We have received many questions regarding Investments. Here below, you can find the most frequently asked Investments FAQs.
- Why use Gap Investments instead of lending on my own?
- What does Gap Investments do to secure loans?
- How do you find the borrowers?
- Who lends the money for a borrower’s loan?
- How do you value the properties?
- How long do I lend out the money?
- What is an interest-only loan?
- What kind of interest rate should I expect?
- How are borrowers able to pay those returns?
- Why doesn’t the borrower go to a bank?
- What is the minimum and maximum that I can invest?
- Can I lend to more than one borrower?
- How is my investment secured?
- What are the closing costs involved in a home equity loan?
- What are the closing costs to the investor on a private/hard money loan investment?
- What happens when the loan term is up and the borrower wants to extend their terms?
- It looks like you are dealing with multiple loans. If one loan fails, does it affect the other loans?
- Hypothetically speaking, what would happen to the funds I lent to a borrower if Gap were to disappear?
- Are you registered with SUGEF, the financial regulator in Costa Rica?
- Do I have to pay taxes on the interest earned in my home country?
- How do I get started?
- In what ways can I participate in a private/hard money loan?
- Why do they call it “hard money”?
- Who will be involved in the process of investing or purchasing a private/hard money note?
- Is Loan to Value (LTV) the best criteria to use when investing in private money loans?
- Aren’t private/hard money loans more expensive for borrowers?
- What exactly do the consulting fees pay for?
- Legal/Advisory Fees
- Do private money loans only cater to desperate or risky borrowers?
- Is it true I can use funds from my IRA to originate a loan?
- What is Home Equity?
- What is Home Collateral?
Why use Gap Investments instead of lending on my own?
At Gap Investments, you benefit from a wealth of knowledge and experience specific to Costa Rica, including the market and laws and regulations. One shouldn’t be lending in Costa Rica on their own without a great deal of knowledge about the country. At Gap, our goal is to give you a higher return than what you could get on your own, with the risks adequately assessed and managed.
What does Gap Investments do to secure loans?
Gap Investments is specialized in consulting services in investing and knows how to secure a loan in Costa Rica to make sure you make safe and consistent returns. The full list of all the services that we perform you can check HERE.
How do you find the borrowers?
At Gap Investments, we have many qualified loan applications come to us regularly. Our analysts choose the best ones based on previous experience with mortgages, and we work to establish terms that work for both parties.
Who lends the money for a borrower’s loan?
We work with a pool of private investors and lenders that typically individually fund the loans. Generally, many of the lenders are retirees who downsized after selling their homes and are now making GAP investments. We have access to private investors and lenders that conventional banks do not. As a result, private investors can provide competitive rates, closing fees, and better financing options than conventional banks.
How do you value the properties?
We perform a site inspection. We can accurately assess the property with many years of experience in Costa Rican Real Estate.
How long do I lend out the money?
Depending on the loan, terms can range from 6 months to 3 years for equity loans.
What is an interest-only loan?
An interest-only loan is a loan in which, for a set term, the borrower pays only the interest on the principal, with the principal balance unchanged throughout the loan. At the end of the interest-only period, the borrower will pay off the loan principal.
What kind of interest rate should I expect?
Typical interest rates paid to lenders will range around 12% – 18% or more per year. Every loan is different depending on the risk, amount of collateral, and loan duration.
How are borrowers able to pay those returns?
Bridge loans are typically higher because they are not conventional bank loans. These interim loans are a means to an end and involve interest-only payments with the goal of traditional refinancing later or through the property’s sale.
Why doesn’t the borrower go to a bank?
Banks are highly risk-averse and have specific collateral and income requirements for their loans. Someone going to the bank looking for a loan will have to go through the arduous and complex task of getting a traditional loan. This can take up to 6 months or even longer to wait for approval! At Gap, we generally can get the job done in 10 business days.
What is the minimum and maximum that I can invest?
The minimum loan size through Gap Investments is $50,000 USD. The maximum loan size can be $1,000,000 USD or even more.
Can I lend to more than one borrower?
Yes, you can invest in as many loans as you like.
How is my investment secured?
A mortgage lien secures all loans on the property, or in the case of larger loans, the property can be transferred in trust if the lender so desires.
What are the closing costs involved in a home equity loan?
