208 Owning and Investing Costa Rica

[Richard Bexon]

Good morning, Shannon. How you doing?

[Shannon]

I'm doing well. How are you doing? Very, very good.

[Richard Bexon]

Thank you very much for joining us on this beautiful morning on the podcast.

[Shannon]

Yeah, happy to do so happy to be back and happy to chat about vacation rentals.

[Richard Bexon]

Awesome. Awesome. Well, the first question I always like to, you know, ask is, you know, markets have had a good start in 2024.

You know, the beginning to soften a little bit, you know, we've got an election in the US where, you know, we don't talk really talk politics on this problem on the podcast. But I mean, what do you see happening here in Costa Rica?

[Shannon]

I would say we started we had a very good start of the year, one of the best we've ever had. And I will apologize, my baby's out there.

[Richard Bexon]

So don't worry, we're a family podcast.

[Shannon]

And we're a family business. So so yeah, we had a really good start to the year, one of the very best high seasons, high seasons, December through Easter, basically, that we've ever had, it was great. So much interest, so many visitors.

And it really has softened, it's really slowed down, I think, a state of the world in general, you know, people are a little bit worried people kind of turn their eye elsewhere. And it slowed down for the summer. Um, that being said, this last month, July was great.

We had tons of visitors. So it's kind of up and down. And that is kind of the business.

We are seeing a lot of interest for next year already, though.

[Richard Bexon]

Yeah.

[Shannon]

So predicting a very good year next year.

[Richard Bexon]

Yeah, I was having a conversation last night with some, you know, I'd call them tourism leaders, even though we were drinking over beers, you know, and we were just talking about like, what is 2025 gonna look like, you know, and I said, Look, I think that the high season, you know, December through to April is going to be busy every year. Like, there's no doubt everything will be full, everything will be busy. I think what we're starting to, like we're returning to seasonality and what that seasonality looks like, we don't know yet.

You know, we don't know what those lows kind of, you know, the low season, the May, the April, Mays, and the September, Octobers kind of look like yet.

[Shannon]

Yeah, I would agree. You know, when I was growing up, everything here in Costa Rica, everything shut down, September, October, November, closed. And, and then green season became a thing if people started to realize, wow, a September, October, November is a beautiful time of year to be down here.

It's less busy, there's the rain is actually really nice. It usually doesn't rain all day. It's just an afternoon rain.

We actually prefer it to be honest, it's a little bit cooler, it's greener. And, and so people started to pick up on that. And, and we saw, you know, that it's still low season, but it's not dead season, it's green season, everything's a thing.

And then last year was very strange. We had high season was all right. It's kind of the low hanging fruit, but we actually had a really good green season as well.

This year remains to be seen, it seems to fluctuate quite a bit. And I can't predict what will happen in 2025. But we're getting a lot of interest out of the traditional kind of high season, more and more interest out of it.

Now, I will say, what we do see is the high season gets bigger, better rates, there's more demand. And so as long as we adjust those rates for green season, we do see quite a bit of interest still in that green season.

[Richard Bexon]

Yeah, you know, in my experience, usually about in those four months, December to April, about 60% of your revenue is made during that period of time. So yeah.

[Shannon]

Yeah, I would say 60 plus, you know, if you consider New Year's and, you know, Christmas and New Year's, which gets such high rates and Easter, that's the low hanging fruit. That's the first to go the easiest to fill. When I'm talking to our homeowners, I always tell them, it's your house, you're welcome to come whenever you want.

But if you're looking to maximize revenue, don't come during that time, because that's money time.

[Richard Bexon]

Yeah.

[Shannon]

Enjoy the green season and send friends and family during the green season. And that way, you'll maximize your income, but still get to come and enjoy it.

[Richard Bexon]

Yeah, well, I just want to cover a point which you said there, which is September, October, I completely agree that like, you know, usually everyone's like, oh, it rains constantly. And like some, maybe once in a while, you can get rain all day, but it really is in the afternoons, you know, as you mentioned that, but waterfalls, it's whale season down in the southern zone, like, you know, I mean, it's really a great time of year to come.

