Private Loans in Costa Rica: A Comprehensive Guide for Borrowers

Are you looking for a private loan in Costa Rica? It’s essential to understand that not all private loans are created equal. At GAP Investments, we thoroughly analyze all factors of private loans that we work with to make appropriate recommendations. In this article, we will walk you through the factors we consider when approving private loans and provide a real-life example.

Loan-to-Value Ratio: What You Need to Know

At GAP Investments, we work with private lenders who lend money based on the Loan-to-Value ratio, typically under 50%. If we appraise your home at $200,000 USD and it is in a great location and shape, you should qualify for up to $100,000 USD. It’s important to note that our valuations are based on quick sales within 3-4 months, and there is a difference between retail or market value and our wholesale valuation.

Factors That May Influence Loan Approval

While we primarily base our lending decisions on the Loan-to-Value ratio, there are other scenarios where we may consider other factors. For instance, if the borrower has 5 additional properties and we are lending on their principal residence, we may lend a bit more because they would liquidate their other properties rather than lose their home. A strong net worth is essential in such cases, which we check as part of our due diligence.

Additionally, we may lend more than usual if the borrower has a high income they can prove to us. In such cases, we conduct a thorough background check and verify all documentation.

Real-Life Example: High Income, High Net Worth, High Value

Let’s look at an example of one of our private lenders. This borrower has a large mansion in a luxury beachfront community and runs a lucrative luxury vacation rental company. They were looking to borrow $375,000 USD, $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, and the term requested was 3 years at 12%.

To approve this loan, we asked for all the documentation, including income statements, an appraisal by an insurance company, the standard tax receipts, building permits, and more. After thoroughly analyzing all the documentation provided, we determined that $375,000 USD was a reasonable request, even though it was slightly higher than our maximum LTV. This is because the borrower’s annual income surpasses the loan amount, providing us with great comfort.

Prime Location and Surroundings

One of the primary reasons we recommended this loan to private investors is that the property is in a prime location on the beach within a gated beachfront community surrounded by other vast estates. Additionally, the borrower’s income almost equals the loan amount requested, providing us with further assurance that the loan will not be in jeopardy.

The fact that this borrower has an annual income almost equivalent to the loan amount requested means the loan will not be jeopardized. We also reviewed his upcoming bookings – they average around $8,000 – 9,000 USD a month! This is not a startup, as this borrower has successfully run his company 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.

Final Thoughts

At GAP Investments, we analyze all private loans case-by-case, considering factors such as the Loan-to-Value ratio, net worth, income, location, and property value. If you’re looking for a private loan in Costa Rica, we encourage you to contact us to discuss your specific needs and circumstances.

-Written by Glenn Tellier (Founder of Grupo Gap)

info@gap.cr

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Frequently Asked Questions

What is a private loan, and how is it different from a traditional bank loan?

A private loan is a type that a traditional bank or financial institution does not offer. Instead, a private lender offers it, such as an individual or a private investment firm. Private loans usually have different terms, interest rates, and requirements than traditional bank loans.

How do private lenders determine the amount they can lend?

Private lenders usually determine the amount they can lend based on the Loan-to-Value ratio (LTV). This ratio represents the loan’s value compared to the collateral’s value, usually a property. Private lenders typically lend up to 50% of the appraised value of the collateral.

What factors do private lenders consider before approving a loan?

Private lenders usually consider various factors before approving a loan, including the borrower’s credit history, income, net worth, the collateral’s value, and purpose.

How long does it take to get approved for a private loan in Costa Rica?

The approval process for a private loan in Costa Rica can vary depending on the lender and the complexity of the loan. Typically, getting approved for a private loan can take several days or weeks.

What are the interest rates for private loans in Costa Rica?

Interest rates for private loans in Costa Rica can vary depending on the lender and the loan terms. Private loans usually have higher interest rates compared to traditional bank loans due to the increased risk involved for the lender.

Are private loans available for business purposes in Costa Rica?

Yes, private loans are available for business purposes in Costa Rica. Private lenders can offer loans to finance various business needs, such as expansion, inventory, or equipment purchases.

Can foreigners apply for private loans in Costa Rica?

Yes, foreigners can apply for private loans in Costa Rica. However, they may need additional documentation, such as proof of residency or a local co-signer.

How can I find a reputable private lender in Costa Rica?

To find a reputable private lender in Costa Rica, search online or ask for recommendations from local financial advisors or real estate professionals. Do your due diligence and research the lender’s reputation, terms, and reviews before applying for a loan.