Financing Foreign Purchase - Costa Rica

[Alex Washburn]

Hello Bigger Pockets Community, My fiancé and I are beginning our real estate investment journey but we live and work in one of the most expensive markets in the world - even though we are 20 minutes from San Francisco there is not a property in our city listed at under 1 million (yes). So I recently took a trip to Costa Rica for the sole purpose of identifying regions we would like to invest in and ended up finding a fantastic little condo for our starter property. We've settled on the price of $67,500 usd with the seller. Now - we struggling to find a way to finance the deal. Most Costa Rican mortgage loans require %50 down which we have the cash for but we don't want to tie up that much of our liquid assets in one property as we intend to buy a 2nd property in the next year or so. Combined we make over 200k a year, no kids and no debt. Can anyone point me to the best US based resource either private or commercial that does loans for international real estate purchases? I've had very little luck with google. HSBC does Mexico but not CR.... Thanks in advance!

[Greg F.]

You don't say if you currently own a home or not in the US.

If you do, the easiest way to finance a purchase like this would be to borrow against the equity you have built in your own home in the US. Get a Home Equity Line of Credit (HELOC) setup or take a second mortgage on your house and use the proceeds to fund your purchase in CR. Either option should be easy with your income level.

[Alex Washburn]

Unfortunately we don't own a home in the US. I've run the numbers on homes in our price range within a 3hr drive radius of our zip and they just don't make sense as rental units.

I'm fluent in Spanish so other than the financing problem maintaining a rental in Costa Rica vs another market in the USA that requires a flight is fairly comparable from my perspective.

Its funny because buying a sub 70k house anywhere in the US would be so easy for us. Its maddening!

[David Morgan]

A quick Internet search of "Costa Rica Mortgage Loans" turned up a couple of brokers and private equity offerings.

You could also try to get the seller to finance part of the purchase price.

Or borrow it from your 401K, if you have one.

Depending on your credit score, it might also be worth looking at rates from a local credit union, bank, or even Prosper or Lending Club for a personal loan rather than a real-estate secured loan. The rates are usually higher, unless you secure it with a CD or stock portfolio or something. Both Prosper and Lending Club offer loans big enough to cover your 50% down payment.

Something I would never recommend to most people, but as a last resort -- if you absolutely knew you COULD pay it off any time you wanted, you could put the down payment or at least a big chunk of it on a credit card and float it between 0% balance transfer offers until you get it paid off. Discover, for instance, will deposit the money for your "balance transfer" directly into your checking account, and often has specials for 0% financing for 12 months with 3% up front transfer fee, or 5% financing for 18 months with 0% transfer fee. Chase Slate also has good sign up offers for balance transfers. Again, this is risky, and maxing a card will ding your FICO until you pay it down, and also increase your DTI -- if those things are considerations for your next home purchase. And if something happened that kept you from paying it off, your interest rate would shoot sky high. It's too risky for most people.

[Alex Washburn]

I think Lending Club or similar is becoming the most practical decision for us at this point... It's just been so difficult to move forward with this in CR. If we can't secure funding through formal channels in 15 days I think we are going to go 2/3rds angel investing. 

[David Morgan]

Keep us up to date!

[Adam Daneff]

Alex,

why do you want to buy in CR and not the states? How much do you expect to gross from this?

[Alex Washburn]

Part of my reasoning for wanting to buy in Costa Rica is that housing (for long term rental purposes) doesn't have a good cash on cash value in my region. In my city there isn't a single listing for under a million and people overbid and pay in cash on a regular basis. I can't play those game$ nor do I want to. 

I speak fluent spanish and have traveled widely in Latin America. In terms of complications it makes little difference to me wether I buy property in Nebraska (somewhere affordable) or Costa Rica (Also affordable but with greater chance of strong appreciation in a 10 year time frame) as I would need a property manager either way. 

This first property is a test case to see if I want to continue investing in CR (or perhaps mexico and belize later).

[Carlos Castro]

Less than $70000 in Costa Rica, for the most part, is a great deal. Do you know exactly where the property is located? As far as the financing goes I have seen loans for 15% down payment or even less. Take a look at BAC, Scotiabank, Prival or public banks such as BCR or Banco Nacional (they have a bad reputation of being slower than private banks with foreigners). Or you could just look up prestamos hipotecarios in google. 

[Account Closed]

I recently connected with someone who helps my clients get unsecured loans through banks.  The interest rate is about 10% however it's unsecured loans and if you have good credit it might be an option for you.  Idk, your call.  Loans can be as low as $50K or as high as $300K depending on whatever factors they are looking at in your financial profile.  

[Michael Knudsen]

Not to hijack your thread, but do any seasoned offshore real estate investors here know if foreign real estate investments over $50,000 trigger FATCA reporting requirements?

[Alex Washburn]

We are entering escrow on our first Costa Rican property and have the condo inspection scheduled for Tuesday... We should be closing before May 3rd... So it's just a matter of time at this point. I will write a blog about the process once we close!

[Joe Rizo]

Hi Alex,

We’re heading down to CR next month to look at some properties. Just curious how your transaction went and what financing vehicle you ended up going with?

Regards,

Joe

[Seth Sundberg]

Hi @Alex Washburn am working with a team to sponsor a multifamily project in CR and have been looking at how debt flows in CR and saw your post. Did you ever get debt on your property from 7 years ago or write that blog you mentioned here? Would love to hear how this turned out for you, thanks. 

[Mike Lambert]

Hi @Seth Sundberg if I were you I would try to avoid the capital mistake (no pun intended) that would-be international investors make. Many US investors pay cash for properties overseas because they have the money (like-kind properties are often much cheaper) and they can get a higher return than with most mortgaged US property if they buy the right property at the right price. Many would-be buyers/investors don't have the cash or would like to take advantage of leverage. Before wasting time looking for properties or spending a lot of time on projects, they should make sure they can get the financing because a) financing might not be available, b) they might not qualify or c) the cost of debt might be prohibitively right.

Another mistake investors make is believe that they can apply a US strategy or financing model overseas. The US multifamily model is pretty much limited to the US and Canada.

Based on the little that you mentioned, I'm not sure how you could find such financing. What would work would be using a US lender if you have US collateral to give but that would likely defeat the purpose and you probably don't need me to tell you that.

Finally, there is a lot of inaccurate information around about investing overseas. My best advice is to make sure you talk to people who know what they're talking about to corroborate crucial info.

Clearly, you have figured that much out already since you ask in the forum. Good luck!