[Shannon]

Yeah, it's cooler. It's green. It's beautiful.

The rivers are flowing. There are less people, which is actually nice. You don't have, you know, the lines and you can jump on a tour last minute, not worry about it.

It's really, you know, availability, there's availability of everything rates are a little bit lower. It's actually my favorite time of year down.

[Richard Bexon]

I'm with you. You know, I do all my traveling in Costa Rica, mainly in September and October. So, so, yeah.

Well, look, I mean, you mentioned that, you know, you speak to your homeowners, a lot of people are looking to have a second home or to invest in a vacation, you know, home in Costa Rica. Do you think this is a good idea? And what advice would you give them?

Because I'm sure you have advice for them.

[Shannon]

Oh, I have plenty of advice at this point in time. Yes. Yes.

With caveats. I think a, you know, what we've seen, we focus on luxury vacation rentals and it's a mostly because we've seen that's where the return on investment is best. I love a little casita on the beach, don't get me wrong, but the return on investment there isn't going to be the same as a four or five, six bedroom luxury ocean view villa.

So I guess my, my point there is, is just think about the, the costs entailed. There are very many costs entailed in a vacation rental that I think people aren't aware of before they get into it. There's, you know, the housekeeping's huge.

You can't rent a dirty villa. And that has its costs. There's the cost of electricity in Costa Rica is quite high.

So if you're going to have air conditioning, especially being on the coastal area, you know, that, that can add up very quickly. The cost of having a property manager, the cost of having a gardener, the cost of any repairs. So if you have a pool, the cost of the pool maintenance.

So the more rooms you add, the more you can charge, the more that, that cost gets spread out and the more return on investment you'll get. So yes, I think if you're, if you're going to invest in a larger vacation rental or one that sleeps a lot of people, so it doesn't necessarily have to be a lot of rooms, whether it's a, you know, different makeup of beds, bunk beds, rollout beds that fits more people, you'll get a better return on investment than a, just a little house. And I guess the other thing I would say is because there are, it is a fluctuating market.

I don't recommend people do it just for an investment. Do it if you love Costa Rica, do it if you want to come and enjoy your house, do it if you want to come and enjoy your house and have, you know, a lot of the expenses paid for, then you'll enjoy the whole experience because Costa Rica isn't for everyone. And having a vacation rental here, isn't the same as having a vacation rental in say, Arizona, the jungle takes back quickly.

There's things you have to maintain, think about. So yeah, do it if you love Costa Rica, if you'd like to spend time here, if you want to come with your friends and family and also make some money.

[Richard Bexon]

Yeah. I mean, Shannon, you mentioned return on investment a couple of times. So, you know, people are always asking me, Hey Rich, you know, I'd like to make a 10% return on my investment.

And I'm like, well, I mean, it can be done, but it's not easy if that makes sense. I mean, typically what do your, you know, what do your homeowners, you know, just to give us a rough idea, I mean, where's the middle part? And then like, what's your top stuff kind of returning?

Would you say roughly?

[Shannon]

That's a tough one. And I don't know that I have the numbers in front of me. It really depends because our homeowners vary so much.

I have some homeowners who, you know, they'll, and we're perhaps, we're very much a boutique property management company. I'm the kind that'll say, lock out dates. You can't come to your house, come whenever you want.

You can send friends and family whenever you want. This is our philosophy. It will affect your return on investment though.

If you send a bunch of people in high season. And I do have those homeowners who say, you know what? I want to enjoy my place.

All of July is full with family and friends who are not paying. That's going to affect their return on investment. And then I have others that say, I want the highest occupancy rates, the best rates I can get.

Give me what you can give me, you know, go all in and the return on investment will be much higher. Then I have some that are worried about who's going to come to their house and they, you know, want very, very high rates, less occupancy. So there's just different strategies.

It's really hard to give you like an average, but I will say this, you know, it, it, it also depends on the marketing, you know, how much they're willing to put into photos and how much they're willing to, you know, spread it with their friends and family and their networks back home. I think for me, the four bedroom and above is where you get a better return on investment. It does take years.

