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Are you planning to invest in a rental investment property in Costa Rica? Then you first want to know what profit you can make on this investment, right?
The profit in rental investment property depends on many factors. As you know, income is important, but profit is what makes the investment attractive or not.
Most rental investment properties have a gross income of between 5% and 8%. I am saying 8%, but those are hard to find. Unless you do short-term rentals on HomeAway or Airbnb.
Rental investment property that does long-term is much less work for the owner but usually has a lower income. Short-term rentals can generate a much higher income. But it usually takes a couple of years to generate continuous bookings.
Most sellers will tell you there is a much higher ROI on their rental investment property, but once you’ve made the purchase, you’ll find out about hidden costs.
Long-term wealth through real estate investments can also be done in countries like Australia. There are a few factors that influence your return on investment tremendously. Here are 7 expenses that can lower your return on investment on rental property in Costa Rica:
1. HOA fees
If your rental investment property is located in a gated community or a condominium, you will be charged HOA fees. Often, those fees are very high and can, therefore, influence your return.
Nonetheless, you have to take the amenities the community offers into account. Those amenities, such as community pools, tennis courts, and a gym, can influence your rental income positively.
Every property in Costa Rica pays property tax, so that shouldn’t worry you. BUT two taxes will eat into your profits if they apply to your rental investment property:
Luxury home tax
Luxury homes pay an annual luxury home tax, or “Impuesto Solidario para el Fortalecimiento de Programas de Vivienda.” Learn more about this tax before making an investment in the property.
The corporation tax must only be paid when the rental investment property is owned by a corporation. Learn all you need to know about this tax now.
3. Property management
If you plan to do your own property management, you don’t have to worry about this cost, although you need to calculate the cost of your own time investment too.
Professional property managers charge between 10% and 25% of your rental income, depending on what they do for you.
The time your property will be vacant will cost you money. Adjusting your rental during certain periods might help. Short-term rentals run a higher risk of being vacant but generate higher rent. Take your fixed costs, like HOA fees, into account during the vacancy.
5. Property appreciation/depreciation
Rental investment property not always appreciates. Often, this depends on the maintenance of the property but also its location and the general environment. Being close to the ocean, for example, can deteriorate a property tremendously.
6. Furniture Replacement
If you rent your property furnished and with appliances, furniture replacement can be costly. Appliances are quite expensive in Costa Rica.
Long-term rentals are less deteriorating than short-term rentals.
The repairs can run up tremendously. Often, landlords do not maintain their property well. This will, in the long term, make maintenance and replacement even more expensive. Besides, tenant turnover will be tremendously expensive.
Here are more interesting tips for a successful real estate investment. Looking for rental investment property in Costa Rica? Contact us now; we are the experts.
The grammar of the Spanish version of this blog was checked and corrected by Wagner Freer of the Spanish School for Residents and Expats. We strongly recommend this language school as your best choice to learn Spanish; click here to contact them.