Not all loans in Costa Rica are the same. GAP Investments consultants check all factors of private loans we work with and make appropriate recommendations. Private lenders, we work with lend money based on the Loan-to-Value ratio, typically under 50%. That means that if we appraise your home at $200,000 USD, it is in a great location and shape; you should qualify for up to $100,000 USD.
There is a difference between a retail or market value and our wholesale valuation. Our valuations are based on quick sales (within 3-4 months).
There are a few scenarios when we look at other factors, though. Suppose the borrower has 5 additional properties, and we are lending on his principal residence, for example. In that case, we are comfortable lending a bit more because he would liquidate his other properties rather than lose his home. His wife would make sure of that!
A strong net worth is essential, which we check as part of our due diligence. Another primary example of lending more than usual is if the person has a very high income and can prove it to us. Again, we check that out thoroughly.
High Income, High Net Worth, High Value
Let’s go through an example of one of the private lenders we work with. The borrower has a large mansion in a luxury beachfront community, and he is working on expanding it from 12 bedrooms to 16 bedrooms by remodeling the home.
He runs a very lucrative luxury vacation rental company and has been for many years. This business provides airport pickup, shuttles, tours, and more. He was looking to borrow $375,000 – $240,000 USD to pay off the existing mortgage and the balance to complete the new pool, bar, and other small amenities. The house is 90 – 95% complete.
The term requested was 3 years at 12%. We asked for all the documentation, including income statements, an appraisal by an insurance company (valued at $700,000 USD now and $900,000 USD upon completion), the standard tax receipts, building permits, and more.
After looking at everything, Gap Investments determined that $375,000 USD was a reasonable request. Why would we give that amount when it is a bit higher than our maximum LTV? Because his annual income surpasses the loan amount, which provides us with a great deal of comfort. The ability to pay the loan is as important as the asset value or value of the home.
Prime Location and Surroundings
The fact that it is in a prime location on the beach within a gated beachfront community surrounded by other vast estates is why we recommended this loan to private investors.
The fact that this borrower has an annual income almost equivalent to the loan amount requested means that the loan will not be in jeopardy. We also reviewed his upcoming bookings – they average around $8,000 – 9,000 USD a month! This is not a startup either, as this borrower has been running his company successfully for 7 years.
Gap Investments feels comfortable recommending this type of loan between the value of the asset, his income, location, and the fact that the building will have no depreciation for the first year. This is a specific example; all potential loans are assessed case by case.
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