Costa Rica Vacation Rental Investment Webinar with Market Data and Returns – Aug 2024

Vacation Rental Investment Factors

Richard Bexon: Yep. Oh, everybody, welcome to the August webinar here, where we’re going to talk about how to invest in a vacation rental in Costa Rica. So we do these every month.

I think we’re going to be releasing what we’re going to be doing in September after this, but just to give you a sneak preview, we’re going to be talking about value engineering and construction. So basically when you get your bid back, kind of number one, how do you go out for bids? And then number two is how you actually reduce that price.

And to give you an idea, we’ve been able to reduce prices anywhere from 10 to 20%. Once we start value engineering things, we actually had a client up an hour now. His bid came back at, I think it was like 670.

And we ended up getting it down to 530 in the end with quite a few changes and not that many structural changes. It was just a lot of changes to finishes and doors. And again, there’s always a lot of errors in bids as well.

So we actually spend quite a bit of time on that, but you’re here to talk to, well, listen to us today. Talk about how to invest in a vacation rental in Costa Rica. So your speakers today will be of course me, Richard Bexson, Managing Director for Costa Rica Investments.

And also Jake and I, we work together. Jake is an investment specialist and works with a lot of clients looking to invest in a vacation rental in Costa Rica. So welcome Jake.

Thank you. Thanks for having me. It’s not your first rodeo I’m sure.

So, so yeah. I mean, I just want to quickly run through the agenda today, guys. We’re talking about factors here, factors that drive vacation rentals and their returns here in Costa Rica.

We’re going to go a little bit over the country data as well. Every single time that we do one, I think the last time we did this was in back in May. So kind of just updating what’s happening in the country with regards to arrivals and also airports as well.

Then Jake’s actually going to cover vacation rental data, kind of more the locations, looking at occupancy, average daily rates, kind of a number of listings and area what’s going up, what’s going down, seeing any trending. He’s going to also talk a little bit about some modeling and examples there. We’ve got three examples there of just investments that you could make in Costa Rica, just so that you have an idea of how we go about doing the modeling when any of our clients or us personally look to invest in Costa Rica.

I’ve also thrown property management in there as well, guys, a lot of people that are looking to get an investment here in Costa Rica and a vacation rental require a property management company. So I just wanted to cover that a little bit as it’s not actually kind of widely covered and there’s kind of a wide gamut of property management companies, but just wanted to go through kind of some of the things and questions that you should be asking them. And then also just our advice when investing in a vacation rental in Costa Rica.

So it’s kind of just the general agenda. We should probably be around about 20, 25 minutes, I think. And again, you know, if at any point through this, you have a question, feel free to, you know, just pose the question there in the Q and A and we’ll do our best to answer it as soon as we can.

Investment Formula and Key Factors

Richard Bexon: Okay. So first of all, what’s more of the factors that, you know, when we, that we look at, you know, when making an investment in Costa Rica, I think it’s important to just share kind of, you know, the, I suppose our investment philosophy that we look at when, when looking to invest in Costa Rica. So we’re looking at tourism trends here, guys, and we’re going to get into that kind of a little bit with country data.

We’re not going to go as deep in this one as we did in a webinar in May where we started to look at search data and kind of like intent data online as well. You know, we, it’s, that’s maybe a little too deep for today, but we look at tourism trends. This is something that we personally spend a lot of time in looking at the search data, basically online, looking at the search data that we have from various sources.

And then also the search data from the tourism sector, because we have access to some pretty unique private tourism data there from some of the, you know, the largest tourism companies here in Costa Rica. It really just helps us get an idea of kind of what’s happening in locations. And that’s where we go to locations here.

You know, so location has a huge impact on the actual investment as well. And Jake covers quite a bit of that. When we look at occupancy, it’s average daily rates, listing growths, you know, and there’s also a bit of gut in there as well from me, not that I’m shooting from the hip, but I usually use the data as kind of just to give me a general direction.

