Rica encourages foreign investment in real estate and offers incentives to attract buyers. These incentives may include tax benefits or residency programs that provide additional privileges for property owners.

Foreign home buyers should consult a reputable real estate attorney to fully understand their ownership rights, comply with local regulations, and navigate the purchase process smoothly. A qualified attorney can provide guidance, review legal documents, and protect the buyer’s rights throughout the transaction and ownership tenure in Costa Rica.

Engaging a Real Estate Attorney

Using a trusted real estate attorney when purchasing a house in Costa Rica is paramount. We had the privilege of working with Andres Gomez, a highly recommended attorney within the same expat community, who also happened to be our residency attorney.

1. Legal Expertise: Real estate transactions involve complex legal procedures and documents. A qualified real estate attorney specializes in Costa Rican property law and has extensive knowledge of the local regulations, ensuring that all legal aspects of the transaction are appropriately handled. They can provide expert advice, review contracts, and guide you through the entire process.

2. Title Search, National Registry, and Due Diligence: One of your real estate attorney’s most essential tasks is conducting a thorough title search. The national registry in Costa Rica maintains records of property ownership, encumbrances, and any legal claims or disputes associated with the property.

The attorney will review these records to ensure that the property has a clear title and that the seller has the legal right to transfer ownership. This involves investigating the property’s history, verifying the request, and ensuring no liens, encumbrances, or legal disputes are associated with the property. A clear title is vital to protect your investment and avoid potential legal complications in the future.

3. Contract Review and Negotiation: Real estate transactions in Costa Rica involve drafting and signing legally binding contracts. An experienced attorney will carefully review the purchase agreement, ensuring that your interests are protected and that all terms and conditions are fair and favorable. They can also negotiate any necessary amendments or modifications to the contract on your behalf.

4. Compliance with Costa Rican Law: Costa Rican property laws and regulations may differ from those in your home country. A real estate attorney will ensure you comply with all legal requirements, including registration processes, tax obligations, and other legal obligations specific to your property purchase. Their guidance ensures that you comply with the law throughout the transaction.

5. Language and Cultural Barriers: Purchasing a property in a foreign country can present language and cultural challenges. A real estate attorney fluent in English and Spanish can bridge the communication gap, translating critical legal documents and explanations for you. They can also provide cultural insights and answers, ensuring you understand local legal processes and procedures clearly.

6. Protection of Interests: A real estate attorney acts as your advocate by representing your interests throughout the transaction. They can identify potential risks or issues that may arise and provide sound advice to protect your investment. In case of disputes or legal complications, having a knowledgeable attorney can help you navigate the situation and find a resolution.

7. Peace of Mind: Engaging a real estate attorney provides peace of mind throughout purchasing. Knowing that a legal expert is guiding you, conducting due diligence, and ensuring compliance with the law gives you confidence in your investment. It minimizes the risks associated with the transaction.

In summary, using a real estate attorney when purchasing a house in Costa Rica is highly recommended. They provide legal expertise, protect your interests, and ensure a smooth and secure transaction. Their involvement gives you peace of mind and reassurance throughout the process, allowing you to make informed decisions and protect your investment in Costa Rican real estate.

Pre-Purchase Home Inspection

When purchasing a house in Costa Rica, it is crucial to assess the property’s condition to avoid any surprises or unexpected expenses down the line. Costa Rican construction standards and regulations differ from those in your home country and are relatively more relaxed than the stricter standards in the United States and Canada.

To ensure a thorough evaluation of the property, it is highly recommended to engage a professional home inspection service such as our own, Costa Rica Dream Home Consulting. We specialize in conducting non-invasive American-style pre-purchase home inspections using state-of-the-art construction evaluation tools.

Our inspections cover various aspects of the property, including its structural integrity, electrical systems, plumbing, mechanical components, safety features, and more. By thoroughly examining the property, the inspection helps identify any existing or potential issues, allowing you to make an informed decision about the purchase.

One of the significant benefits of a professional home inspection is the peace of mind it offers. The inspection report provides a clear understanding of the property’s actual condition. When significant issues are discovered during the inspection, you can use the inspection report as evidence to negotiate the purchase price or request repairs from the seller. This ensures you are not burdened with unexpected repair costs or overpaying for a property requiring significant improvements.

In our experience buying a home in Costa Rica, our inspection report gave us $15,000 worth of negotiation leverage. The report identified several issues with the property, including the need to repaint the roof within the next 5 years, inadequate slope in the plumbing, outdated electrical components, safety concerns related to the lack of tempered glass and handrails, and more. Armed with this information, we were able to purchase our property for tens of thousands of dollars below the appraised value.

It’s important to note that comprehensive technical inspections are uncommon in Costa Rica. While you can hire an engineer to visually evaluate your property, most engineers often lack the specialized tools and training required for a full assessment. Additionally, they may not fully understand the value of such an assessment, and their reports are typically generated in Spanish.

