Costa Rica – Casa de Luz

Bulls-eye! Quite arguably the best beach estate in the best beach town of the world’s best tourism country. Really.

Casa de Luz is a world-class trophy asset acquired at a 30%+ discount in a hot growth market, with high & growing yield, extreme safety, and no way for any new properties to compete. It is a castle with a moat physically and financially, and we simply had to own it - but couldn't afford the whole thing. 

So, we created the ultimate antidote to timeshares - instead of a resort operator making a killing by selling you a week, you make a killing by holding shares in a resort operator that rents weeks to one guest party at a time for a princely sum at high margin.  Here is a walkthrough. 

Situation

US income asset prices are inflated, because cap rates are far below long-run interest rates. So, we searched offshore for value and found a diamond – not far; travel time from DFW is like San Francisco, and from LAX it is like Maui.

Consider the facts while zooming in on this bulls-eye with Google or Google Earth, or request an informational summary for full detail:

Costa Rica is top-5 rated in every global tourism/retirement survey, leads Latin America in destination weddings, has doubled tourism in past decade with high current/projected growth, was Priceline's #5 most requested 2015 international destination, and hardly blipped after the 2008 crash. It has low income taxes, no capital gains tax, no currency controls, no army, and 100 years of stable democracy. It has the world's highest literacy rate, highest biodiversity, highest % of nation designated national park, a higher-rated health care system than the US, and is ranked "The Happiest Nation On Earth" by Happy Planet Index based on population surveys. It is the world's most sustainable nation, with a 99%+ renewable energy grid and plans to be the world's first carbon-neutral nation by 2021. Its ratings for investor and physical safety exceed much of Europe, and make the best of Mexico seem quite far to the wrong side of the tracks.  

Tamarindo is Costa Rica's surf capital, the most developed beach town on its "Gold Coast" (yet still "funky"), one of Trip Advisor's Top 10 Central America Destinations in 2015, and 1/3 of of the nation's tourists visit the area. It anchors the fastest-growing tourist region due to a rapidly expanding international airport just 1 hour away on a newly paved highway. High-speed Internet/cellular is cheap, you can drink the water, US appliances plug in the wall, the mostly natural food is heavenly from cheap hole in the wall to gourmet, and you can spend a month there without exchanging dollars for local currency or needing any Spanish. 

Langosta Beach is Tamarindo’s top-end bedroom community, featuring “Millionaire Row” – just 12 designer beachfront mansions 5 minutes from "downtown", that stand up to the best of Malibu or Carmel California - and no others in their class within a half-hour drive from town. All are fully-titled land, which is exceedingly rare for Costa Rica beachfront. While the nation, region, town, and neighborhood grow, this tiny VIP-class beachfront inventory can never expand due to strict new height/footprint limits plus geographic constraints (rivers bracket town that will not be bridged). About half of the 12 are owner-occupied, leaving a precious half-dozen for rent. 

Casa de Luz offers the only estate on Millionaire Row occupying two adjacent beachfront lots, and the only mansion where every single room in the house directly faces the sea. Designed in classic style by nationally-famous architect Abraham Valenzuela, Casa de Luz features 8 bedrooms/6.5 baths and 23 total beds with 21 beach-facing, more than competitors in all cases.

Approach

We closed February 2015 at nearly $1M less than a similar property 7 doors down that sold 2 months prior - and $1M below appraised value on replacement cost basis, meaning a 50% incoming equity bump. Everything from title to survey to engineering inspection to permits and plans is rock-solid, and we have outstanding local management.

To increase value we installed a custom bunk room, taking bed count from 15 to 23. This enabled 20%+ rate increases while offering unbeatable value: 6 couples with kids can now have their own fully-staffed beachfront resort for the price of 3-4 regular hotel rooms in the area.

Then we "went eco" by installing a high-tech insulated roof and LED bulbs, changing all our personal & household cleaning supplies to biodegradable, and installing 80 solar panels to become "the first solar house in the area" (25kW, with <5 year payback) - in the world's #1 destination for eco-tourists, we cut costs while further extending our competitiveness for attracting guests. We also improved hundreds of other details for maximizing guest satisfaction from 5 dual-WAN wifi access points to decorating improvements, built out a web site, and established an SEO/SMM program to further increase prospect traffic. 

Results

Our revenues are private, but local management companies suggest we have the highest-grossing rental house in the area as well as the leading private wedding venue. All annual expenses from taxes & insurance to utilities to benefits for our full-time staff amount to just 6 or 7 weeks of rental income - this incredibly low breakeven occupancy under 20% means that if half our bookings disappeared in a black swan event, we'd still be profitable. We hope to hit a 10% cap rate this year. 

The hold is all-cash without a mortgage, which makes cash flows stable and upside safer from risk than any mortgaged asset. Casa de Luz is insured against fire, water, wind, earthquake, and liability. Expected exit is in 3-5 years when someone quite wealthy says: “I love it and have to have it”. With 50% equity upside built-in at purchase, expecting a double is not a stretch - and as of Spring 2018, the property has been listed for sale at twice our purchase price and we are not in a rush for someone to show up willing to pay it. 

Until then, investors receive 7% minimum cumulative preferred distributions against 80% of the project returns, which are targeted to net >20% total annualized returns over the hold without debt risk. The project is structured as a US LLC owning a passive CR entity that holds title, so investors below 10% ownership should not need to file any IRS foreign asset disclosures. Investors receive specific visit rights, which can increase effective yield to 15%+. But unlike a timeshare or other fractional ownership gimmick, the high and extremely safe cash yield backed by truly owning a world-class VIP asset enables investors to spend their cash distributions renting any nice place anywhere in the world any time they want. Which is really the ultimate goal of amassing real estate wealth, isn't it? 

The investment opportunity for this property is closed, but we encourage you to rent it for your next family reunion, event, or vacation with friends. Our unbroken string of 5-star reviews across multiple travel sites guarantees you'll love it! See CostaRicaLuxuryVilla.com for property information.