And then from there, basically we’ll kind of use a little bit of gut when I’m actually in the area and just chatting with people. And as I mentioned there, you know, average daily rate, occupancy, and also number of listings. And also some analysis that we have our guys do here in the office on rental returns, you know, cost to run a property.

Electricity is more expensive in other parts of the country. You need more air conditioning in other areas of the country, et cetera. So we always do that analysis.

And then also just looking at property management as well, because property managers can take anywhere from 20 to 40% of your revenue there. So that’s a huge impact. They’re actually on your rental returns there.

So just to summarize here, guys, and apologies if this is very simple, this is kind of the formula for generating revenue in Costa Rica, 365 days a year multiplied by your occupancy percent multiplied by your average daily rate basically equals your revenue may sound pretty simple to a lot of you. Maybe for some of you, you’ve never kind of seen it tight, tight, tight doubt like that, but these are kind of the variables here. The 365 is not a variable.

That’s how many days there are in a year, but the occupancy percent, and also the ADR does. And again, that’s dependent on location. And also product as well, because sometimes there are locations that don’t have high ADR, but have high occupancy because they don’t have luxury product there.

You know, and then that’s where you need to take a look at all their luxury hotels. Do you think it could work? And that’s where kind of the gut comes in a little bit.

And then of course you have to take your revenue, that’s your expenses. And I think sometimes it can be very difficult to get those expenses. If like, this is your first time doing it, or you’re not too sure, you know, and then you divide that by your investment to basically get the return on investment.

Costa Rica Tourism Trends and Airport Data

Richard Bexon: So we do a lot of analysis on properties. You can actually go to the website, investing in Costa Rica.com. There’s a curated investment section there.

You can just scroll down the homepage and find it, sign up for it and you can get in and you can actually get access to some of that data there as well. We’re also happy we’ve actually done for quite a few people, just a bit of quick analysis there when they’ve asked us to. So if you have a property that you’d like us to analyze, feel free to email us, you know, the details will be at the end of this, but it’s just info at investing.

Costa Rica.com. We’ll have one of the analysts here, take a look at it in the office and then basically kind of send it back to you. Okay.

So that’s just the formula there guys. You know, it’s plain and simple. I’m sure for some of you, it’s like, but for other ones, you may not have seen it out like that.

And again, there’s a lot of rev. There’s a lot of variables at play there as you guys can see, you know, and we’ll get into some of those variables a little bit later on. Now getting into, I think Costa Rica’s country tourism data.

And I always like to look at this as it gives us kind of a bit of a macro view of kind of what’s happening here. We’re going to look at tourism data over the past couple of years. I’m focusing on really arrivals and also airports as well, guys, meaning San Jose, Liberia.

And we also touch a little bit on the private charters as well, which is starting to see a bit of movement here in Costa Rica. So. The first thing I want to take a look at here, guys, is actually January to July, 2019, 20, 23, and 2024.

Why January to July? Because that’s the only data that we have so far for 2024. So in order to compare apples to apples, we need to compare those periods exactly for all of those, those periods, 2019, as I like to say, as the pre steroid era, you know, of what it was before the pandemic, 20, 23, you know, is, you know, it’s kind of what, as I like to see the steroid era.

And I think 2024 is really going to set the bar for the new norm here, guys. So. I mean, here’s the data.

I’ll just give you a couple of seconds to just take a quick look at that and kind of consume it. But you’ve got 2019, 2023 and 2024 there, guys. Okay.

So that’s the data there for Jan for July for total international arrivals for tourism in Costa Rica. Okay. So as you can see there, you know, there has been quite a bit of growth in 2024, 14% over 2019.

So people are always asking me, Hey, Rich, what’s tourism going to look like in 2024 and 2025, 2024. I think you’re going to look at a number, you know, around, you know, anywhere from 15 to 20% increase over 2023. And then going into 2025, I think you’re going to start to see a, like, you know, a 10% increase year and year after that.