Investing in a pre-purchase home inspection gives you valuable insights into the property’s condition and potential maintenance or repair needs. This empowers you, the buyer, to make informed decisions, negotiate effectively, and ensure that your investment in a Costa Rican property is sound and secure. With professionals like Costa Rica Dream Home Consulting, you can confidently and confidently navigate the purchase process.

Costa Rica Dream Home Consulting: Your Trusted Inspection Service:

Expertise and Experience:

Costa Rica Dream Home Consulting is a dedicated construction consulting business based in Escazú, founded by a Texas custom home builder with over 18 years of industry education and experience. We specialize in various services, including owner representation during construction, construction phase inspections, project management, and pre-purchase home inspections in Costa Rica.

Comprehensive Inspection Services:

Costa Rica Dream Home Consulting offers comprehensive inspection services covering various crucial property areas. From assessing the structural integrity to examining the roofing, electrical systems, plumbing, ventilation, and more, their inspections leave no component undiscovered. By providing detailed reports in English accompanied by photographs, we offer a clear, easy-to-read overview of the property’s condition, highlighting positive aspects and areas requiring immediate or future attention.

Peace of Mind:

Choosing Costa Rica Dream Home Consulting aims to give you peace of mind throughout your due diligence phases. Our professional inspection services will help make informed decisions based on relevant and accurate information discovered during the property’s technical evaluation.

Purchase Agreement

The purchase agreement is a fundamental document for buying a Costa Rica home. Once you have found your ideal property and reached a deal with the seller on the purchase terms, it’s time to draft a purchase agreement. This agreement serves as a legally binding contract that outlines the specific terms and conditions of the transaction.

The purchase agreement documents essential details, including the purchase price, payment terms, and any contingencies or conditions that must be fulfilled before the sale is finalized. These contingencies may include obtaining financing, conducting inspections, or resolving outstanding legal or title issues. It is crucial to ensure that all the essential aspects of the transaction are clearly stated and agreed upon by both parties.

The purchase agreement acts as a protection mechanism for both the buyer and the seller. It establishes the rights and obligations of each party, minimizing the risk of misunderstandings or disputes during the purchase process. It provides a roadmap that outlines the steps and the timeline for completing the transaction.

A well-drafted and comprehensive purchase agreement is vital to ensure a smooth and transparent transaction. It helps to address potential issues or concerns that may arise during the process and provides a framework for resolving them. It is advisable to engage the services of a qualified real estate attorney in Costa Rica to assist in drafting and reviewing the purchase agreement. They can ensure that all the necessary legal requirements are met and that the contract protects your interests as a buyer.

Before signing the purchase agreement, review it carefully and seek clarification on any terms or provisions you do not fully understand. If there are any negotiations or modifications to be made, they should be done before finalizing the agreement. Once both parties are satisfied with the terms and have signed the purchase agreement, it becomes a legally binding contract.

The purchase agreement sets the stage for the rest of the home-buying process, including the transfer of ownership and closing procedures. It provides a framework that guides the parties involved, ensuring everyone is on the same page and that the transaction progresses smoothly toward completion.

Drafting a purchase agreement

In Costa Rica, it is common for a real estate attorney or a notary public to draft the purchase agreement. These professionals have the legal expertise and knowledge of local regulations to ensure the deal is comprehensive, accurate, and legally binding.

Engaging the services of a qualified attorney or notary public is highly recommended to ensure that all the necessary details are included in the purchase agreement and that it adequately protects the interests of both the buyer and the seller. The attorney or notary public will work closely with both parties to draft the agreement, considering their specific needs and requirements. The buyer and the seller must review the contract carefully and seek legal advice before signing it.

Payment Options

Foreigners have several options for paying for a house in Costa Rica, including traditional bank financing. Jas and I were able to secure a 25-year mortgage through Scotiabank. Here are some details about the standard methods used by people buying property in Costa Rica:

1. Wire Transfer: One of the most common methods is to transfer the buyer’s bank account in their home country to a third-party escrow company that will hold the money until it is ready to be released to the seller’s bank account in Costa Rica.

This method requires coordination between the buyer’s and seller’s banks to ensure a smooth transfer of funds. Investigating currency exchange rates and transaction fees associated with international wire transfers is essential.

2. Cash Payment: Some buyers may pay for a house in cash. This involves physically bringing the funds to Costa Rica and completing the transaction in person. It is important to note that there are limitations on the amount of cash that can be brought into the country, and declaring the funds at customs is often required.

3. Bank Financing: When purchasing a property in Costa Rica, foreigners can consider bank financing options through local banks or international lenders. It’s essential to understand that lending criteria for foreign buyers are more stringent than for residents, involving a higher down payment, proof of income, source of savings, adherence to property location policies, board approval, and additional documentation to evaluate creditworthiness.

