How To Finance a Property in Costa Rica

[Music] sorry i spilt my water okay i'm richard lacy tamarindo rich the subject today is financing options in costa rica costa rica has traditionally been a cash only market and i would say on average 80 percent of the deals we do are cash based today i'm going to get talk through the different options you have if you're not in a position right now to to be paying all cash if you've got your funds tied up in an investment plan and you can't release them without a penalty or if you're waiting to sell another property these are the options that are available to you [Music] please like and subscribe below and if you've been through this process please leave me your comments you know whether you've had a positive or a negative outcome um i'm always keen to hear more people's opinions and more people's uh real-life experiences so the number one option for financing if you're not able to pay all cash for the property is seller financing and i would say about 10 of sellers are offering financing their reasons for doing so is is it opens up the market quite a lot to the amount of people who would be looking at a property at their price point and also the interest rates typically down here for owner financing around six or seven percent so if the seller hasn't got any immediate use for the funds he might offer seller financing and typical terms will be 50 down payment six seven eight percent interest it's always a negotiated item and then a balloon payment at the end of the three-year term maybe up to four or five years so they're typical terms for a seller financing you'll also have to pay the costs of setting up the loan which is around about two percent now that might sound fine and a lot of people do this but there's a hidden cost involved in that that sellers often if you're a cash buyer sellers will offer you a better discount so they might say well if you pay all cash this is a price but if i'm going to give you seller financing and then this is a price and that could be an extra 20 30 40 000 which you don't really build into the calculation but is an actual cost of purchase so it's something to consider but i would say seller financing is the number one form in which buyers are able to to get into the property market in costa rica without paying full price in cash sellers also won't be doing any background checks on you or any ability to repay or any financing checks basically if you're putting a 50 down payment that pretty much guarantees performance in the loan and in 10 years i i can't remember when i've had a a seller financing deal go go bad i mean generally anybody that's coming into this and willing to put 50 cash down that sort of guarantees discipline throughout the loan terms absolutely the best option available if this is a possibility for you is to get a loan through your local bank in your home country uh guaranteed against an asset in in your country north american interest rates you know three percent or less at the moment and you can generally get a long-term loan and then you come to costa rica as a cash buyer so your cost of capital is much lower you have a longer term and you're able to negotiate the best deal possible with your seller in costa rica because they see you as a cash buyer so this is an option available to everybody but absolutely 100 number one if this is a possibility then i would look at this before you look at any of the options of financing in costa rica the third option is a hard money loan this is typically where an individual has got uh extra cash to park and so it'll just be an agreement between you as the borrower and a lender for a certain amount of money for appearance just a private agreement between the two of you this works very well in costa rica it's a very typical form of financing i've lent money like this before and it it it works very well generally the terms are stricter really than the other forms of financing i've talked about interest right now is somewhere between 9 and thirteen percent a loan to value of about fifty percent and terms they're fairly flexible could be one year could be three years i've seen them happen up to 15 years so this this could be an interesting option depending on your personal circumstances generally there'll be a fee as well they might call it an origination fee or an arrangement fee or whatever which will consist in part of the legal fees and then it might be a commission if there's a broker involved or the actual lender might require part of this fee as well so that could be two percent three percent up to four percent which you just need to take into account one other important factor i've said the loan to value of 50 but often that v the valuation they tend to be very strict on the way that they evaluated as part of their due diligence they were saying well is this an asset i would want to own you know how quickly would it be for me to liquidate it if the borrower defaults so often you might have an idea in your mind as to what it's worth or what what you're buying it for or what the bank says it's you know bank valuation says but a hard money lender will come in and he will generally discount that quite significantly as well so you might not be getting up to 50 loans to value but this is this is a very typical way of people doing business down here and over this over the years i've seen many many deals like this people borrowing million dollars on buying a property and it's worked for them you know they've been short of a certain amount just in order to make the deal happen but then they've had the funds coming in they've paid it off and they've been able to roi out the deal in the meantime if this is an option for you then