You know, I don’t see that stopping more airlines are coming here. We have larger brands where it’s Carlton, Wardorf et cetera coming in here and just the airline. So these are just helping to kind of put Costa Rica a little bit more on the map.

Okay. One thing I wanted to look at here was seasonality. This is basically a graph of monthly arrivals by year from 2019.

I removed 2020 just because again, it was the pandemic year. It made the graph not look so nice. I wouldn’t say nice, but like anyway, you know, it was just a very weird year because of all the borders were closed majority for the majority of the year.

But again, I think what you’re seeing is 2024, you know, returning to seasonality as we can see here, 2023 barely broke pre pandemic numbers of 2019, but 2024 is showing growth there. As I mentioned, the 14% growth. And again, 2024.

Outstrip will be the best year for tourism in Costa Rica. When talking to a lot of the hoteliers here in Costa Rica, you know, they’re saying that, you know, there’s a return to seasonality. They’re seeing the high and the low season.

You know, I was actually expecting this when I looked at the data for 2023 and 2022 to see it a little bit flat line that it wasn’t expecting to see the dip in September and October. I was expecting to see it a little bit flatter. But it was, there was seasonality in the arrivals, but the hoteliers didn’t see seasonality.

And I don’t know why that wasn’t, why that was, you know, whether the locals, you know, Costa Ricans were traveling a little bit more in the off season because the borders still kind of weren’t open for some countries and restrictions. So it was kind of pulled up by that. But I was expecting to see a bit of a flatter line there for 2022 and 2023 and not so seasonal, but 2024, as you can see there, guys, it’s just going to follow the same pattern.

It’s just going to be a line above. And I’m thinking we’re going to see that for 2025. And again, if, if everything stays as it should, you know, you’ll continue, continue to see that as it goes into the future.

Now we’re going to take a look at here guys is, you know, we’ve done the country we’ve done seasonality. We actually took a look, take a look at arrival data by airport. Okay.

When I started in tourism in Costa Rica, which was in 05, Liberia San Jose was an 80 20 split. As you guys can see there in 2019, it was a 73 26 split. And in 2023 moved to a 68 31 split.

And now it’s a 65, basically 34 split. So, you know, Liberia continues to grow and outstrip San Jose. I, you know, it sounds like can’t grow more really much guys.

Whereas Liberia has a lot of space to do it, but all of the larger properties and hotels are going into the Northern parts of Costa Rica. So I think by, you know, 2030, which is a long way off, you’re going to start to see like a 45, 50 split, maybe even getting close to 50, 50 as a lot of the new airlines coming into Costa Rica are just going into Liberia. And, you know, it’s, it’s, you can just see there, it’s just the trend, you know, it’s, it’s just moving more and more business there basically to Liberia.

So I think when looking at investment, you have to consider that as well. I personally, you know, people might be saying, Hey, Rich, why are you investing in areas like mountain Antonio then? And, you know, it’s just the data draws me there and I’m able to get in at a decent price in mountain Antonio.

It has great occupancy, as you’ll see by Jake’s numbers there, it’s average daily rates. It’s not as good as the other part of the country, but I think that’s because it’s an older destination that needs kind of a bit of a facelift, but I wouldn’t discount San Jose. I just think if you’re going to make a safe investment outside of your home country, just bear in mind that the majority of the traffic is starting to move towards Liberia guys.

Okay. And then once you just start to see, you know, as percentage changes year over year, you know, as we say there 2019 to 2023, you know, a 0.77% change, 13.46. And then 14.33, this is just the average. This is the kind of the overall airport arrival changes guys that we’re seeing there.

Okay. And that’s January to June. I think the July data just came out, but I don’t think you’re going to see much of a swing there guys really in that data there.

It’s not going to change that much. So, you know, as I mentioned that Costa Rica arrivals continues to increase, you know, Liberia arrivals, I said there could be 40 to 50% over the next five years. Costa Rica had stated that by 2030, it’s going to have 5 million travelers.

