Costa Rica Has Closed Its Borders – How We Are Managing Our Costa Rica Real Estate Now

I had written before about how the coronavirus pandemic has affected our FIRE plans, and this was before a continued spike in cases worldwide and Costa Rica closing its borders. Costa Rica indicated the border closings were through April 12, but the pandemic appears far from abating. Estimates for a vaccine are 12-18 months away. Who knows if the border closure will be extended? Even if Costa Rica does reopen its borders, who knows when travel will return to normal to our area, or anywhere in the world?

In the meantime, we are carrying the expenses on three rental properties, which includes property taxes, insurance, utilities, maintenance and monthly retainers to our property management teams (this fee is separate and additional to the percentage of rental income they also receive when the properties are rented). Thankfully, we don’t have a mortgage on any of these properties, having used a cash-out refinance and our self-directed 401k to purchase the properties.

Low holding costs was part of the original allure and saves us now

Property taxes in Costa Rica are very low – a quarter of a percentage point of the purchase price. Insurance is only several hundred dollars per year per property – so cheaper than what we pay for our rentals in North Carolina and Florida.

The monthly cost for utilities will be low since the properties are vacant. While internet is a fixed cost, it is minimal. Our other monthly expense is the monthly retainer to our monthly property management teams, but that is also minimal, and not like having employees on payroll.

We want to keep the team intact

We are able to manage our investments remotely because we have strong property managers. Even though there are no guests, we still need our properties to be checked on and maintained. It’s also helpful to have eyes and ears on the ground to apprise us of any countrywide or business-related changes.

Now more than ever we all have to pay attention to government mandates or new regulations and restrictions. Finally, it’s important to show support and keep continuity since the disruption came on so suddenly and unexpectedly.

We are not rushing into long-term rentals

At first we thought we could continue to get some rental income from Costa Ricans visiting from other parts of the country and staying at our places. However, not only did Costa Rica close its borders, but it has also closed beaches and stopped selling alcohol in the local markets, so that squeezed out even domestic tourists.

We could potentially pivot to long-term rentals, and actually received offers on two of our condos for a multi-month lease. However, the proposed rents were barely break-even on our monthly carrying costs. Add to that the wear-and-tear of having a long-term renter, and it’s not cost-effective right now. Finally, utilities in Costa Rica are not easy to transfer, unlike in the US. This means, that the utilities would stay in our names (as opposed to the tenant), and any rents would have to cover utilities (always a wild card when you don’t know the tenant and how much they’ll actually use).

If the border closure extends for up to a year or indefinitely, we would obviously need to take another look at long-term rental, but for now, we’ll keep our units vacant and minimize the wear-and-tear.

When borders open, Tamarindo will benefit from the increase in remote work

If we do have to pivot to long-term renting over vacation renting, then Tamarindo will be an attractive option. It is not as built out as a typical US beach community, so it retains the quaint, neighborhood feel. But it is also more developed than other areas of Costa Rica, so you have access to many restaurants, shops and great Internet connectivity.

I suspect more people will be allowed to work from home and will want to work from home, even when social distancing mandates are lifted. I also think near-retirees whose portfolios have been decimated and job prospects are limited due to the recession will have to consider relocating to a lower-cost-of-living area. For both of these populations, Tamarindo is a strong choice.

When travel picks up, we expect Tamarindo to be one of the first to recover

Once travel resumes, Tamarindo is still a strong choice, so we plan to keep our properties as vacation rentals. Tamarindo is easy to get in and out, since it’s one hour away from the airport. It has amenities but it’s not crowded, so people already accustomed to social distancing and not looking to be tightly packed in will appreciate the space. There are many options to have a whole large property to yourself (our Casa Salita sleeps 10), which is an attractive option among wealthy travelers now and something people may not want to give up, even when social distancing measures are lifted.

The global pandemic may cause people to be more mindful about living for the now, about sustainability and the environment, and Costa Rica’s slogan is Pura Vida after all.

We are still bullish on Costa Rica real estate

The immediate term will be rocky because we have no income coming in. But we are still bullish on the long-term prospects. We always invest conservatively and bought only what we could afford to hold onto even in down times. So we’ll ride out the vacancies for now, and hopefully can be the first guests back into our properties, when borders reopen and we can take a much-needed vacation.

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Do you have international real estate? What are you doing with your properties at this time?