The financing typically offers variable rates, with a current floor rate of around 8.25%. However, it’s important to note that financing takes at least three months, and securing funding is not guaranteed.

During our initial attempt to work with a bank, we faced a setback when, six months into the financing process, we were unexpectedly turned down just days before reaching the closing stage.

4. Seller Financing: In some cases, the seller may offer financing options to the buyer. This arrangement allows the buyer to make payments directly to the seller over an agreed-upon period, usually with an interest rate. Seller financing can be flexible for buyers who may not qualify for traditional bank financing or prefer to negotiate terms directly with the seller.

Regardless of the payment method, working with a reputable real estate attorney and consulting with financial advisors with experience in cross-border transactions is essential. They can guide you through the legal and financial aspects of the payment process, ensuring compliance with local regulations and minimizing potential risks.

It is also essential to consider the timing of the payment. In many cases, a deposit or earnest money is required upfront to secure the property and initiate the purchase process. The remaining balance is typically paid upon the completion of the transaction, often during the closing process.

Foreigners purchasing a house in Costa Rica have various payment options, including wire transfers, cash payments, financing through banks or sellers, or a combination of these methods. Each option has its considerations, and it is crucial to consult with professionals who can provide guidance based on your specific circumstances and help facilitate a secure and efficient payment process.

Escrow Account

Establishing an escrow account is advisable to ensure a secure and transparent transaction. An escrow account acts as a neutral third-party intermediary, holding the funds during the transaction until all contractual obligations are met. The buyer deposits the agreed-upon purchase price into the escrow account, and the funds are released to the seller only when all the specified conditions have been fulfilled.

Using an escrow account provides several benefits for both the buyer and the seller. Firstly, it adds a layer of security and trust to the transaction. The buyer can be confident that their funds are protected and will only be released when all the agreed-upon conditions have been met. At the same time, the seller can rest assured that the buyer has the financial capacity to complete the purchase.

Moreover, an escrow account helps to streamline the purchase process. It ensures that the funds are readily available for the transaction’s closing, eliminating any delays or complications that may arise from financial arrangements. The escrow account also facilitates the disbursement of funds to cover other expenses related to the purchase, such as closing costs or property taxes.

Using an escrow account gives both parties assurance and protection throughout the purchase process. It minimizes the risk of fraud or financial loss and promotes a smooth and trustworthy transaction. If any issues or disputes arise, the funds held in the escrow account can be used to address the situation and find a resolution.

Closing Process

The closing process for a house in Costa Rica involves several essential steps and typically requires the involvement of a real estate attorney. Here is an overview of what the closing process entails:

1. Finalizing the Purchase Agreement: Before the closing, the buyer and seller, along with their respective attorneys, review and finalize the purchase agreement. This document outlines the terms and conditions of the transaction, including the purchase price, payment terms, and any contingencies or conditions that need to be fulfilled.

2. Obtaining Necessary Documentation: The buyer’s attorney will ensure all necessary documentation is in order before closing. This may include property surveys, permits, certifications, and other relevant paperwork. It is essential to ensure that the property complies with local regulations and that there are no outstanding issues or liabilities.

3. Transfer of Funds: The buyer must arrange to transfer funds to complete the purchase. This can be done through a wire transfer or other agreed-upon method. The funds are typically assigned to an escrow or the seller’s account, depending on the agreed-upon terms.

Warning: Ensure you provide at least a couple of weeks’ notice before initiating the transfer of funds from a foreign bank account to a Costa Rican bank account. Due to stringent anti-money laundering regulations, Costa Rican banks must thoroughly investigate the source of your funds before releasing them to you. Without proper notification and documentation, your transfer may be flagged, and the funds will be temporarily locked pending examination.

4. Closing Meeting: The closing meeting is usually conducted at the buyer’s attorney’s office or financial institution if the buyer works with a bank. The buyer, seller, attorneys, and any other relevant parties involved in the transaction will be present. The necessary documents will be reviewed, signed, and notarized during the meeting.

5. Payment of Closing Costs: Generally, it is customary for the buyer to cover most of the closing costs. However, it is common for the parties to negotiate and split the costs agreeably to both sides as laid out in the purchase agreement. Closing costs typically include attorney or notary fees, property transfer taxes, registration fees, and other administrative charges. 

6. Transfer of Ownership: After the closing, the buyer’s attorney will facilitate the transfer of ownership by registering the property in the buyer’s name at the National Registry. This process involves submitting the necessary paperwork, paying registration fees, and meeting all legal requirements.

7. Delivery of Possession: Once the transfer of ownership is complete, the seller must deliver possession of the property to the buyer. This includes providing keys and access to the property.