I don’t think that’s going to be correct guys. I think you’re probably going to be looking, you know, probably I would say around the three and a half million dollar that three and a half million, maybe up to $4 million to 4 million travelers. You know, 2023, we saw 2.47. What would we see about, you know, probably about 2.8, 2.9 this year. And I think that again, by, you know, for the next five years, you’ll probably start to see it get to about maybe three and a half, maybe even touching 4 million travelers there guys. And I think again, you’re going to start to see that trend push towards Liberia as well. So again, as I said, you just need to bear that in mind when making an investment in Costa Rica.

Vacation Rental Market and Location Analysis

Richard Bexon: So you have all these travelers arriving into Costa Rica, pushing more towards Liberia hotels aren’t being quick enough, aren’t being built quick enough. If anybody has ever tried or knows the industry here, you know, it can take three plus years just to break ground. And that’s like a fishing.

And sometimes it can take five, six, seven years. The cost of operations in Costa Rica continue to increase. There are other areas of the world when doing an analysis against Costa Rica, people go, Oh, okay.

For hotels, it’s just much easier. I can break ground quicker. The government gives me tax breaks.

The cost of operations are lower, you know, so I’m going to go somewhere else. That being said, we’re starting to see high-end hotels move in here. Ritz Carlton, Wardorf Astoria guys, you know, moving in here.

They were talking about that. There’s a Hyatt moving in as well. I’m again, I it’s that’s the, I would say the cheese may or the.

What do we say? She’s made English that would be the rumors on the streets, but I don’t believe anything until, you know, anything starts to move ground here, but. I think vacation rentals are going to start to become the new hotels.

And we’re definitely seeing that. And probably managers are starting to offer basic services like breakfast chefs, daily maid service concierge that hotels offer as well. So we’re definitely seeing it.

I think we’re part of that trend as well. So, you know, it’s a lot more affordable to do a lot easier to do than getting all of your permitting basically for a hotel. Okay.

So what I’m going to do now is hand it over to Jake and Jake basically will talk about the location mental data here. So over to you, Jake.

Jake Alexander: Thanks Rich. Yeah, let’s move on to the next slide here. We’re going to look about, look at notable occupancy changes and some of the most popular locations.

And look immediately looking at this. I think the first thing your eyes drawn to is 15, almost 16% in Papagayo, which looks great, but you know, bear in mind, 42, 43% occupancy depending on your ADR might just be your breakeven point. The, the other thing that really jumps out here is what we had been talking about with Playa Grande, as it becoming a stronger destination.

I know we have a bunch of houses we’ve built out there for people and you see that occupancy increase 9%, you know, over 50%, almost 54% really pushing Grande up into a stronger destination. And on the other end of the spectrum, when you look at places like Jaco, Manuel Antonio, Cobono, Santa Teresa, there’s still growth, it is a little bit slower, but for a place like Manuel Antonio, it’s an established, like you said, an older destination. Maybe those areas are seeing some saturation or that the new supply maybe isn’t attracting new occupancy proportional to demand. So if you are looking to invest in one of those areas, it’s important that you do really set yourself apart from what else is already out there.

Richard Bexon: Yeah, I mean, I agree, Jake, just because, you know, I mean, I think Hakko is about to get flooded with one, two, three bedroom condos. You know, it’s doubling its inventory and I don’t know what’s going to happen to that. But I mean, when you compare Hakko being one of the top tourist destinations in the country, a 45% is not exactly great, if that makes sense, when you’ve got other ones in the 55, 56%.

But I think what was interesting there that you mentioned is Playa Grande. I mean, Playa Grande is coming on to be, you know, to compete with some of those top destinations. But yeah, I mean, we’ve been harping on about Playa Grande for three or four years.

So, you know, we’re probably 0.1% of that may have been us in that increase, so yeah.

Jake Alexander: And to your point of the high end, you know, if you drive around Playa Grande, the majority of what’s down near the beach is all high end luxury villas, not saturated with condo towers.

