Home Prices Slashed - Buy Now in Costa Rica!
I have wanted to write on this subject for some time … but Costa Rica Blogger is not about fiction or rumor.
When seeking input from local Realtors, I have been routinely told there is no down-turn in Costa Rica home sales and that properties continue to hold their value. But I had my serious doubts.
Having spent the last 10 years in real estate finance, I was all to aware that the current U.S. mortgage market crisis had to effect Costa Rica real estate being as most foreign investors are “cash buyers” with the “cash” often being generated from sales or equity from existing real estate (ie: cash-out home mortgages or equity lines)...
Owners cut holiday home prices up to 40%
John McPhaul, Reuters Published: Saturday, November 01, 2008
The U. S. mortgage crisis has hit Costa Rica's once-booming vacation home market, with sales plummeting as Americans who dream of buying a tropical getaway struggle to find financing.
U. S. retirees and vacationers often pay for beach homes along Costa Rica's jungle-fringed beaches by taking out mortgages on their homes in the United States, but trouble in the banking sector has made that more difficult, real estate agents say.
Prices for some vacation houses and condominiums in the Central American country have dropped as much as 40% from their peak a few years ago and sales have slumped at least 30% over the past six months, they say.
"Most of the sales to Americans are in cash after they take out a second mortgage on a property or mortgage a property they have clear title to," says real estate broker Iris Mailloux.
"I've only had seven sales that were [locally] financed in the 15 years I've been here."
Real estate agent Sabastian Pecher says sales are particularly slow for less expensive condos in the US$100,000 to US$200,000 range, which typically have two bedrooms and are strolling distance to a beach.
"On the lower end we're down at least 50% to 60%," says Mr. Pecher, who sells older homes as well as new condominiums.
Homeowners in the United States are facing foreclosures at a record pace, according to the Mortgage Bankers Association.
As a result, U. S. banks, many of which have been burned by lending to clients with poor credit histories, have tightened lending rules to reduce risk.
Home sales in Costa Rica are still strong to visitors from Canada and Europe, where banks have been less affected by the U. S. mortgage industry slowdown, says Ms. Mailloux.
Developers selling new condominiums in Costa Rica, which has a reputation as a peaceful paradise, are trying not to cut prices, even if that means holding on to empty buildings, says real estate agent Murray Greer.
Agent Mark Price says realistic sellers are cutting prices 20% to 40% compared with three years ago, when the Costa Rican market peaked.
He gave an example of a three-bedroom house in the beach town of Tamarindo selling for US$490,000, down from an asking price of US$650,000.
As many as 60,000 Americans live in Costa Rica, according to Linda Solar, executive director at the American Chamber of Commerce.
The northern Pacific coast in the province of Guanacaste has become particularly popular since an international airport was built in the city of Liberia five years ago.
Last year, foreigners invested $664-million in Costa Rican real estate, according to the country's construction industry association.
Although I don’t agree with every word of this article, the overall picture is much more reflective than some would have potential investors, relocations and retirees believe. In fact, I'm sure feedback from those involved in Costa Rica real estate sales will not be overly appreciative of this published information.
Bottom line: The allure of owning part of this beautiful country can be intoxicating. But realize the current world-wide credit market is affecting real estate everywhere. Do your homework when shopping so as not to pay top dollar ... even if you can afford it :o)
Also, be very prudent if considering the many versions of 'builder' or 'owner' financing options that become popular during such real estate cycles. The stories I can tell on trying to rescue buyers out of such 'private financing' situations are appropriate for this day after Halloween in that many were truly haunting!
¡Pura Hogar!
Categories: Finance in Costa Rica,Home Renting in Costa Rica,Home Building in Costa Rica,Cost of Living in Costa Rica,Legal Matters in Costa Rica,Vacation Homes in Costa Rica,Real Estate in Costa Rica,Second Homes in Costa Rica,News from Costa Rica,Fincas in Costa Rica,Investing in Costa Rica,Life in Costa Rica,Business in Costa Rica,Retirement Homes in Costa Rica,Moving To Costa Rica,Corporations in Costa Rica,Retiring in Costa Rica,Retire in Costa Rica,Farms in Costa Rica,Banking in Costa Rica,Living in Costa Rica
A friend was recently asked to grant a lease with option to purchase: I commented it was a cheap way to tie up an option on a valuable asset. Another friend said he has never seen a lease option struck and closed.
