Owner financing in the Costa Rica real estate market
Owner financing might be a good solution when you try to sell your property in Costa Rica. But you need to get a good perspective of the market before you do so.
I’d like to share my comments. I hope will be informational and helpful concerning owner financing to you, your family and friends. My comments are based on my personal perspective of the real estate market here in Costa Rica.
If you are selling your Costa Rica property during slow economic times, you may strongly want to consider owner financing. Therefore, before the downturn which we are all aware of: most American buyers paid cash to purchase.
Currently, the majority of buyers would like some type of financing, preferably owner financing. Bank financing is there but is more difficult than owner financing. The bank charges much higher fees.
If you tell the bank you are self-employed, they will even want to know your blood type, just like American banks. Motivated sellers might have the option you are looking for.
Why And How
Financing makes the purchase more appealing to the buyer. It enables them to buy, which might not happen otherwise. If you do finance your buyer, I would recommend a short-term: 3-5 years. Also, you can opt to extend after the time period but at your option.
If the buyer has made payments on time, you may want to extend. If the buyer has kept the property insured and has taken care of the property.
I have sold property with owner financing range between 20-50% LTV. Whatever is your comfort level, that is what you should do. The down-payment should be your safeguard for at least a two year period in case something happens. You can amortize over 20 – 25 – 30 years or less with the balance due at the end of five years.
Your particular situation is important in the decision to finance. If you need to cash out, then you have no choice. Furthermore, if you do not need all the cash, then a nice return may be something to consider. Also, the property for sale, of course, should be free and clear.
I am currently working on an owner financing deal. The sellers do not need the cash and did not think about owner financing. After our discussion, they like the idea.
Several reasons for owner financing
1) easier to sell
2) a return on their money, they are the bank
3) take the sale price, take your monthly payments you are going to receive over a five year period and add those payments to the sale price. Your actual sale price is a lot higher. Because in a five-year loan the buyer is paying practically all interest. And the loan balance is due after five years.
The actual sale price number will pleasantly surprise you. Just find the right loan conditions that suit you. This is the way banks made their fortunes until they forgot to get down payments and make good loans.
There is always a risk and I would never tell you different. Therefore I suggest short-term and renewal at your option. Control as much as possible what is going on.
Interest Rates in Costa Rica, I have seen 7% – 12% for owner financing.
Costa Rica mortgages are registered and you have a lien on the property until such time it is cleared. Contact your lawyer to check.
Correctly and legally are important points.
This is my perspective of one of your options to sell your Costa Rican property in this market. Your comments are respected and welcome as I am sure many of you would have interesting ones.
Thank You and Best Regards
Rudy Matthews is a former Tampa, Florida resident with a vast and varied experience in real estate. He was our Home Specialist until 2017. He used to provide our clients with an excellent perspective of “Quality Lifestyle Communities”. His in-depth background in real estate was always very helpful in identifying sound and safe opportunities here in Costa Rica.
Many satisfied clients appreciated Rudy’s straightforwardness and honesty.
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