Richard Bexon: Yep, yeah, I agree, I agree. It’s very, I think once there’s one condo tower, it’s very easy to build other ones. And then, you know, you could see, I don’t know, 100, 150 properties just come on the market in two seconds.

And that has a huge impact in your occupancy and average daily rates, because there’s more competition.

Jake Alexander: Yeah, and it’s much harder to be unique. You know, if there’s 80 other two bedroom condos, what are you doing to make yourself really separate and apart and better?

Richard Bexon: Yeah, and I think that that comes back to a point which we’ll discuss later is property management. You need great property management because they’re really part of your success.

Jake Alexander: Yeah, and we can, yeah, let’s move on to the next one here. So this slide, we’re looking at the total number of listing changes from 2019 to 2024. And, you know, also while looking at this, just keep in mind the occupancy data from the previous slide.

You know, you look at Flamingo, Potrero, this area has the highest increase in listings, but a moderate occupancy increase is 6.7%. Suggesting that the area is becoming more popular. And, you know, I think it’s also important to keep in mind what’s happening and what’s happened in these areas between the times that we’re looking at. You know, that marina up in Flamingo is, was constructed and finished, still working on it, but for the most part done in that timeframe, which I think helped increase the amount of listings going in there as well.

When we look at Playa Grande, you know, 61% increase in listings with a high occupancy of 9%. Like we said, we’re seeing Grande experiencing both supply and demand growth and a healthy market where that increased supply is also being absorbed by the growing demand. And, you know, inversely, if you look at Santa Teresa, they’ve had a really high increase in listings, but only a 3% increase in demand.

Richard Bexon: Yeah, I’ve never, I have to admit, I’ve never been a huge fan of investing in Santa Teresa, you know, just because of the data, but also as I kind of look at it as a bit fashionable, again, this is just my opinion as well. It’s like, it’s fashion, it’s very young people there and fashion kind of comes and goes. I prefer to, you know, have established areas where families go, because then again, that fashion doesn’t come and go.

It’s just, you know, it’s interesting looking at just some of these points here of like, this buhuco has started to come on the scene here, Jake, which is basically Punta Islita and Playa Coyote, you know, which is, Coyote is becoming the new, I would say, you know, when I first came here 20 years ago, Santa Teresa was kind of where all the locals kind of went, you know, Santa Teresa and also Grande. Now they’ve started actually to move to Coyote.

So I’m always like people like, look, if you want to know which the next beach to kind of pop is over the next like 10 to 15 years, just figure out where the locals, like the cool kids go in the surface and stuff. And then that’s going to tell you where you should be like potentially looking at for a long-term, you know, investment. And it’s just interesting there that they had 68 and moved to 103, but it’s still beyond Papagayo, which I think is an anomaly.

It’s still one of the lowest, you know, basically number of listings, if that makes any, you know, increase. As a percentage, yes, it’s a lot, but as a number, it’s just not huge.

Jake Alexander: Yeah, well, and it’s a, look, it’s an area that’s not super easy to get to. True. But I think we’ll also see on the next slide how that number of listings does drive the average daily rate there.

So looking at the average daily rate, it’s had the highest increase by a significant number. So why? Well, growing demand, limited supply, driving, you know, driving up the prices.

And it’d be curious to see what a lot of the new listings there are like. Yeah. Is it luxury?

Is it not? The interesting thing about that area in particular too is how close you can actually get to the beach and have a beachfront property.

Richard Bexon: Yep.

Jake Alexander: Which, I mean, you know here is very difficult and hard to find.

Richard Bexon: Yeah, I mean, look, in that, Punta Islita, you know, Punta Islita is part of the Autograph, the Marriott Collection, the Coyote just down the road has great water infrastructure. It has, you know, active concession beachfront. Like it was, I have a lot of friends who have properties there and that were building large properties there as well.

So, and I say, it’s all Costa Ricans. It’s not, you know, foreigners coming in. It’s all Costa Ricans.

