Is Costa Rica A Good Place For Purchasing Your Very First Rental Property?

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This reader is choosing between a real estate investment in Alabama or Costa Rica:

My wife and I (both born and raised in the US) are looking into buying our first rental property. I’m looking at a condo in Gulf Shores, Alabama, but she wants to buy in Costa Rica, since that’s where we plan to retire eventually. I’m a little apprehensive since I’ve never owned real estate, and the thought of my first purchase being abroad is a little terrifying. Can you give any insight to this situation? Is Costa Rica a good place for purchasing your very first rental property?

— Luke

I am not a financial adviser, so nothing I am writing here should be construed as specific financial advice to Luke or anyone else reading this post. However, I can share what our thought process was when considering real estate investing, and Costa Rica real estate specifically.

We were certainly once in their shoes as a married couple trying to decide where to buy our first rental property investment, although for us it was back in 2005, and 15 properties ago.

Just recognize that our unique situation dictated how we invested and so should yours.

There are many helpful real estate resources

I list some of my favorite research sources in a previous post on Real Estate Resources I Love, and I do recommend that anyone thinking of buying for the first time should get informed.

That said, I actually discovered a lot of these resources after we had already invested in several properties. We bought our first property in 2002 in Little Silver, NJ as a second home to our small rental in NYC, so we could have more space. We then bought three investment properties in Asheville, NC from 2005-2007, based on reading about Asheville as a good place to retire and knowing some helpful people there that we could trust for property management. (You can read more of our journey to 15 properties in 15 years in an earlier post.)

While we have since sold two of those first four properties, and have actually switched property managers in Asheville, the net outcome was very positive for us. We were able to have some investment success without having all of our research done.

The reality is, you should never stop learning, so at some point you just have to put the books down and act.

Costa Rica has been a good real estate investment for us

We have been happy so far with the performance of our Costa Rica rentals. It’s our first foray into vacation rentals so the start-up costs have been higher than we estimated, but they seem to be stabilizing, while we also have been able to raise our rates.

It helped us that we bought at good prices. (It would have been even better had we bought years ago, but there are always deals you will miss so I try not to think about it!)

Our house in Langosta was our biggest real estate purchase to date, so arguably the biggest risk for us, but it helps that there are different ways to use the space so we can add value beyond the rents.

Costa Rica itself adds value to our lives beyond the rents. Costa Rica adds international diversification to our otherwise strictly US-based rental portfolio. Costa Rica is a possible retirement destination for us, so the benefit of having one place to live in and two additional places to rent and live off in Costa Rica adds diversification to our FIRE strategy.

We could not have bought in Costa Rica for our first rental property

While we are happy now to be real estate investors in Costa Rica, we could not have pulled this off as first-time buyers.

When starting out as real estate investors, we needed financing, and it is difficult to get financing for real estate in Costa Rica, especially for foreigners. 13 years into our real estate investing journey, we have other options. We used a cash-out refinance to pull enough money from two of our other rentals in order to buy our first Costa Rica property, and we used a self-directed solo 401k in order to buy our other two. But those options were not available to us in the beginning, and so we could never have financed a Costa Rica purchase then.

(If you are interested in purchasing real estate with your own retirement funds, you may be able to use a self directed IRA or solo 401(k). Check out Checkbook IRA.)

The other factor I couldn’t get past would be anxiety. I was nervous enough about understanding the process to buy our first real estate investment, and that was when the documents were in English, not Spanish. I would have been anxious about not knowing anyone locally in the location of the investment besides the business people we partnered with. And also nervous about unexpected maintenance costs and the process of getting repairs done.

As beginner real estate investors, you “don’t know what you don’t know”, and so the prospect of going through that learning process via a Costa Rican investment would have been scary to me, and been too much of a leap of courage for our first real estate investment.

We would not have bought in Costa Rica as our first rental property

As a first-time buyer, there are great programs in the US to encourage your first purchase – this Bankrate post lists 10 first-time homebuyer grants and programs! Interest rates in the US have recently been moving upward, but rates are still low compared to historical rates and much lower than rates in Costa Rica. If I had to do it all over again, I still would want to take advantage of those first-time home buyer rates and the generally lower interest rates in the US.

We also prefer to be driving distance to our rentals. Even with full-time, onsite property management, there are things we have to care of. It is always better to be available in-person. Now that we have multiple rentals and years of experience under our belt, it is easier to know when we need to be there live, or leave it to our property managers to oversee virtually. But in the beginning, we prioritized accessibility to our rentals. Costa Rica is not hard to get to, but you do have to fly, and flights can be expensive in high season, and last minute.

Our unique situation makes Costa Rica perfect for us but maybe not you

We bought real estate in Costa Rica for many reasons, but all based on our priorities.

• As avid beach goers and nature lovers, we wanted to own a piece of one of the most biodiverse locations in the world.
• As current residents of one of the most expensive cities in the world (New York), we wanted a FIRE option to take the pressure off our daily hustle.
• As almost empty-nesters, we know we want to spend more time and possibly retire abroad.
• At 10+ properties into our investing career, we wanted international diversification.

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Costa Rica real estate checks off a lot of the items on our wish list. What’s on your wish list?