It takes one to two years to get reviews, to get things rolling, to really start to see that return on investment. And then 10% would be probably the high end. And it would take a few years.

The bigger return on investment is probably the real estate once you sell, but in order to sell, you need to have the house maintained and property management and vacation rentals actually help maintain the house.

[Richard Bexon]

No, I, look, I completely agree. Look, I, I do some consulting to one of the countries, you know, I would say, you know, most luxurious property management companies here. And there are properties they're making 10% above, but, you know, these are eight, nine, 11 bedroom, you know, properties, like you can make 10% returns.

It's going to take a couple of years. Sometimes if you're going to buy a house and it already has a rental history, that can be a good thing because you can just kind of take that on and roll with it. As long as you're not, you know, as long as it's a good rental history, if that makes sense.

And you'd like the property manager, because if you're going to switch property managers, you know, there's a whole different, you know, yeah, kind of reset there as well. So.

[Shannon]

Definitely. And if the house has been well-maintained, we mostly take on new villas so that we can start from the beginning. So it's, you know, there's a process to get it all set up and to get those reviews and to get it rolling.

I, you know, I do really believe in the history of the property manager as well. You know, there's Airbnb is still the major player on the market. So having somebody who has a super host and has a lot of reviews for other properties, even if that property doesn't have reviews, they can click the profile and see reviews from other properties.

So having somebody who has that history, who has that experience as a property manager does help. I also think it depends on your property manager. There are some property managers who only list on the major players, Airbnb and Vrbo, a vacation rental by owner.

And that's it. We're on close to 20 different platforms from Marriott. We've seen a lot of people coming through Marriott because they can use their points to our own website.

We have a quite a base of return clients who call us every time they come to, you know, more European based ones, homes to go. So really making sure that whoever you're working with is on not just the major players, but, you know, really getting the word out there. And liaising with tour agencies.

We've had a lot of folks that come through tour agencies. That's another big part of the market.

[Richard Bexon]

Yeah. I mean, it's a very interesting market here. I remember when Andaz first came to Costa Rica, which is the Hyatt brand, you know, they were like, well, you know, we're not going to touch travel companies, you know, tour agencies.

And I was like, I remember saying to the general manager, dude, you're shooting yourself in the foot here because it's about 50% of the market here, like especially the luxury market. Anyway, they came back like a year later and, you know, like Rich, you were right. Like, how do we get into this market?

And I was like, well, here are all the contacts, but like, I agree. You need to be in, it needs to be like a store with multiple legs. Like you can't just have Airbnb.

Like if your property managers, the majority of the income is coming from one source, like that's scary. One change in algorithm, one thing that goes wrong, like that goes away. And like, it's a question I always have my owners when looking at property managers, you know, ask the question of like, what's the property management system that you're using?

How does it use its channel manager? And then how many platforms are you on? You know, and then also show me your revenue sources, you know, and they usually take them back by that because owners don't ask those questions typically.

[Shannon]

I think that's such important questions to ask though. It's in a lot of property managers down here where they might be focused on, you know, the day-to-day maintenance and then they, you know, throw it up on Airbnb, get a few rentals, but that's not going to get you the return most homeowners are looking for. And it really there's, it's more than just throwing it up on Airbnb, you know, you really got to get out there, you got to share it, you got to get it with those rental agencies, with those, you got to get it with those travel agents.

We frequently do podcasts, walkthroughs, we work with like Villas of Distinction, we do Wine Wednesdays, where we walk them through houses so their agents really feel they know the house. You know, you need to get somebody who's out there and who is doing the work to market your house. And that's more than just listing it on Airbnb.

[Richard Bexon]

I agree. I agree. I think there are many different levels of property managers in Costa Rica.

So, yeah. I mean, you and I have always talked about a lot about when designing a home, what things it should have in it, you know, because a lot of people do design homes from scratch with the intention of like, look, I'm building my dream home, but I also want to rent. And I think that that's always a balance in design as well, because sometimes stuff that you might might not go hand in hand with being a vacation rental, if that makes sense, you know.