So they just kind of, Costa Ricans kind of go to like Santa Teresa, then they sell their properties, you know, make a bunch of money and then go and find the next beach. They all kind of seem to move together. And it appears that the next beach at the moment is that, you know, that Coyote area.

Jake Alexander: Yeah, it’ll be interesting to see what the like town, how the town infrastructure changes over the next five, 10 years, because there’s really like one corner supermarket next to the football field and like a little bar and their big thing that happens there every year is the off-road rally in October.

Richard Bexon: Well, I mean, look, Grande was like that 10 years ago. You know, actually, it was like that in 2000 and 20, like 2020, if you went there, it looked exactly like that. I was there in 2020 and like there was, well, there was the ripjacket in, there was a little pulparia and then that was about it.

Jake Alexander: Yeah, and I look at it. It’s crazy.

Richard Bexon: Yeah.

Jake Alexander: So also looking at the data here, you know, when you look at a place like Mammal Antonio, you had mentioned that the ADR certainly isn’t the highest, but, you know, it’s a mature market, it’s established, there’s a good balance of supply and demand. However, you know, so what do you do to get a higher ADR? Well, it emphasizes the importance of having a unique property that really separates you from what else is out there to drive up your occupancy, but also how much you can charge.

Richard Bexon: Yeah. Well, I mean, look at Papagayo. I mean, you had mentioned there in Papagayo it was like 45% occupancy, I think, but look at that average daily rate of $2,000.

And that’s actually, you know, I mean, I think that there’s some condos up there in Papagayo, when we say Papagayo, when you’re talking the peninsula where the Andaz and the Four Seasons are and all those homes, I mean, there are homes up there that are 20, $30,000 a night, you know, and they rent at 40% occupancy. And at that rate, that balance, when I go back to that formula, it was 365 times your occupancy times your average daily rate of your revenue, you see. So it’s sometimes your average daily rate can be so high, but then your occupancy a little lower.

And sometimes it can be even, and sometimes it can be completely the other way.

Jake Alexander: Yeah. And then, you know, looking at that, I think it’s also a similar thing that we see in Santa Teresa where you have to spend so much upfront to be able to get that return that you’re looking for.

Richard Bexon: Yeah, yeah.

Jake Alexander: All right. So, and here, locations with the highest occupancy rates. The interesting thing I see about this is, you know, you look at the top one, two, three, four areas, and it’s all San Jose.

Now, you know, how many nights are people staying there? My guess would be one or two. I don’t, look, it’s not like people are going to stay in San Jose for a week.

But, you know, it’s been interesting to see how, you know, you look at that change there, especially with the amount of listings. So year over year, you know, there’s only 11 more listings, but a much higher increase in occupancy.

Richard Bexon: Yeah.

Jake Alexander: So, you know, San Jose, as a whole, occupancy is increasing to the point where demand is really outpacing the new supply.

Richard Bexon: It’s funny, Jake, because, you know, I was driving with my wife the other day and we saw the San Jose skyline, and I was like, wow, 20 years ago, that did not look like that. It was very flat. You had the Banco Nacional building, which is the tallest building, and that was it.

And now you’ve got towers going up everywhere, like everywhere. You know, I think the occupancy numbers could be high, I think we need to dig into that data a little bit more and see if they are available all year, or it’s just people that are renting it out. You know, there’s a lot of, the data sometimes can be very dirty that we also look at, but it’s also your average daily rates, like 50, 75 bucks a night.

So it’s that balance again between like, okay, in Tamarindo, I get 56, but my average daily rate was up like 400, was like 400. Whereas in San Jose, you know, probably my average daily rate is about 80 or 100, but I get, you know, 61% occupancy. So once you multiply those numbers out, your revenue number is completely different.

Jake Alexander: Yeah. And also the way they’re building those towers is a lot of them are built for Airbnbs and for short-term rentals, kind of built into the equation. And you can get a one, two bedroom place starting, I mean, depending on the building, 150 to 200.