Has anyone here actually had a lease/option go to satisfactory strike and close?
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Lease/options or 'owner financing' allow Sellers to take advantage of Buyers as well as Buyers to "tie up" a Sellers assets if both parties aren't honest and prudent.
The key for a Seller is to pre-screen the Buyer, but not just as to their character. If you as a Seller actually want the transaction to be completed within the terms of the contract, the Buyer usually needs to qualify for 'end financing' of some sort. I recommend any Seller insist that the Buyer work with a respected mortgage lender for
mortgage pre-qualification prior to a lease/option contract.
The lender should be able to issue a document that outlines the Buyer's probable financing based on current lending programs/guidelines, assuming certain future conditions are met by the Buyer/Borrower (ie: minimum credit score, debt-to-income ratio, etc.).
The Buyer needs to commit to working with the lender for the entire contract period to ensure the borrowing conditions are met (ie: credit clean-up or whatever was preventing outright purchase financing in the first place).
If all goes well, the Buyer will be approved for financing at or prior to the expiration of the contract, the 'private financing' will be paid-off with the best available bank mortgage and all parties will be satisfied.
P.S.: As a Seller, I would always have my attorney include a clause that the contract sales price increases a certain percentage for any agreed upon contract extensions in order to protect the full value of the asset.
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Bill, how many actual satisfactory lease option closes have you seen?
What % of all lease/option arrangements went sour? Was that here or elsewhere?
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Kat,
All information I discussed was U.S. based ... but the principles are the same here in Costa Rica in that the Seller needs to ensure the Buyer can complete the contract.
The two most common situations are: 1) the Buyer needs to sell an existing property where the proceeds will pay-off all or part of the new 'lease option', or 2) the Buyer will need to improve their current credit situation to qualify for mortgage financing not obtainable at the time of the original purchase.
I have personally financed upwards of 20 such situations where the Buyer/Borrower needed time to improve their mortgage qualifying situation.
As mentioned previously, working from the beginning with a reputable lender that will actually complete the financing best ensures the 'end loan' will be available.
I would have no idea of what percentage of Land Contracts or Lease Options fail ... but I personally have had to decline many, many more than I could fund based on the fact that the Buyers entered into such arrangements without working toward a loan qualification during the term of their contract (ie: my Land Contract is expiring next week and I need a mortgage - but I've continued to be delinquent on my car payments, still have outstanding collections and a judgment or two, etc.).
Hope this helps.
NOTE: In the U.S., if the Buyer/Borrower was able to show 'ownership interest' in the property by way of a registered Land Contract they can 'refinance' the 'private mortgage' into a 'bank mortgage' once qualified - allowing for full credit of the down payment, payments toward principle and the appraised value vs. 'private mortgage' pay-off amount (this helps in qualifying for easier to approve lower loan-to-value financing). In the U.S., there is little risk to the Seller in recording such 'private mortgages' as they can be removed as easily as they are filed, but to the Buyer they can truly help with the 'end loan' qualification. A reputable attorney SPECIALIZING in Real Estate law should always be used in such transactions.
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I am particularly interested in this thread because I have a C.R. house for sale. The only offer lately is a rock-bottom down payment and they want me to finance the rest.
Needless to say, I'm underwhelmed at the offer but still considering it since I'm no longer in C.R., the offers are "not" pouring in and I would simply like to move on..."simply" being the key word here! I have no desire to involve myself in some financial tangle, but I'm curious. Has anybody out there had any experience with this sort of owner financing scenario?
What would I need to know? Or can I interest anyone in purchasing (outright) a low-priced mountain home?
Thanks for the feedback.
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Sun,
I would remain "underwhelmed" as long as you can afford to.
In this current real estate cycle you may find it much more difficult to find a good buyer, but risking a long-term nightmare for a short-term feel good might really cost you.
I would arrange a meeting with a recommended Costa Rica attorney SPECIALIZING in real estate that has successfully completed lease/option 'private financing' purchases.
Draft a document outlining your minimum requirements for any potential Buyer (ie: price, down payment, terms of monthly payments, Buyer requirement for seeking an acceptable 'end financing' pre-approval, Buyer authorization for background checks, price increases for any accepted contract extensions, etc. etc.)