You know, some people are like, hey, I'd love to have a wine cellar. And it's like, well, that's great. But in a vacation rental, you know, you're gonna have to lock that thing up, you know, alcohol gets drunken.

But when designing a vacation rental, I mean, what advice would you give? What things should be included? What should not?

[Shannon]

I think that's a great question. And we get pulled in frequently towards the end of construction. And, you know, there's certain suggestions we can make.

But some frequently, I'm like, oh, I wish you'd asked me that first. I think the key things are, you know, the homeowners plans, how often are they going to be there? Do they need a homeowner's closet, which is something we usually recommend where they can keep if they have their grandma's fine china that they want to use while they're there.

Not something I recommend putting out with with guests. But you're there or super fine linens or whatever, have that closet where you can put those things that you want to use when you're there. Plus, you know, if you want to leave clothes or electronics, but make sure you lock it, make sure it's a space that you have for your personal items that can be locked.

What I do see often, and this is a kind of getting nuanced, but a lot of times the builder will put the breaker box in the homeowner's closet. Bad idea. We have a lot of electrical fluctuations here in Costa Rica.

Breakers tend to trip and then they're behind the locked closet. That gets a little tricky. So do not put your breaker box in the locked closet.

Do not put your internet modem or router in the locked closet. That happens frequently as well. So just think about where your property managers are going to need to access, where guests may need to access, what might happen.

And then I guess touching on what I just said, make sure that you're using, of course, if you're doing luxury, you don't want to have really crappy towels or really yucky sheets, but don't go with the finest, highest linens. They won't last. You're going to have to replace them.

[Richard Bexon]

You're running a hotel.

[Shannon]

You're running a hotel. Same with glasses. They break.

It's not that people necessarily mean to, but one of the things we go through the most are wine glasses and plates. People don't mean to. They're washing them.

They drop them. They knock them over. They're relaxed.

They're having a good time. They have kids. We go through those things.

So stock your house also with things that are easy to replace, things that are readily available in the country, not something that suddenly we broke part of the set of plates and now we can't find them anywhere in the country and we have to get you another whole set. So just something that's readily available, easy to replace, nice, but maybe not ultra-uber expensive or special to you. That's a huge one.

And then what we had talked about before, I really think versatility in the way you sleep guests because you're going to have some people who come, it's a four-bedroom, they have four couples. Okay, four king beds are great. But you might have two families where they have multiple kids and couples.

If you get one of those king beds that splits, that's amazing. Or rollaways or different assortments of bunk beds. The more people you can sleep in different combinations, the more you open yourself up to different markets, not just couples, not just families.

We're seeing a huge interest in retreats, especially in our area. So people want to be able to sleep people in different ways, sleep as many people as you can. So yeah, just thinking about bedding and how to sleep people is huge and can make a big impact in how much we can charge.

If you have a four-bedroom that really only sleeps eight in four king beds versus a four-bedroom that sleeps 10 or 12, we can charge more for that four-bedroom that sleeps 10 or 12. Bottom line. Yeah.

So those would be kind of my top recommendations.

[Richard Bexon]

What about actual things in the property like outdoor, outdoor dining areas, pool? What is your advice on those main things in a home?

[Shannon]

Yeah. So a couple of different things to keep in mind. The more amenities, the better.

Pool, for us, what we look for, we won't take a house that's not ocean view. Most people want ocean view. Has a private pool.

Doesn't have to be a huge pool, but a big enough pool. Most people in our area are considering putting either outdoor showers or outdoor tubs because that's just quintessential Costa Rica, the indoor outdoor people love. AC, we're getting more and more people asking for AC.

A lot of houses have just put it in the bedrooms. I think that's the minimum, at least having the AC in the bedrooms. Not everyone will use it, but people want to have that, especially if you're on the coast, have that option.

But more and more people are asking for AC in the common areas as well.

[Richard Bexon]

I think that's a must, Shannon, to be honest with you. I mean, there's this beautiful house in Guanacaste that's an RP, so no AC in the main living area. And I didn't, in our vacation rental, we had an eight bedroom.

