The Downturn… (cue ominous music)
It would be easy to label the decline of the Costa Rica real estate market (since the peak in 2007) in a negative light. In truth, there is no such thing as “negative light” only the opportunity for change, and if our market has seen anything over the past three years, it is change. The shift from bank loans to seller financing is one of the primary changes that has (pardon the pun) opened the door to prospective home buyers, as well as, land and commercial buyers.
Before defining the effects, basic models, and legal structure of seller financing, let me back up just a bit to clarify why we now find it present in about half of the Costa Rica real estate deals we facilitate. Like most lending institutions around the world, Costa Rican banks are better described as “institutional holders”. Banks are not lending for a few reasons— falling real property values, the recession, and they are not lending to each other (e.g., no credit to leverage). In Costa Rica, the debt-to-income ratio required to obtain a loan is as ridiculous as the double-digit interest rates being charged (often twice the rates in the United States). The banks’ parsimonious response has opened the door to seller financing, and Costa Rican property owners have embraced the new paradigm.
Sellers Get Creative
“What do I need to do to sell my property?” We received this common question too many times to count over the past few years. Our answer typically included these answers—