There are a lot of great adventures to be had here, some of them scary enough to give you a real adrenaline rush. How to buy a property in Costa Rica shouldn’t be one of them!
If you are thinking about buying a property and living in Costa Rica, here’s how it works, in 10 easy steps. Okay… perhaps not always easy, but at least not an adrenaline rush.
1) Find a property that you love. With very few exceptions, you will want an agent to help you. Why? Because a good agent will help protect your time, money and peace of mind. Keep in mind that we have no MLS and properties have no addresses. In order to find properties efficiently, you need a guide who both knows what is for sale, and knows where to find it. Unless you’ve been living here for a while and know the area really well, you will have a tough time finding a property you love and contact information for the property.
2) Ask your agent questions and expect solid answers. Some properties are “easier” than others. If you are looking at an empty lot or raw land, you need an agent who is honest and open enough to help you assess its potential for development. You need to consider the source of potable water, access to electricity, road conditions, area already cleared of trees and leveled, and more. If the property is forested or includes a river or stream or spring, special conditions apply. Your agent should bring them up ahead of time so you have a reasonable idea of what to expect.
3) Ask your agent to write up an Offer To Purchase (OTP) and send it to the Sellers or their agent. The OTP is not as comprehensive as a Sales and Purchase Agreement (see 4 below), but it specifies the price you are offering and the contingencies/conditions that are most important to you. It also specifies a time frame for closing, the amount of earnest money/deposit, the type of purchase, and all parties involved in the transaction. Starting with an OTP saves time later, because the next step is much more detailed. Often the OTP goes back and forth until Seller and Buyer are satisfied with the terms and both sign it or it is rejected.
4) When the OTP has been successfully negotiated and signed by both parties, it is given to the parties’ attorneys, who turn it into a much more detailed Sales and Purchase Agreement. The SPA uses the OTP as a starting point, then adds to it by specifying everything that is important to you and to the legal community. This can take some time because it nails down every detail and sometimes goes back and forth a few times before agreement is reached on the additional details.
5) While the Purchase Agreement is in process, set up an Escrow account here in the country. That isn’t too complicated, but it is probably more involved than it is in your home country and requires extra time because they have to verify your sources of funding to ensure that they are legal (not laundered money, e.g.). You may be asked for income verification, bank statements, etc.
6) If you want to purchase in the name of a corporation, which we almost always recommend, and you want it to be your own corporation instead of the Seller’s, which we almost always recommend, you need to set up the corporation. It takes a week or two, costs somewhere in the neighborhood of $750.00 and isn’t difficult. You can either come up with a creative name for it or just ask for it to be issued using a random number for the “name.”
(NOTE: If you plan to apply for residency, and you plan to use your initial investment as the basis for the application, be sure you assign at least $ 200,000 worth of shares to one individual. Ask about this when you are setting up the corporation.)
7) When you have a signed SPA, you have the specified amount of time to send your Earnest Money/Deposit. That money is not at risk if your conditions are not met. If all of your conditions are met or you miss the deadline for finishing your due diligence without negotiating an extension, then the Deposit goes “hard” and you will lose it if you don’t follow through with closing. It is part of your job, our job, the Seller’s job, and all attorneys’ jobs to help you with due diligence so all bases are covered. You need to make sure you have enough time allowed in the Purchase Agreement to do a good job of this. 30 days is usually minimal; 60 days is usually enough. End of year and Easter holidays may pose special problems, so ask about those dates in particular. Keep your eye on the relevant dates and make sure you don’t get caught missing deadlines, a mistake that can be very costly.
8) Due diligence is straightforward in some ways and difficult in others. One of the most problematic is home inspections. We have no licensed, regulated inspectors here, so if you are buying a home you need to find ways to discover if there are any problems you aren’t aware of. There are several ways to approach this after first giving it a thorough look yourself.
First, work with an honest agent who will disclose what s/he knows, both good and bad. Of course there may be things the agent doesn’t know and can’t determine. For example, you can’t tell if a roof leaks unless it’s been raining for a while!
Second, get the names of some builders in the area and hire one of them to check it out for you. If possible, get the names from a disinterested party, and when you hire the builder, don’t tell them who your agent is. You want to keep it all at arm’s length and that isn’t all that easy in a small community.
Third, get the names of some “inspectors” and hire them to check it out for you. As noted above, “inspector” doesn’t mean the same thing here as it does elsewhere in terms of accountability, but at least it’s another pair of eyes.
Finally, talk to an insurance agent on site. Walk the property with him. He will highlight problem areas like risky hillsides, security concerns, tree branches and so on. He’ll tell you how serious those problems are and whether or not they can be insured.
9) Assuming everything checks out per the stipulations in the SPA, you send your balance due to the escrow company and go to closing. The escrow company disperses the money strictly per the terms in the Purchase Agreement, which is why it’s so important to have all of that specified ahead of time. Maybe they use some of it to pay off an existing mortgage, or some liens against the property, or commissions to agents, or attorneys’ expenses, and then the balance goes to the Seller.
10) After closing, your property will be registered in the national registry and you own it. Property taxes will be collected annually, as well as a fee to maintain your corporation in good standing.
The process is straightforward, tried and true, as long as you have a good agent working with you and access to honest professionals like attorneys, surveyors, soil samplers, engineers, and others as needed. Most horror stories happen because Buyers don’t work with reliable agents, or try to take a short cut around established practices. Do it correctly from the start and you will have no regrets.
That’s it! Put on your bathing suit, jump in the pool, and fire up the barbecue so you can begin enjoying your piece of paradise!
By Ron Snell, Dec. 2014