We didn't have it and I had to put it in because there was just so many complaints.

[Shannon]

Yeah. So that's, most of our houses that haven't had it in the common area end up installing it afterwards, which is more work, more money, time off of the market. So yeah, I would consider putting it in from the beginning.

Yeah. Yeah. So AC is huge.

And then what else? Oh, things that last. Jungle takes back quickly, especially in our area.

If you're on a coastal area, which a lot of vacation rentals are in the coastal areas with the jungle, something that's going to hold up to that humid climate, quality materials, things that aren't going to rot, good fabrics, like some umbrella fabrics that are easy to clean. We've had actually, we had one vacation rental, it was gorgeous, but all white material.

[Richard Bexon]

Yeah.

[Shannon]

And they didn't have zippers on any of the cushions. So the cleaning lady would literally unsew it, take out all of the filling, clean them and then sew it back. So, you know, things that are easy to clean that you can just take those cushions off because they will get dirty, throw them in the wash and get them clean.

Wash, wash is a big thing. Make sure you have a high capacity and good washer and dryer because that thing is going to get well used. And quick turnovers allow you to not have to block out nights.

So if you can even have a double, either very large or even a double washer, that'll help you do quicker turnovers depending on the size of house. But wash is usually the thing that slows down the turnovers the most. So that's another thing to consider.

We also recommend having doubles of everything. So double sheets, double towels. So if you can't get through a whole cycle of wash with a quick turnover, that you have another set.

So making sure that the house is well stocked with linens. And then a huge amenity people are asking for. We have, unfortunately, quite a few electrical outages in our area and in Costa Rica in general.

So anybody who has a generator, backup battery, energy storage, those are huge. That means, you know, people don't, it's seamless. You don't feel when there's a power outage.

And that's unfortunate. That is a part of Costa Rica. But the homes that have that get the best reviews.

We're able to sort of inch those rates up. And I know that's a big expense. So that's a, it's a tough one to consider, but it does make a big difference.

And it's easier on all of your devices because those fluctuations really are tough on appliances.

[Richard Bexon]

Yeah. I mean, a backup diesel generator is costing you close to $30,000. You know, a solar system with batteries is probably closer to 40,000, maybe even $50,000.

But these are just things, you know, I think minimum at least have those battery pack connected to like modems and stuff. So if the, if it does go down, at least people have internet, if that makes sense, because usually they have batteries and stuff. I love it.

Sometimes not everyone does, but it's like when the electricity goes out, it's like a moment to stop. Like it's like, you know, stop and be present because you know, that's, yeah, you're in a beautiful country. So be present.

[Shannon]

Yeah, it's true. But there's so many people who are digital nomads or the have a healthy budget, but it means they do need to check in with work back home. And so they do get annoyed by those outages.

And it is a part of the, the, you know, it is a part of the experience. It's it is what it is. I also, I always feel like when electricity goes out, it's really quiet.

And you're like, wow, I didn't realize there were so many humming and you know, the fridge and all the AC and there's all these noises and it gets really quiet, but not everybody feels like that. Yeah. What I was going to say with the outages, we recommend to all our homeowners to be able to protect all of your appliances, have double surge protection.

So have a whole home surge protection, but that's not enough. Usually you also need to put a surge protector on each of your appliances to help those with the fluctuations.

[Richard Bexon]

Okay. That's great advice. I mean, that's even, that's something new for me, to be honest with you, Shannon, we usually do surge protectors for the home, but now thinking about it to double it, that's a, that's, that's great advice.

[Shannon]

Yeah. You know, the surge protector isn't super expensive, the like, you know, just the individual one, but if it saves your fridge, which then save a having to reimburse for a night when there's no fridge for a guest, it might save a review. It's worth all of those different headaches.

And we've seen, we've seen a surges blow through whole home surge protectors. So having that double protection is we do it on our personal home and we recommend it for all of our homeowners.

