Costa Rica Rental Income: Good or Bad Business?

Buying or building to rent can be risky. Pay attention.

People with a disposable income often ask about the profits involved in building rental properties in Costa Rica. To answer the question, you need to consider earnings, cash flow and risks.

The growth of both real estate funds and large developers confirms that yields can range from 8 to 12 percent, depending on the property.

Nevertheless although the property can be rented, a lot depends on the investor’s expectations and the risks involved.

Stocks or certificates of investment run the risk of being devalued up to 10 percent a year because of inflation, while an actual building usually increases in value every year.

The property (a house or apartment, etc.) can generate from 1 to 2 percent monthly returns with an annual average of 10 to 14 percent.

Experts recommend a small investment (minimum risk) to newcomers to real estate business.

The price: Rents depend on supply and demand in the area, the condition of the property and the security it offers. Rents also vary according to how old a building is, depreciation of infrastructure, its margin of usefulness, existing speculation and even the need to rent in a given moment.

In general, rents are based on 1 percent of the market value of the property, but this percentage can vary depending on the macroeconomic conditions in the country, especially inflation, which affects rents the most.

Another parameter is that of “recuperating your investment.” Here, the objective is to figure out what the rent should be based on interest rates and how long it will take to recuperate the investment, before the operation can be paid off and rented for a profit.

Possible risks: Investing in rental properties involves risks too. The owner must visit the property, maintain it, win the confidence of the tenant, follow all the legalities of the contract and pay taxes.

Among the risks is non-payment of rents, non-fulfillment of contracts, damage to the building, robbery and the risk of a tenant’s leaving. Once the building is empty, no rents come in.

This is happening a lot around San Jose, where some buildings are half filled because of lack of services and the growth of residences and office buildings outside the Central Valley.

There is also the old Tenants’ Law that allows unscrupulous tenants to hire mercenary lawyers to slow down the judicial process, which lets them continue to reside in a place while not paying rent.

Furnished or Unfurnished?

Renting furnished apartments is often not a good idea as often unscrupulous tenants take off with all the furniture.

This option is perhaps best for apart-hotels where short-term rentals are the norm and different tariffs apply. Nevertheless, the demand has grown for furnished studios for one or two persons.

In addition, a furnished apartment often costs the investor up to 20 to 25 percent more than an unfurnished one.

Some rental contracts allow the tenant to rent a furnished residence and agree on a term different from that of the original rental contract.

On the other hand, renting a property brings in money on a monthly basis, which allows the investor to pay off loans on the building and build more buildings.

Our thanks to Gloriana Gomez and our friends at La Nación – Costa Rica’s largest Spanish circulation newspaper for their permission use this article.

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.