To Rent or Not To Rent? When is the Right Time to Buy?

I recently posted on our Facebook Group about the cost of homes in the different cities of Costa Rica, and for the most part, I received a lot of positive feedback- which is awesome.

There is always at least one 'Negative Nelly" out there however. I usually just ignore them, however this comment was one that I feel needs to be addressed. Not because I agree with their opinion but because it naturally leads to another of our common questions... that being...

Should I rent for a year/few years before I buy?

On the whole, the idea of renting is quite practical- up to a point. Mainly because it is a good idea to find out if you like an area before you invest your money in it, especially if you don't have experience with the country and the real estate market.

Ideally, I would say that taking your vacation here a few times, and choosing a different area each time would be the MOST practical way to explore the country and find your ideal location before you decide to buy.

This would allow you to explore without spending a bunch of money that you wouldn't have anyways... 

We did not do this... well, we did once- for a week, and in all honestly the fact that we settled in a place that is perfect for us was mostly luck.

We were also on a tight schedule, having only 8 months to sell everything, quit our jobs, and move before we took over the sailing charter business that we had purchased. 

So... we rented while we house hunted. It took three months to find what we wanted, which isn't bad at all, and we are happy with our purchase.

I will say though, that renting for much longer than that can really start to eat into your funds- especially if you are no longer making an income (IE-retired).

Contrary to popular belief, many expats who retire to Costa Rica don't do so with limitless funds. As such, there needs to be an element of practicality in their actions, and that- in my opinion- is part of the reason we get asked this so much.

So... let's take a look at the monetary side of buying vs renting...

Buying vs Renting

Rental prices can vary greatly depending on the size and location of the rental, but for the purposes of this exercise I'm going to work with a range of $1500-$3000/month because anyone can find a decent rental within that price range anywhere in the country.

So using these numbers, what would it cost you to rent for a year? The answer is $18,000- $36,000. That's not exactly chump change.

In fact, if you consider that you can buy a nice preconstruction condo on the beach for under $300,000, and that most preconstruction developers will ask for 25% down at signing ( which is $75,000) that's basically the equivalent of 2 years of renting. In other words, if you rent for two years, you have given your landlord the downpayment on a condo.

Our "Negative Nelly" held the opinion that no expat should buy, so if you factor in the fact that most expats of retirement age should have a good 10-20 years left... following his advice and renting would cost you $180,000-$360,000 (for 10 years) or $360,000- $720,000 (for 20 years).

I don't know about you- but if I HAD that much, I would much rather leave it behind for my children. 

Or- you can invest the money to OWN a piece of property that you can pass down to your kids for less than the cost of rent (as defined above).

When you think about it, renting for your entire retirement really isn't at all practical in a financial sense.

So... should you rent while you shop? In my personal opinion, if you can't vacation here often enough to find your ideal location- then yes! My only advice would be that you give yourself a time limit based on what you can afford to "lose" on your rental costs.

** I will add one caveat here because IT IS IMPORTANT. Unlike the US and Canada, when you sign a lease in Costa Rica EVEN IF THE LEASE SAYS IT IS FOR ONE YEAR- the standard (legal) lease period here is three years. Meaning if your landlord so chooses, they can expect you to continue paying your rent for the full three years, and fighting that in court can be a costly and lengthy endeavour.

How do you avoid this? Any rental period that is less than one year is considered a short-term rental and therefore is not held under the (Costa Rican version of the) landlord/tenant act.

Being aware of differences in the law like this can make a huge difference to your experience here, and that's why it is always important to do you research AND to have trusted advisers.