As COVID-19 continues to spread, investors in Real Estate are scrambling to protect their assets and investments. The health crisis has caused tremendous uncertainty, which is confirmed by the decrease in production and economic activities.

There is no doubt that the markets in Costa Rica are being strongly affected and a recession is no longer just a speculation.

How are Real Estate investments performing during this crisis?

Real Estate investment is a mechanism that has been used to generate wealth for centuries and has sometimes been considered foolproof. But the reality is that no investment, including real estate, is totally resistant to a crisis such as the current one.

Real estate investments can certainly outperform many other investments, but not all categories of real estate assets will be able to weather the market downturn.

Before proceeding with the acquisition of a real estate asset and in order to avoid a bad investment or counterproductive legal situation, it is of vital importance to study, among other things, the following:

a. Location of the property
b. Situation of the real estate market in the region where the property is located.
c. Suitability (Commercial/Residential/mixed, etc.)
d. Actual value
e. Due Diligence Study

As an example, you can visualize that acquiring an income-generating investment, such as a residential rental, does not necessarily make it ideal right now. We are facing the highest unemployment figures in our history, so people do not have as much liquidity right now to spend on new rentals. This is an example of multiple situations that we must weigh before proceeding with the acquisition.

Likewise, if you own commercial premises that depend on store sales and the measures imposed or proposed by the Ministry of Health are forcing consumers to stay in their homes; your tenants will suffer and it will not be long before they cannot pay their rents.

It is of vital importance to clarify that the monthly income produced by the property may decrease, but not its value over time, which makes it a safe investment over time.

How to invest to survive a crisis like the current one?

Diversification is important when making real estate investments, as it can help reduce risk exposure.

It also helps to try to have a well-balanced portfolio with low leverage ratios. Having less debt will increase your chances of being able to face times of crisis like the current one.

What cannot be forgotten is that crises are opportunities to buy in better conditions, well thought out real estate investments, with good advice, will normally yield the desired results.

There are a large number of very productive real estate investments in Costa Rica, so with proper financial and legal advice you can ensure an investment from which you can enjoy significant returns, and which value will be maintained over time.

At ERP Lawyers we will always recommend you to carry out a due diligence process in order to secure the investment, or at least assume the risks in an informed manner. Under no circumstances is it advisable to proceed with the business without such due diligence.

Undoubtedly, the purchase of a real estate property, whatever the reason, represents one of the most important decisions that any person makes, from a financial, personal and family point of view, so we reiterate that it is essential to carry out the so-called Due Diligence Process.

This is, in general terms, the process of investigating the property, to discover possible hidden risks that may harm the interests of the buyer.

At ERP Lawyers & Associates we have a team specialized in real estate and real estate transactions in general. Contact us at info@erplawyers.com and receive personalized legal advice.