[Richard Bexon]

That's great advice. I mean, we covered earlier about like, you know, what makes a great property manager and what questions you should ask. I mean, in your opinion, you know, what makes a good property manager and what are the questions that you should be asking in order to be able to uncover, like, because there are good ones and there are probably bad ones as well.

You know, there are okay ones, but like what questions you should be asking to kind of really unravel that?

[Shannon]

Yeah, I think honestly it's a tough job and I don't, I think there are good and bad ones, but I also think there are good ones for you and bad ones for you. And by which I mean, it's all about a relationship. So I think the most important thing, you know, for some people, their home is going to be their biggest investment in life or they're using their inheritance.

So it becomes even emotional or this is their retirement dream. So it's a big deal. So having somebody that you feel good with, that you feel that you can speak with honestly, openly, that communicates well, that responds quickly, that you feel you have a sense of trust with and compatibility with is huge.

Both the homeowner, but also for the property manager. If there's not a good relationship there, it's not going to work out. If there's not good communication, it's not going to work out either way.

So I would say spend the time to meet with the property managers to really, you know, see which one you connect with. And then yes, there are a bunch of questions. I would definitely ask about their time in property management.

More time doesn't necessarily mean better, but you know, that they have a couple of years under their belt is a big deal. I would ask, and we touched on this before, where they publish, you know, if they're just publishing on Airbnb and Vrbo, or if they're really spreading the word, especially if you're looking for a return on investment, where are they publishing your home? I would ask what services are included because different property managers have different business plans and include different things.

So making sure you're very clear and not making assumptions on what is included and what is not included. And then, you know, we, at this point, we have a pretty full plate. We're not really accepting many more properties and we've never advertised.

It's pure recommendation. So I would ask for referrals. I would be sure you talk to some of their homeowners, ask about their experience with that property manager, and then ask how many properties they have.

I've seen too many property managers take on too many properties and not be able to properly manage them. And that can be solved with employees as well. So it's not a straightforward question.

It's how many properties do you have? Us, for instance, we've decided not to have full-time employees. It's a very conscious decision.

I don't feel an employee does the same job as an owner of a company. So we have part-time employees, but we really try to keep our stock of homes, the homes that we work with small in order to not take on too many employees. And I've seen some companies grow really big, take on a bunch of employees, but it doesn't necessarily mean they're doing a better job.

So just ask them about how they work, how many properties, how they're handling it. Do they feel they have the time to take you on? Because I've seen it a lot where they take on too much and then can't keep up with it.

What other questions would I ask? I think those would be the main ones. And yeah, I think those are the big ones.

[Richard Bexon]

Awesome. Yeah. I think they're great questions to ask and definitely you should interview.

And as you said there, it's a business relationship. It's like a partnership. So you need to make sure that you enjoy working with the person at the other side of the table, because if not, when issues arise, you're not going to get past them.

So, and switching property management can be a bit of a nightmare sometimes.

[Shannon]

It can be a nightmare and you might lose all your momentum because certain platforms don't allow reviews to switch between property managers. So it means you're going to lose all the reviews. You're going to lose all the momentum you might've had, all the relationships that that property manager might have and have shared your home with different travel agencies and whatnot.

So yeah, try to choose well from the beginning and not have to switch property managers.

[Richard Bexon]

Awesome. Well, I've kept you long enough, but my last question for you, Shannon, which I love to ask everyone, if you inherited $500,000 and you had to invest it into business or real estate in Costa Rica, what would you invest it in and why?

[Shannon]

That's a great question. I can think of multiple things, but one thing I've been saying for a while in our area, specifically, we're seeing a huge influx of people trying to live here, either part of the year or all of the year, or coming and building their homes and needing a medium to long-term rental and not being able to find a good medium to long-term rental. And so if I were to inherit 500,000, I think I would do maybe some really nice condos, not huge or apartments, maybe whatever I could afford with 500,000, but some nice condos, maybe even a shared really nice pool with a common area.

I think that's really missing in the market here. I think there's a lot of demand for it and there's not a lot of options for folks. So I think that's what I would do.

[Richard Bexon]

Great response. Well, Shannon, really appreciate you.