Renting vs Owning in response to We Love Costa Rica Article

I thought my readers might enjoy some insight from my broker, Mr. Scott Cutter, and some of his insight in owning rather than renting. In his words...

I recently read an article in the We Love Costa Rica forum which encouraged all investors to rent prior to purchasing here in paradise. As a firm dedicated to a cautious process, integrity in our transactions and a patient approach to helping our clients find the right investments here, there are certainly many situations and many clients for whom renting prior to purchasing is absolutely a great idea. That said, opportunity abounds in todays market and a diligent and professional real estate firm can and should help you make educated and insightful decisions that allow you to take advantage of the opportunities, without exposing yourself to blind risk. Like most decisions in life, there is no black and white rule in regards to renting or not renting before purchasing… that said, I think it is important for buyers to understand that renting for an extended period of time before buying might not always be the best decision.. here are 10 reasons to consider purchasing without having previously rented for a longer period of tiem.

1. Recklessly purchasing is never a good idea, but in this market A PROFESSIONAL REALTOR (THIS IS THE IMPORTANT FACTOR) can and will show you purchase opportunities unlike any we have seen in the past decade, and many are being sold at a solid pace. While I am not of the opinion that the market recovery is so strong that all deals will be gone overnight, it is clear that in the current buyer’s market, now is the time to achieve the best strategic pricing both for personal use, and of course, long term appreciation.
2. With rental contracts by law in Costa Rica stipulating a 3 year term, you are committing yourself to 3 years in a rental home or apartment, therefore, setting yourself up to buy in a much different market. While many rentals are done on shorter terms, in many cases, if you leave prior to a year time, you could stand to lose your deposit, which while not necessarily big money is a consideration.
3. Lost equity – Buyers looking in the luxury or premier markets (for example in Escazu, Manuel Antonio, and some areas of Jaco) will likely pay between $4000 - $5000 per month for a luxury rental, thus dropping somewhere in the range of $180,000 during the course of their three year lease term in the home. While trial runs and being careful are important, the cost of higher end rentals leaves huge equity losses for the client which with more aggressive purchase strategies could translate directly into returns on the total investment.
4. Inventory cycles – With most of the bleeding inventory already off the market, and fewer and fewer REAL DEALS on the market place, the inventory to be found in a few years is likely not only to be more expensive, but also adjusted both with inflationary inclusions, as well as less motivated sellers.
5. By renting, you don’t experience the ‘pride of ownership’ and it’s difficult to really take hold of the experience and to feel a real part of the area. This makes it more difficult to fully immerse yourself in the experience, cultivate your property, garden, relationship with neighbors, etc. It is also important that as a renter you will like be here on a tourist visa, requiring that you leave the country every 90 days. With a purchase, you can oftentimes start the residency process as an investor which can be an added plus.
6. Rent, in C.R., for most nicer houses is relatively expensive. I think a lot of folks make the mistake of trying to ‘rent first’ with a reduced rental budget, inevitably get locked into a property or neighborhood that does sit well with them and hence walk away thinking “C.R. is not for me” when they were simply in wrong micro area due to rental options available at their desired rental budget. Just like finding the right place to buy is of incredible importance and is a part of any good realtors dialogue with their clients, where you rent can greatly affect the experience and outlook on the country.. Take it from someone who has lived in both cheap dives and luxury homes, that your experience and future vision of Costa Rica can be heavily impacted by your rental budget.
7. Of course, relatively high rent is not a bad thing if you’re the landlord, and is another good advantage of ownership.. Every month you pay rent is a month you could be collected a return on your investment.
8. Everyone, including our experienced team of long time residents here goes through an adaptation curve. Culture shock, linguistic challenges, local customs, etc are learned over time and don’t become fluent in a short period. Working through these points makes your experience in C.R. more rich and rewarding, but as a renter it’s often too easy to ‘pull the rip cord’ and not give yourself the chance fully enjoy your new experience in a foreign country and everything it has to offer. I have been an exchange student and lived in many countries and often times those first 3-6 months are challenging as you adapt.. while blinding committing is irresponsible, like most things in life, the full richness and rewards are usually harvested over time and far too many renters confuse adaptation and adjustment to dislike.
9. Many investors, if not the majority of purchasers in Costa Rica are not necessary looking for full time retirement or living. While purchasing a full time residence or retirement home can and should require a much more diligent experiential study of lifestyles, culture, etc. there are large numbers of clients who are purchasing here to diversify their investment portfolio, enjoy a second vacation home, corporate incentive, etc. For these clients, renting for long periods of time won’t make financial sense due to the rental premiums on the coast and equity sacrifices by missing purchase opportunities in today’s buyers market. If the purchase if for a second home or investment, renting for long periods of time will not necessary provide any additional insight.
10. Making it your OWN!! In this world full of stress, there is an incalculable value of owning a piece of paradise, and having the opportunity to personalize, remodel, redecorate and enjoy your own piece of the world. While knowing you can go on vacation and pay to stay in a hotel room or rent someone else’s space in the world is nice, it simply doesn’t compare to the experience of owning a special property in a country like Costa Rica. Whether your goals are portfolio diversification, health, vacation or investment..there is something to be said about the value of securing your property and its ownership. It is tough to quantify, but for those investors who have closed on some of the spectacular deals we are securing in the past 6 months, the smiles on their faces and in their financial statements speak volumes as to why purchasing makes a lot of sense.

Again, this article is not meant to be a condemnation of renting. For many it can be and is the smartest solution for their goals. That said, beware, some of the greatest investments in all areas have been made by well educated and insightful professionals who while far from reckless, are also decisive and understand that taking more time than is necessary to examine opportunities oftentimes means that those very doors close while they are pondering. Our team of professional is here to help you look at rentals, markets and guide each client on their very personal decision making journey. No two scenarios are alike and as a firm we are dedicated to learning about YOUR goals and making recommendations that will insure your happiness and successful investments.. Our only rule is do what is best for the client and never sacrifice integrity.