Investing in Real Estate: Advice for Securing Your Investment
The Costa Rican real estate industry is growing slowly due to the economic slowdown that our country is currently going through. However, there still are plenty of real estate projects being developed in urban and rural areas and, of course, they come with a lot of benefits and amenities which make them attractive as investment properties.
For this reason, when foreigners come by, they are often offered properties within these luxury projects that lay in the center of the cities near all facilities and governmental institutions, or in the middle of the forests where birds wake them up, or near to the beaches where you can take your morning run in the sand listening to the waves. They offer amenities such as restaurants, gyms, saunas, pools, and golf courses and the only thing you must do is to pay for a reservation fee before signing the purchase agreements.
But then, you may have the following questions: Should I pay a reservation fee before consulting with an attorney? Will I lose my investment? What happens after I pay the reservation fee? What can I do to make sure that my dream of living in Costa Rica comes true?
The biggest recommendation I can give is to look for advice.
It sounds obvious, I know. A lawyer duly enrolled with the Costa Rican Bar Association is a good place to start when looking for this advice, in addition to engineers or architects registered before the Costa Rican Association of Engineers and Architects.
From our experience, when engaging in an investment for a real estate project, there are usually stages of negotiation and of acceptance. Before paying a reservation fee, you should find out at the very least if the company or the person selling the property are the actual owners of the title to be transferred. The seller shall provide a title certification that states their ownership, as well as their capacity to act and sell the property.
After paying the reservation fee, comes one of the most important parts of a transaction: the signing of contracts and commitment between both parties. A Purchase Agreement and an Option to Purchase Real Estate, or a Promise to Purchase a Property are the usual agreements that the parties sign in order to agree to the general terms related to the transactions.
Some of the items agreed to in these agreements include the price, the methods of payment, the term of the offer, the obligations between the seller and the buyer, the distribution of costs related to the purchase, applicable resolutions, and the dispute resolution process.
The listed terms and conditions must be carefully reviewed by an attorney to make sure that you are not entering into an abusive contractual relationship, that your investment is going to be secure, that the agreement is in accordance with Costa Rican law, and that you would have a way to request a reimbursement in case of a breach of contract.
Then, you should proceed with doing a due diligence study to determine whether the property you are buying is in order and fully compliant with tax regulations and municipality permits. If there are buildings inside the property, then we usually emphasize reviewing the construction permit, as it allows us to know if the property has access to water, electricity, and other public utilities, as well as to know if you could add on to the building after your purchase.
During this stage, we also recommend that an appraisal of the property is done by an engineer or architect in order to check that the value you are being offered is in accordance with the price of the market and if there is construction being done, to verify that the construction materials used and their integrity are adequate for living in that building.
The title transfer should be made after the above stages are complete and, to be sure the property is going to be registered under your name, the notary public in charge of the transaction is responsible for providing documents proving that the change of ownership was duly enrolled before the National Registry.
In some of these stages, you may have to seek legal advice, and this is also something to be careful with. The Costa Rican Bar Association has a table of minimum fees that should be paid during the transaction, as well as the approximate expenses corresponding to taxes and stamps. A price quote that is under the limits established by the Bar may constitute difficulties when registering the property as the attorney may face a suspension for this unethical practice.
Some attorneys also recommend using a lower price for taxation purposes; however, it can diminish the value of your property and cause further problems if there is a problem with any public authorities. It could also bring penalties and sanctions from the tax authorities if an investigation is made for the amounts.
In addition, the due diligence studies may be vague and incomplete, and that can lead to losing the investments you have made. For example, a client of ours once was looking at buying a property in a luxury condo located in Limon near the beach. An attorney from another firm and who was also advising this client, didn’t check that the property didn’t have access to water, public roads, and Internet connections, leading to a property that was difficult and inconvenient to live in. Consequently, their retirement plans were marred by poor advice.
A responsible professional will help you during all the stages we are discussed, especially when you are new to the real estate industry or you are buying a home to reside in. Please bear in mind that securing your investment depends on how you choose the person who will be representing your interests in the transaction.
From our Real Estate Team, we are glad to be helping you with your negotiations and your investments. Please let us know how we can help you.