Income versus Retirement Markets
Often times you’ll hear or read generalizations made about the Costa Rica real estate market as a whole that might just not hold true in all cases.
In fact, I even wrote a post about the fact that in Costa Rica, the exceptions are the general rules.
One reason that these generalizations might not hold true is because they fail to take into account certain distinctions between market types…
Such as the difference between a predominantly income market and one that is more of the retirement, or expat living, variety.
What exactly do I mean by that?
Well, let me give you a few examples…
Take a market like Tamarindo, for instance. I would place Tamarindo in more of the income market category. That’s because a prime motivator of the real estate market in Tamarindo is the potential for a particular property to generate income for the owner.
And that will hold true for most markets that are in tourism intensive areas. Other examples would include markets like Jaco, Manuel Antonio, and even areas of my Costa Ballena, such as Dominical, Uvita and Ojochal.
Granted that certainly there are situations in which real estate purchases in these “income driven” markets are made for the purposes of living there and not just investing for income and appreciation. Nevertheless, I would say that on average it’s the potential rental income generating possibilities that will be a major driver of price in these markets.
For examples of retirement or expat living markets I would include the so-called bedroom communities around San Jose and even to a large extent the entire Central Valley. This is an area that tourists generally try to avoid. However, due to the weather and many amenities of living near a big city, like health care and shopping/dining options, the Central Valley is a prime location for expats moving lock, stock and barrel to Costa Rica.
Other areas included would be those like Grecia, Sarchi, San Ramon, Atenas, etc. All of these are within an hour or so from the big city and have many of the qualities expats are looking for in a place to live full or part-time.
Another area I would certainly place in this category is my very own home of Perez Zeledon.
The reason I am drawing this distinction is that there are certain characteristics of these diverse markets that are important to keep in mind when analyzing them.
One of these is time on market. Many who are considering a real estate purchase in Costa Rica will use “time on market” as an indicator of whether or not a particular property is over-priced. Many will make this analysis with a U.S. time on market frame-work in mind.
However, the typical gauge for time on market used in the U.S. of 3 to 6 months doesn’t work so well down here. And that’s especially true in the retirement or expat living type markets. There reasons are pretty logical…
In the U.S. a person looking for a home to buy is usually either someone in the same city looking to move up in home size or quality, or perhaps moving in from another city or state. However, that’s far different than someone moving to Costa Rica from another country!
I often work with buyers for a year of more before they ever buy anything. When I list a property, the initial activity on that property is usually from buyers who aren’t in the country, or maybe have never even been to Costa Rica. Also, when a buyer is considering a particular area as a place to live long-term, they may opt to come and spend a few months in that area before buying.
All this can translate to a longer time on market. In fact, the average time on market in my area of Perez Zeledon, historically, has been around 18 months!
Now, when it comes to a market that is income driven, the time on market calculation can be more compact. After all the income potential of a property can be shown quickly on paper and doesn’t require someone to experience the property, or the area where it is located, in order to have a good sense of it’s potential income.
So, time on market as a reflection of correct pricing is a good consideration, but you have to take into account both the differences between Costa Rica and the U.S., as well as the distinctions between the diverse markets of Costa Rica.
I would venture to say that time on market as an indicator of correct pricing is quite different in Perez Zeledon as it is in, say, an income market like Tamarindo.
The other major distinction in these markets is the level of pricing in general. Income driven markets in Costa Rica are always the most expensive. These are the tourism intensive areas where you’ll find not only higher property prices, but a higher cost of living.
In the retirement or expat markets you can find a similar quality and quantity of property at a much more affordable price. You might have to look a little harder, but they’re out there! Granted, these type markets are generally more inland, mountain, markets, Therefore, you won’t have ocean views or walking distances to a beach. But what you do have are breathtaking mountain vistas, a much more agreeable climate, and usually it’s a more authentic tico (Costa Rica) culture that will prevail in these markets.
The real estate market in tourism intensive and income driven markets are usually more vibrant in terms of the level of activity. There you will find many of the top brand name real estate brokerage franchises operating and tons of real estate agents. The so-called general advice of many “experts” in these Facebook expat groups of never using a real estate agent won’t work in these markets because the majority of the good properties are going to be listed exclusively with an agent.
In the retirement or expat living markets you’ll fine a combination of listed properties and for sale by owner (FSBO) properties. You might have to spend a little more time looking in these markets as they generally will be less “efficient” than the income markets.
Even though there will be overlap in these markets the above general distinctions I believe will hold true for the most part. And it’s a good idea to keep them in mind when considering where to buy in Costa Rica.
