Costa Rica has made it incredibly easy for foreigners to buy property. The country's laws are designed to welcome foreign investment, granting you the same rights as citizens. This means you can own property outright with full titles, just like you would in the US or Canada. Most properties in Costa Rica have clear titles, ensuring a smooth transfer of ownership. The only exception is some beachfront properties, which operate under a "concession" system similar to a long-term lease.
What Are Your Options for Owning Property in Costa Rica?
You have several options for owning property in Costa Rica, each with its own advantages:
In Your Own Name
This is the most straightforward option, allowing you to own the property directly in your name.
Use a Costa Rica Corporation
This option offers tax advantages, asset protection, and can lower the property transfer fees upon sale, making it popular for investors. By forming a corporation in Costa Rica, you can also shield your personal assets from any potential liabilities associated with the property.
Trusts and Foundations
These structures provide privacy and estate planning benefits. They allow you to control the property's ownership and transfer it according to your wishes, even after your passing.
Self-Directed IRAs
This option allows you to invest your retirement funds in Costa Rica real estate. The growth of your investment is tax-deferred, and potentially tax-free at withdrawal.
Non-Profit Organizations
This option is suitable for charitable organizations that wish to own property for their operations.
Reputable Costa Rican law firms can help you navigate these options and choose the best structure for your needs.
What Happens During the Initial Offer Phase?
Unlike the lengthy and complex offer processes in North America, Costa Rica's offers are concise and specific, typically spanning only 3 or 4 pages.
Here's a breakdown of the offer components:
- Essential details of the owner, seller, property description, and purchase price.
- Critical aspects such as due diligence requirements, contingencies, closing dates, fees, arbitration clauses, and items included or excluded from the sale.
- Required signatures.
Digital Signatures: A unique aspect of Costa Rican real estate is that scanned or digital offers (like DocuSign) hold legal weight. This means you don't have to be physically present to sign the offer, making the process convenient for international buyers.
What Is an Escrow Account and Why Is It So Important?
Once your offer is accepted, a secure escrow account is established, registered with Costa Rica's banking authority (SUGEF). This account acts as a neutral third party, safeguarding the funds of both you and the seller throughout the closing process.
Here's why escrow accounts are essential:
- Separate and Secured: The escrow account is independent of law firms or real estate companies, ensuring that the funds are held securely and impartially.
- Good Faith Deposit: Typically, a 10% deposit is placed as good faith. This deposit is refundable during the due diligence period, providing a level of security for you.
What Can You Expect During the Due Diligence Process?
The due diligence process, lasting between 14 to 30 days, allows you to conduct thorough property checks to ensure the investment is sound.
Here's a detailed look at what due diligence typically includes:
Title Search
Attorneys verify the property’s title to confirm that no mortgages, liens, or outstanding taxes exist. This ensures that the property is free and clear of any encumbrances.
Acquisition Cost Estimates
You will receive clear estimates of all acquisition costs, helping you budget accordingly. This includes not just the purchase price but also closing costs, taxes, and other fees.
Optional Inspections
You have the option to conduct home inspections, surveys, or engineering evaluations to assess the property's condition. This allows you to identify any potential problems or issues before committing to the purchase.
Cancellation Option
During this period, you can cancel the contract without penalty if any issues arise. This provides you with a safety net in case you discover any red flags during the due diligence process.
Non-Refundable Deposit
If no issues are found during due diligence, the deposit becomes non-refundable and will be applied toward the purchase price at closing.
What Happens During the Closing Process?
Most Costa Rican closings occur within 30 to 45 days of the offer date.
Here's a step-by-step breakdown of the closing procedures:
- Balance Payment: The remaining purchase price and closing costs must be wired to the escrow account prior to closing.
- Escrow Distribution: The escrow ensures that all parties are paid after the signing of documents and delivery to the National Registry. This ensures that the funds are distributed fairly and securely.
- Utility Bill Holding: Typically, an amount (say $1,000) is retained from the seller for 30 days to cover any outstanding utility bills that may arise. This protects you from unexpected expenses.
- Document Translation: Attorneys provide translated copies of all closing documents to ensure that you understand the agreements. This is especially important for international buyers who may not be fluent in Spanish.
- Representation: Law firms can represent both you and the seller via Special Power of Attorney, which eliminates the need for physical presence during the closing. This is convenient for international buyers who may not be able to travel to Costa Rica for the closing.
- Funds Affidavit: You must sign an affidavit affirming the legitimacy of your funds, which adds an additional layer of security to the transaction. This helps to prevent money laundering and other illegal activities.
What Happens After Closing?
Following a successful closing, you can celebrate your new ownership and begin to enjoy the beauty of Costa Rica.
Welcome to the land of Pura Vida! Your new home awaits, ready for you to create lasting memories in this tropical paradise.