Buying Our First Property In Costa Rica: How We Financed Our First Costa Rica Property

This post is part of a series that covers our experiences in Buying Our First Property In Costa Rica:

• Why We Chose Not To Buy In The Philippines
• Why We Chose The Gold Coast Over the Southern Zone
• Why We Passed On This $400,000 Vacation Rental
• Why We Chose The Convenient Center Over The Quiet Hills
• How We Financed Our First Costa Rica Property (current post)

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UPDATE: If you find this post interesting, be sure to also read our follow up with more detail on the selected method.

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When we decided to buy real estate abroad, one of the critical steps was figuring out where we would get the money to buy. Since we had settled on desirable Tamarindo, we knew that properties would sell relatively quickly so we would have to decide quickly and be able to close quickly (or at least show we could close quickly).

Here are eight options we considered for financing our international purchases:

1 – Pay cash

If you have the cash to buy outright, paying cash is an option to consider. Sellers love the hassle-free, quick close of a cash transaction. Cash makes you a desirable buyer, and you might negotiate a better price or win a bidding war as the trouble-free buyer.

However, you also need to consider what else you could do with that money, and whether or not you want that much of your cash tied up in one deal.

Cash wasn’t an option for us, as the places we were considering were selling for more than our available cash. Next!

2 – Look for seller financing or owner financing

We looked at a development where the builder was offering some financing. Even some standalone properties had owners willing to provide financing. However, the deals we looked at still required a significant amount of cash (50% or more down), and interest rates were in the 8-12% range, so the financing didn’t provide that much more flexibility than paying all cash.

In the end, we didn’t opt for one of the properties that came with financing, but even if we did, we probably would have looked for alternatives to the seller financing / owner financing we did see. Next!

3 – Borrow traditionally / get a mortgage from a bank

For purposes of comparison, we looked at traditional borrowing options – i.e., getting a mortgage from a bank. The real estate professionals we consulted — real estate agents and even our real estate attorney – corroborated the general Internet research we found: it’s hard and costly for foreigners to get a mortgage from a bank.

Interest rates are in the double-digits, borrowing limits are low, and options are limited. Next!

4 – Find a money partner to fund the deal

If we can’t get funding from a bank, the builder or the owner / seller, then we still might get financing from a money partner willing to fund the deal in exchange for profits. Given that this was our first purchase both internationally and in Costa Rica specifically, we probably weren’t desirable partners, as we had no track record or specialized knowledge.

We also didn’t find deals where the profit margin had enough upside for a money partner to be interested. Next!

5 – Get a private loan

If we couldn’t get a money partner to fund the deal for profit, we still might get money from someone willing to give us a private loan. We already used a private loan to fund the purchase of our first multi-family so we knew it was doable. However, we just played that private loan card, so we were already paying the higher interest on a private loan for another property and we tapped out that particular private lender.

Sure I could try to find another private lender, but there were other more appealing options. Next!

6 – Use a line of credit on our business

There’s no rule that says the money you borrow has to be collateralized against the home you’re buying. In our case, I have a business that has been active for 10 years now. My business bank has pitched me multiple times on opening a line of credit for my business. I could finally take them up on it, and depending on the size of the line, it might be high enough to cover our Costa Rica purchase.

However, my most established business (which would offer the largest line) was a partnership with someone else, and I didn’t want to ask my 50/50 business partner to risk her half of the business on my real estate deal. Next!

7 – Use a HELOC

Like a business line of credit, a HELOC is a line of credit on home equity. In our case, we had two open lines of credit, and we had two other rentals with no mortgage yet on them so they could possibly be collateral for a HELOC. However, the two free-and-clear rentals were too low in value to fund our target Costa Rica property. We also didn’t want to use the existing HELOC’s because these have always acted as our cash reserves.

With 13 other properties, we needed ample cash reserves and couldn’t tie up either or certainly both of our HELOC’s with a purchase. Next!

8 – Do a cash-out refinance

Finally, the option we ended up using was the cash-out refinance. We had enough equity built up in our Asheville rentals that we were able to refinance them, pull out equity and use that equity to fund our Costa Rica purchase.

Because refinancing takes time, and we needed to do two of them, we actually drew on one of our existing HELOCs to do a quick cash purchase, and then refinanced to replenish our HELOC. So really we used option 7, option 1, and finally option 8.

UPDATE: Read more in our subsequent post on why we chose cash-out refi over HELOC

Other variations on the theme

We wanted to own property in Costa Rica to diversify our investments internationally, but if you only want to have a property to use but not necessarily own, you could consider buying a US rental investment that provides sufficient cash flow to pay for your rental in Costa Rica. This way, you’re still making a real estate investment, you’re still getting abroad, but it’s a domestic investment that doesn’t come with the hassles of international ownership.

It’s like a variation on the house hack – i.e., use your investments to pay for your living costs, in this case your international living costs. There are always multiple options to get what you want.

Have you bought property abroad? How did you finance it?

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Check out our full series on Buying Our First Property In Costa Rica:

• Why We Chose Not To Buy In The Philippines
• Why We Chose The Gold Coast Over the Southern Zone
• Why We Passed On This $400,000 Vacation Rental
• Why We Chose The Convenient Center Over The Quiet Hills
• How We Financed Our First Costa Rica Property (current post)