Dreaming of owning a small hotel in Costa Rica?

Whether you’re looking to invest in a boutique property or a charming bed and breakfast, Costa Rica offers a unique combination of stunning natural beauty, a welcoming tropical lifestyle, and attractive real estate opportunities.

This guide will walk you through the process of purchasing property in Costa Rica, along with tips for maximizing returns on your small hotel investment.

Why Buy Real Estate in Costa Rica?

Costa Rica is known for its political stability, investor-friendly tax policies, and a high standard of living, making it a top destination for property buyers. The real estate market offers a diverse range of options, from beachfront hotels to mountain retreats, all catering to different types of visitors.

One of the biggest financial advantages of owning property in Costa Rica is the low property taxes, which are set at just 0.25% of the property’s value. For luxury properties, there is an additional tax, but even then, the total amount rarely exceeds 0.8%, making Costa Rica an appealing location for those interested in the hospitality industry.

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Finding the Perfect Property

There is no central real estate site like Zillow in the US. The listings are distributed on random website of real estate agencies. A good place to start is Buy That Hotel that curates all these hotel listings at one place. Local Facebook real estate groups are also handy if you want to go deeper.

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Since Costa Rica doesn’t have stringent requirements for becoming a real estate agent, it’s important to thoroughly vet any realtor you work with by reading reviews and asking for references.

Each region of Costa Rica offers unique opportunities for hospitality investors. For instance, popular areas like Papagayo, Tamarindo, and Uvita boast a steady stream of tourists year-round, making them prime locations for small hotels. These regions offer easy access to beaches, rainforests, and cultural attractions that draw in visitors.

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Understanding the Purchase Process

Once you’ve identified the ideal property for your small hotel, the next step is to make an offer. Typically, offers in Costa Rica are not legally binding until a formal sales agreement is signed, giving you the flexibility to negotiate terms. Pricing in Costa Rica can often be flexible, especially if the property has been on the market for a while. Properties listed for over a year often sell for 10% or more below the asking price.

Financing can be challenging for non-residents, as local banks require extensive paperwork and offer limited options. Cash buyers have a significant advantage in Costa Rica. However, owner financing may be available, with interest rates ranging from 0% to 6%, and terms lasting between two to five years.

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Closing the Deal

The closing process in Costa Rica typically involves around 4% in costs, which can be negotiated between the buyer and seller. To safeguard your investment, it’s essential to hire a local lawyer to conduct thorough due diligence. This ensures that the seller holds clear ownership of the property, that all taxes are paid, and that there are no liens or disputes on the property. Once all parties agree on the terms, the closing process can take up to a month to complete.

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Maximizing Your Investment in a Small Hotel

Running a small hotel in Costa Rica can be highly rewarding, but success depends on how well you manage your property and enhance its appeal to guests. Below are some strategies that can help maximize your revenue:

• Ocean View: Hotels with ocean views can charge significantly higher room rates, often up to 25% more than properties without this feature.
• More Than 15 Rooms: Many small hotels in Costa Rica offer fewer than 15 rooms, so having more rooms can help you stand out and allow you to cater to larger groups or families. Here is a whole article about the optional number of rooms when you buy a small hotel (this is especially useful for the first-time investors).
• Unique Design: To differentiate yourself from the competition, consider building or purchasing a hotel with distinctive features such as eco-friendly designs, boutique-style interiors, or sustainable practices.

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Managing Your Small Hotel

While you can manage your small hotel independently, many owners choose to work with property management companies to handle maintenance, guest relations, and other day-to-day operations. These companies usually charge between 20% and 40% of your income, depending on the services provided and the location of your hotel. It’s important to choose a management company that can focus on your specific property and maximize its earning potential.

For those who prefer a hands-on approach, managing your own hotel offers the opportunity to keep more of the profits while maintaining control over operations. You can streamline your booking process by using property management systems that connect with online platforms like Booking.com, Expedia, and other travel websites to ensure seamless reservations and up-to-date availability.

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Seasonality

Costa Rica's peak tourism season typically runs from December through Easter, coinciding with the country’s dry season and major holidays. This period sees a significant influx of international tourists, as well as locals traveling for vacations. With the warm, dry weather and an abundance of holiday events, it's the ideal time for visitors to explore the country’s beaches, rainforests, and cultural attractions.

For small hotel owners, this high-demand season presents a golden opportunity to maximize revenue. On average, about 70% of a hotel’s annual revenue can be generated during these months, thanks to increased occupancy rates and higher room rates.

Tips for maximizing revenue during Peak season:

1. Avoid Personal Use During Peak Periods: While it may be tempting to enjoy your property during the holidays, using it personally during this time can significantly reduce your potential earnings. These are the months when room rates soar due to heightened demand, and each night your rooms remain available for guests could result in substantial revenue.
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2. Increase Rates Strategically: Demand for accommodations is much higher during peak season, allowing you to increase your room rates without driving away potential guests. Research what other hotels in the area are charging during the same time, and adjust your rates accordingly. However, make sure the increase is justified by the quality of your property and the services you provide.
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3. Offer Special Packages or Promotions: Many travelers look for value-added services during their stay. Consider offering special peak season packages that include meals, transportation, or excursions. You can also create packages for longer stays, which encourage guests to book for extended periods while securing more predictable revenue.
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4. Optimize Your Booking Channels: During peak season, more people are searching for accommodation options online. Ensure your property is listed on multiple booking platforms such as Booking.com, Expedia, and Airbnb. Having professional photos, clear descriptions, and positive reviews can make a huge difference in attracting guests. Additionally, ensure that your website is up to date with accurate information about availability, rates, and any seasonal promotions you are offering.
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5. Prepare for Operational Strain: With higher occupancy comes the need for increased operational readiness. Ensure your staff is trained to manage the higher volume of guests efficiently. Have enough supplies, ensure maintenance is up to date, and consider hiring temporary staff to manage the busy season smoothly.
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Investing in a small hotel in Costa Rica is not just a financial opportunity, but a chance to immerse yourself in one of the most beautiful and biodiverse countries in the world. With its stable economy, favorable tax environment, and growing tourism industry, Costa Rica is a prime location for those looking to enter the hospitality business. Whether you’re seeking a beachside retreat or a jungle hideaway, owning a small hotel here allows you to offer guests a unique experience while generating income in a thriving market.

While the process of buying and managing a small hotel may seem daunting at first, with the right planning, professional advice, and a clear understanding of the market, it can be a highly rewarding endeavor. By focusing on maximizing revenue during peak tourism seasons, offering excellent service, and continually improving your property, you’ll be well on your way to building a successful and profitable hotel business in paradise.