Any inquiries seeking a Lease Option, Land Contract, Seller Financing, or whatever they choose to call it - can simply be given this document for consideration.
Only serious inquiries on your terms will return. You will then have better peace of mind if you choose to move forward on an offer.
Oh, and don't pay a Realtor commission on the 'closing' of the Land Contract. Make any commission contingent on the Land Contract pay-off itself. This will keep all parties motivated toward the same conclusion.
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Someone probably already said this.
The way Costa Rican law changed to a few years back, a mortgaged house stays in a limbo state until it is paid for. If the buyers default, it stays yours. I can't remember the legal terms.
SInce credit is expensive here and not so easy to get, I think with the law now on the side of the mortgage person, it is a good deal. You can charge better interest by far than you would get from the same money in a CD or other investment. I think that an 8 per cent mortgage here is reasonable, and it beats the heck out of what I get for CDs
anywhere.
Don't take my word for it, talk to a lawyer. I talked to mine and am willing to finance properties when I am selling them now.
Best wishes,
Robbie
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I do owner financing on my lots. I currently have one mortgage with a buyer. It is not difficult, and it is not particularly risky, to offer owner financing (and with interest, you end up wtih a little bit more money in the long run). You MUST register the mortgage wtih the Registro, however, it is an extra step with extra costs. (And, has Costa Rican tax implications, so be sure to talk to your attorney or accountant.) It is typical to split closing costs between buyer and seller in Costa Rica. When you have a mortgage, however, you can require that the buyer pays that extra cost of registering the mortgage, and the cost of releasing the mortgage at the end of the term. It is important to register the mortgage wtih the government because then you are protected under Costa Rican law, and this law makes it incredibly easy to foreclose should that be necessary. Talk to your lawyer, that is of course the most important thing, but do not be afraid of offering owner financing if that is the only way to sell your home.
Linda Gray
www.ranchotranquilo.biz
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How WESTERN is Costa Rica - would the American feel comfortable living there? ?
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As mentioned previously, many as 60,000 Americans live in Costa Rica ... making Costa Rica the country with the highest per capita of U.S. citizens outside the United States.
Although you will currently not find a Starbucks, you can go to certain street corners to find each of the following: McDonald's, Taco Bell, KFC, Pizza Hut AND Burger King.
U.S. currency as well as U.S. based credit cards are accepted everywhere and multiplex movie theaters offer the latest film releases in English (subtitled in Spanish).
Western enough for you?!
I personally enjoy the fact that you can choose to live in an area as 'Western' or as 'tipico' Costa Rican as you desire ... and you don't have to drive far to visit the other.
Do your homework and Costa Rica should be able to offer all you desire.
¡Pura Vida!
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How much allowance would we need to allow for the typical expatriate in Costa Rica?
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Yours is a reoccurring question from those considering moving, retiring or buying a second/vacation home here in Costa Rica.
You can still live in Costa Rica for $700 a month ... but it's up to you!
For more information on this topic, please read post: Costa Rica Cost of Living
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I scanned through several of the comments above regarding Real Estate in Costa Rica.
What I can say is that owner financing will give you a better chance of selling the property sooner and the money owed can be secured with a first trust deed on the property.
About Property prices in Costa Rica, real estate has not gone down yet, what has changed is the types of properties that are easier to sell, the prices on properties that sell quicker are lower than the last couple of years, so instead of people looking to buy properties that cost $300,000 they look for the ones in the $100,000-$200,000 area.
Someday Real Estate prices may drop but I don´t see that happening in the near future, the economic problems in the USA only drive americans to relocate to other places where they can live cheaper and with the same or better quality of life.
Lic.Gregory Kearney Lawson.
costarica@attorneykearney.com
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Very useful information.
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Hi Bill
My family and I are moving to Costa Rica for 2 years.
My wife got a job as an expat. We have to go and look for a home (rent) in San Jose. We also need to find Schools for my 3 and 9 year old.
What areas would you recommend?
PS: nice photos and info on you blog/web page.
Thanks
Jaime
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Hi Jaime,
Congratulations on your upcoming adventure here in Costa Rica. This will be a great experience for your children – they are just the right ages to learn or prefect a second language.