Closing costs can include costs for things such as attorney fees, appraisal fees, accounting fees, consultant fees, reporting, escrow fees, trust guaranty fees, government fees and stamps, and loan repayment collections if needed. Just like regular bank mortgages, the closing cost is taken out of the funds disbursed to the borrower. Closing costs are usually approximately 8% of the loan amount.
What are the closing costs to the investor on a private/hard money loan investment?
There are no costs to the lender — the borrower pays all costs.
What happens when the loan term is up and the borrower wants to extend their terms?
If everything is in good standing, we will attempt to rewrite the loan, possibly using the current lender or offering the loan to a new lender.
It looks like you are dealing with multiple loans. If one loan fails, does it affect the other loans?
Absolutely not. Each loan is created and managed independently from every other. Unlike a general investment fund, the funds you provide for the loan are used exclusively for that loan, directly from you to the borrower.
Hypothetically speaking, what would happen to the funds I lent to a borrower if Gap were to disappear?
Absolutely nothing would happen to the loan. Loans are arranged through Gap Investments directly between the lender and the borrower.
Are you registered with SUGEF, the financial regulator in Costa Rica?
No. SUGEF regulates banks and financial intermediaries, including investment funds that raise money from investors to place investments through their own companies. At Gap Investments, we provide consulting to private lenders regarding loans requiring funding. Gap Investments is not an investment fund or financial intermediary.
Do I have to pay taxes on the interest earned in my home country?
We strongly recommend that you research the tax obligations of your home country and comply with them.
How do I get started?
You can get started by contacting us (click HERE), and we will get in touch with you with equity loan opportunities that meet your investment goals.
In what ways can I participate in a private/hard money loan?
There are many ways you can participate in a private money loan transaction. You can fund a new loan, buy an existing loan, invest in a mortgage pool, or combine your investments in a fractionalized note with other investors.
Why do they call it “hard money”?
The term “hard money” is used in conjunction with a loan “hard to get” from a traditional lending source, such as a bank. The term also comes from the asset pledged as collateral in return for the loan. When a borrower pledges the asset as collateral, the asset goes “hard” as collateral against the loan.
The terms Equity Lending and Private Money Lenders are more acceptable and descriptive of the professional lending practices in place today. Private parties funding loans, individually or as a group, for transactions has now become an accepted form of financing given the challenges provided by the Costa Rican banking environment.
Who will be involved in the process of investing or purchasing a private/hard money note?
You and the Gap Investment representative are involved in the process from origination through to closing.
Is Loan-to-Value (LTV) the best criterion to use when investing in private money loans?
Yes. Gap Investments analysts appraise the property and check all issues associated with the property, such as cash flow for commercial properties, liens, taxes, etc.
Aren’t private/hard money loans more expensive for borrowers?
The issue with private money loans is not so much that they are more expensive but readily available. Private money lenders in Costa Rica can and do, compete with banks. Applying for a traditional bank loan can be a lengthy and tedious process.
What exactly do the consulting fees pay for?
Each loan that comes in has a due diligence process where Gap Investments consultants put a significant amount of time and effort into ensuring the loan meets our standards. In addition, there are office expenses, which include advertising, website maintenance, salaries, internet costs, communications, and overall administration. Gap Investments analysts spend much of their time and energy on on-site visits that can entail long trips with overnight stays in many cases. Many site visits generate a 0% return as they do not fit our criteria or are unsuitable for our lenders.
We can recommend reputable lawyers that specialize in facilitating loans. They can close quickly and are cost-efficient. Unfortunately, using a lawyer that does not specialize in loans makes the process far more complicated than it needs to be. This causes undue delays and unnecessary costs for the borrower.
Do private money loans only cater to desperate or risky borrowers?
Not at all. Many borrowers prefer private money lenders to banks because they can originate loans faster, require less documentation, and are more savvy and open to alternative collateral sources than banks.
Is it true I can use funds from my IRA to originate a loan?
Yes. It is possible through a self-directed IRA. We can help you set up an account using Gap Investments IRA specialist.
What is Home Equity?
Home Equity is the difference between how much your home and your property combined are worth and how much you owe on your mortgage.
What is Home Collateral?
Home Collateral is a property that a borrower offers as a way for a lender to secure the loan.
If you haven’t found an answer to your question, please do not hesitate to CONTACT US!
For more information about how we evaluate properties for loans, click HERE.
To find out more about the loan process step by step, click HERE.
Are you looking to borrow money? Click HERE.