Registration and Transfer of Ownership

Regarding the registration and transfer of property ownership in Costa Rica, there are several vital points to consider. Here’s what you need to know:

1. National Registry: The National Registry (Registro Nacional) in Costa Rica is a public registry that maintains property ownership records. It is a centralized government institution that oversees the registration process and ensures the legality and validity of property transfers.

2. Title Search: Conducting a thorough title search is crucial before completing the transfer of ownership. This involves a detailed examination of the property’s legal history, including past transfers, encumbrances, liens, and any other claims or restrictions on the property. A qualified real estate attorney can assist you in conducting this search to ensure a clear title.

3. Seller’s Obligations: The seller is responsible for delivering the property to the buyer free from any encumbrances or legal issues that may affect the transfer of ownership. This includes resolving any outstanding debts, taxes, or other obligations related to the property.

4. Transfer Taxes and Fees: As part of the registration and transfer process, various taxes and fees need to be paid. These include transfer taxes, registration fees, notary fees, and other applicable charges. The amount payable will depend on the purchase price and the specific regulations in the area where the property is located.

5. Real Estate Attorney’s Role: Engaging a real estate attorney is crucial during the registration and transfer of ownership process. They will guide you through the necessary paperwork, ensure compliance with legal requirements, and handle the registration process with the National Registry.

6. Power of Attorney: In some cases, if you cannot be physically present during the registration and transfer process, you can grant a power of attorney to your attorney or a trusted representative to act on your behalf. This allows them to sign the necessary documents and complete the process in your absence.

7. Public Deed: The transfer of ownership is typically formalized through a public deed prepared by a notary public. This document serves as the official record of the property transfer and must be registered with the National Registry.

8. Registration Process: The registration process involves submitting the necessary documents, including the public deed, to the National Registry. The registration fees and taxes must be paid, and all required paperwork must be in order. Once the registration is complete, the property will be officially transferred to your name as the new owner.

Post-Purchase Considerations

After purchasing a property in Costa Rica, there are several critical post-purchase considerations that you should keep in mind. These will help ensure a smooth transition and enjoyable experience as a property owner. Here are some key points to consider:

1. Property Management: If you do not plan to reside in the property full-time or purchase it as an investment, you may need to arrange for property management services. This can involve maintenance, repairs, renting the property, collecting rent, and overseeing day-to-day operations. Hiring a reliable property management company or individual can help you manage and maintain your property effectively.

2. Homeowners Association (HOA) Fees: If your property is part of a gated community or condominium, there may be homeowners association fees that you are required to pay. These fees typically cover communal expenses such as security, maintenance of common areas, and shared amenities. Understanding the HOA rules and regulations and the budget for these fees is essential.

3. Property Taxes: As a property owner in Costa Rica, you will be responsible for paying property taxes. The amount of property tax owed will depend on the property’s assessed value. It is advisable to consult with a local tax professional or your real estate attorney to understand the applicable tax rates and payment deadlines.

4. Insurance: Protecting your investment with appropriate insurance coverage is essential. Consider obtaining property insurance to safeguard against potential risks such as natural disasters, theft, or damage to the property. Additionally, liability insurance may be beneficial to cover any accidents or injuries on your property.

5. Utilities and Services: Upon purchasing the property, you must set up utility accounts in your name, including electricity, water, and possibly internet and cable services. Your real estate agent or property management company can assist you in coordinating these utilities and ensuring a smooth transition.

6. Ongoing Maintenance: Proper property maintenance is essential to protect its value and ensure a comfortable living environment. Regularly inspect your property for maintenance or repair needs and address them promptly to prevent further damage or deterioration. This may include landscaping, cleaning, and routine inspections of the home’s components. 

7. Understanding Local Regulations: Familiarize yourself with local regulations and laws affecting your property ownership. Stay informed about zoning restrictions, building permits, and any changes in regulations that could impact your property. It is advisable to consult with a real estate attorney or seek guidance from local authorities to ensure compliance with relevant laws.

8. Integration into the Community: Building relationships and integrating into the local community can enhance your experience as a property owner in Costa Rica. Get involved in community events, join social or recreational groups, and embrace the local culture. This will enrich your lifestyle and provide a support network and a sense of belonging.

Buying a house in Costa Rica as a foreigner can be an exciting venture, offering the opportunity to immerse yourself in a vibrant culture and breathtaking landscapes. However, it is essential to approach the purchase process cautiously and seek professional guidance to ensure a smooth transaction.

Engaging a reputable real estate attorney, conducting a thorough title search, and, most importantly, obtaining a pre-purchase home inspection are crucial steps to protect your investment. Costa Rica Dream Home Consulting, with its expertise and commitment to quality, can provide the necessary support to make your dream home a reality while safeguarding your interests.