As stipulated elsewhere within Costa Rica Blogger your lifestyle will dictate where and how much it will cost to live here in Costa Rica.
San Jose and the Central Valley has many diverse areas and nearby towns. Where your wife will be working may greatly affect your decision as to the area you will want to relocate your family. Although all areas are easily accessible by public transportation (and car if you prefer), travel times for even close commutes can be ridiculously long during the morning and evening rush hours.
Another major factor as to your area of relocation is your preference of culture. Some areas are more “Gringo” where English is often spoken and fast food restaurants dot the landscape. Other areas are “tipico” Costa Rica that allow for a more immersed experience in the local culture.
And finally, there are the subjects of ‘affordable’ housing and private schools. The definition of ‘affordable’ being key to your decision on location and the local school of choice. The “Gringo” areas demand more for rent and the big (or most popular) private schools in these same areas get higher tuitions and fees.
I personally live ½ hour Northeast of downtown San Jose with a great view of the Central Valley. Rents are less than $400/month and private bilingual school tuition is $200/month.
As you can see, specific answers to your question “What areas would you recommend?” are difficult without more information.
It sounds like you are already working with a Realtor that may be able to assist you with some of these answers. Hopefully they will be honest in presenting you with all your options as they vary widely.
Please continue to use the Costa Rica Blogger entries as another resource toward a more complete understanding of your options.
Let me know if you would like me to review your specific situation in greater detail toward better answers.
-Bill
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Having purchased , lived in and then sold a home in the Alajuela area, I found this article interesting. I was able to arrange my own cash from The US with private investors, so we paid cash for the finca, we had to pay the owner some of the purchase price but he did have a registries mortgage on the place so we paid the holder of that mortgage off at closing as well ALWAYS have an reputable lawyer of your own involved that is knowledgeable of C.R. laws.When I sold the place I was will to accept owner financing with a 50% down payment but the buyer paid cash. I found my own buyer through an ad in www,amcostarica.com I did have a Realtor assist me as I was out of the country BUT she was not very aggressive or eager to help. I appreciate your blog this was a great article.
IF anyone has a $75,000-$80,000 house in Atenas -Grecias they want to sell and owner finance I am looking!
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This would be the right time to buy the properties in Costa Rica, Since the investment will be low due to the down flow of the market. When someone buys the property at this time, it would be better to sell back when the market turns over and could be benefited with that. The posts are really awesome here.
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Hello, everyone I lived in costa rica from may 2007 until april of 2008 and loved every minute of it. I worked as an english teacher all over the country and fell in love with the people and the culture. I was forced to return to the US for financial reasons but am working on a plan to get back.
My question is about the the Area of Uvita and a particular property there that I am interested in buying to live in and run a bar/hostel out of. Obviously I need to return there to see it for myself before I can make a serious offer on it but I was wondering If anyone has been there? knows of this property? or of the Agent or owner that is selling it. As much as i want to come down there to check it out i dont want to trip to end in disappointment. The property is for sale on craigslist as a bar/rest. in uvita for $175,000.
I would love to hear from anyone in that area or that has been there or just may have some useful information regarding this matter.
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If your serious about buying the business/property, you cna contact us to do some due dilignece and investigate the property and do some research on it.
Lic.Gregory Kearney Lawson.
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Hi Bill,
Great conversation you got going on here. One of the challenges I see with Costa Rica real estate is that fact that there is no MLS or comprehensive database that aggregates all the property listings nor is there much reported data about trends. In the US and UK there are numerous sites that trend what is going on. Transparency is a big issue/challenge when buying real estate in Costa Rica. Kudos to you and your blog for pulling back the curtain with this blog. The Web 2.0 is allowing for more opportunities to establish the experts and hopefully it will rid of the fast talking people peddling a dream. Pura Vida de Bogota, Colombia.
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Brian,
After running a business in the data driven U.S. housing market I absolutely agree with your observations that comparison sales and procedural transparency is necessary toward a more comfortable real estate buying experience here in Costa Rica.
Progress is being made, but games are still being played ... especially if you are a 'rich' foreigner seeking to purchase.
Gringo pricing can be expensive and due diligence is required!!!
-Bill
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