let me know just send me an email and i'll connect you with some people who can make this happen so the fourth option is using your retirement funds to buy a property in costa rica now this needs a little bit more planning and research but i think this is a great option that's really underutilized so for americans using your 401k or your ira is an option or for canadians you could use your registered retirement savings plan your rrsp with those plans you have certain restrictions and it's fairly complex and the rules do change so you will need to check with your advisor back home about what are the conditions and the possibilities for using this so you'll need a good advisor at home for what's one of the legal requirements in your home country and then you'll need a good lawyer in costa rica that can actually apply that and and coordinate between the two so you're meeting all of your obligations i can definitely help you with finding a lawyer that's experiencing this kind of thing in costa rica but you'll need to use your own advisor at home one thing i would say sometimes the advisors either they don't know about using the funds for overseas purchasers and so you might need to check with a couple of different ones that maybe have experienced in this kind of thing the other option is sometimes there's a little bit of reticence in that they don't want to use lose control of your funds so they might be advising against it for reasons that are not entirely in your interests in general the funds need to be used for an income generating property which could mean really any property down here so for example if you buy a condo that you're short-term rented through airbnb that's an income generating property or if you're buying a bed and breakfast or commercial property that's got long-term leases with with retail so really it's fairly flexible in the any property you buy in costa rica could be seen as an income generating property costa rica bank mortgages it is possible i've done it a couple of times it is a fairly painful process but it is possible under certain conditions there are two state banks banco nationale and bcr and then there are a whole range of private banks scotia bank and solafisa uh back and it used to be that the private banks were more professional more service oriented but really now the local banks are pretty good as well so there's not that much difference between them and it tends to be that the state banks are a little bit more flexible with offering loans though i heard that scotiabank is offering loans to residents now these are permanent residents not temporary residents and not people visiting on one of these 90-day tourist visas so if you do start this process and you need a bucket load of patience and a lot of time but the first thing to do is to explain to them what kind of visa you have and because generally in the past it's just been for people with permanent residency interest rate uh fairly high typically would be prime rate plus five and a half so you're looking eight to eight and a half percent interest so you're not actually saving that much over one of the other lending options that we've already discussed but the term will be longer 25 to 30 years and the loan to value is much more attractive depending on a number of factors up to nine between 70 and 90 something like that yeah they have a lot of requirements and they have a lot of processes to go through which will almost be completely in spanish at least all the paperwork will be in spanish even if you happen to have a person within the bank that speaks good english tends to be the person you're talking to is not the person making the decision so they might ask you for their series of paperwork and then send that off and then two weeks later the decision maker to say no we need these additional papers so it is really quite a painful process and a long process if you do qualify and you do make it then then this is a good option but i would say that over the years there are very few cases where i've seen people that have successfully gotten a bank loan through a costa rican bank let's do other options from time to time you will see a lot of advertisements from private lenders they're offering very very attractive interest rates if you talk to them the first question to ask them is how many loans have you closed for foreigners in the last 60 days and see if you can get a straight answer out of them because there are quite a few that come to us asking us to promote them to our our buyers and i'm always very reluctant to do so because often they come in with a false expectation as to what they can do or they think they've got financing when they haven't or they're making over-optimistic claims so if i haven't mentioned the option in this video today it's because i haven't found any other options that really work so just go into it with your eyes open if you do find any sources of financing that i haven't mentioned again please leave me a message below because i'm always willing to learn and you know the situation does change from time to time so you know i'm always keen to to get updated information anyway thanks for listening today please like and subscribe below and the next video will be out next friday thank [Music] you [Music] you

Channel: Tamarindo Rich

Views: 10,803

Keywords: costa rica property, costa rica realestate, tamarindo realestate, how to finance a home, financing a home in costa rica, costa rica, property in tamarindo, tamarindo, buying a home in costa rica, move to costa rica, expat in costa rica, living in costa rica, expat, financing a home, home financing, realestate

Id: sgb4tPtA4ag

Length: 11min 51sec (711 seconds)

Published: Fri Mar 12 2021