Both foreign and local investors can participate in Costa Rica’s real estate industry. Costa Rica is a real estate investment destination. The country has a wide range of locations and types of properties. Investing in commercial real estate is one of the most well-known investment possibilities. This sort of property is supposed to bring in a good profit. It may bring in even more than residential real estate. Consider the following factors. That is if you’re thinking about investing in Costa Rica commercial real estate.
Pros of investing in commercial properties
- Yields a higher return than residential properties
Residential properties usually yield 3-4 percent gross. This is before the pay rates, taxes, and insurance are subtracted. While commercial real estate typically gets a 5-10 percent net profit. Those who invest in commercial real estate put in a higher investment return. This is because capital growth is slower. There is also a greater risk of longer vacancies.
- Commercial properties are leased for longer periods
It is common for residential properties to have a one-year duration of rent or maybe even shorter. But commercial real estate for rent gets leased for an average of 3-5 years.
- Review rent rates yearly
Rent reviews can occur as often as once a year or once every 18 months. This method has a better probability of raising the rental rate. This depends on market rental and the consumer price index. Some investors put a protection provision in their contracts. This prepares them in case the market prices fall. This should keep the rental from dropping in line with the market.
- Overheads are paid by tenants
Residential property owners pay for the taxes and all related overhead costs. However, commercial property tenants pay for these. They pay for taxes, insurance, among others.
- Commercial properties are well maintained
Tenants who do business would most likely keep the space clean and tidy. This is where they conduct a successful business. Therefore, it’s only natural that they maintain it immaculate. The place represents who they are as a business.
- Managing commercial properties is less demanding
Managing any form of property necessitates a high level of expertise in the field. However, certain properties may need less management effort while others may necessitate more. Commercial property management is similar to residential property management. However, it is less involved with the little things.
A home renter will ask you to fix a leaky faucet, but a business tenant would not. They generally take care of things that they can simply resolve themselves.
Cons to consider in investing in commercial properties
- It requires more equity to purchase commercial real estate.
- The initial capital is bigger than when acquiring a residential property. Commercial property in a good location costs twice or more than residential.
- Higher interest rates for commercial loans than residential properties.
- It’s rare to have vacancies in good locations, especially for the long term. However, some commercial properties get vacancies for weeks to months.
- The market stance of commercial real estate is more dependent on economic factors. They are easily affected by the changes in economic conditions.
- The lease arrangement is more complex and is usually done by a solicitor.
- Prime real estate for residence is easier to identify.
How to recognize a good deal
Calculate the Net Operating Income (NOI)
You can calculate the NOI of commercial real estate property. Get the first annual gross income and subtract the year’s total operating expenses. A positive NOI means a good investment.
Calculate the value of income-generating properties
This should yield the Cap Rate or capitalization rate. Determining the Cap Rate identifies the present value of your investment. It also identifies the future profit cash flow.
The Cash on Cash formula
The Cash on Cash formula is for investors who are financing commercial properties. It compares the first-year performance of competing properties. It considers the fact that the investor will not be keeping his NOI in full because of the payment of mortgages.
Determine the fair market value of the commercial property. This is critical for both lenders and investors. The CRE appraisal should establish the property fits the investor’s real estate portfolio.
What makes a good Costa Rica commercial property investment
There are two key measures of good commercial property investment. They are strong returns and stability of income. Strong returns are a combination of capital gain and income generation. Meanwhile, you can tell the stability of income. It is by observing that the returns are consistently generally high.
Investing in commercial real estate requires considering the pros and cons.
There are benefits and drawbacks to investing in commercial real estate. Keep them in mind. You can decide if it’s right for you based on your strategic real estate investment portfolio. If you’re thinking about buying a property in a tropical nation like Costa Rica, consider this. Think about how well you know the local real estate market.
Multifamily housing (except single-family private residence), retail space, office space, industrial asset, warehouse, commercial building, and developable land, are all examples of commercial space. Investing in them enables you to swiftly expand your real estate investment portfolio. This while also allowing you to leverage and mortgage your investment.
Costa Rica commercial real estate in a perfect location. It could also be the turnkey to growing your investment portfolio. Find the right company that can help you with your Costa Rica real estate investment needs. Businesses need new homes situated in the best locations in the city or a thriving town in Costa Rica. Search the country for the town or city that’s best for retail and other types of business.
Century21 Pura Vida agents can help you make the best decisions. Find the right property type. Find a property perfectly located in a commercial area with easy access to high traffic. This is ideal for businesses. Explore the Central Valley and other locations in Costa Rica. Costa Rica is a country in Central America that can offer you many advantages. This includes properties in a growing area teeming with opportunities. Costa Rica is well-loved around the world. It is famous for its beach life, the Pacific ocean, and panoramic views. It also offers the best real estate properties in the world for foreigners and locals to invest in.