Costa Rica Real Estate Fund vs. Private Lending

If you want income from Costa Rica real estate without owning or managing a property, there are two broad routes. You can buy into a real estate fund that pools money across many properties, or you can lend directly against a single Costa Rica property, secured by a registered first-position mortgage.

Both put your capital to work in Costa Rica property. The way you earn, what protects you, how long your money is tied up and how much you can see are very different. Here is how the two compare.

How a Real Estate Fund Works

A real estate fund pools money from many investors to buy, build or manage a portfolio of properties. Returns come from rent, from rising property values and, eventually, from selling the properties. Some funds run for a fixed term and then wind up. Others are open-ended and let investors leave during set redemption windows.

Funds aimed at Costa Rica range from locally managed vehicles holding commercial or residential property to offerings marketed to foreign investors. Some specialise: vacation rentals, farmland, mixed-use projects.

How Private Lending Works

Private lending means making a loan to a property owner, secured by a first-position mortgage on their Costa Rica real estate and registered in the Registro Nacional, the national property registry. The lender receives monthly interest for the term of the loan, from 6 months to 3 years, and the principal is repaid at the end.

GAP Investments connects private lenders with qualified borrowers. Advertised returns range from 9% to 16% a year, every loan is in US dollars, and each one is kept to no more than 50% of the property value GAP determines.

Returns: Contractual vs. Variable

A private loan pays the rate written into the loan contract. A loan at 12% pays 12% a year, in monthly interest, for its term, whatever property prices do in the meantime. That is the agreed rate, not a guarantee: private lending carries risk, and returns and repayment depend on the borrower and the security behind the loan.

Fund returns move with the market. They depend on property values, occupancy, rental income, the fund’s own costs and, in the end, the price the properties sell for. Projected returns in fund brochures are estimates.

What Protects Your Money

With a private loan, the security is specific and visible: one identified property, a value GAP has reviewed, and a first-position mortgage registered in your favour. If the borrower defaults, the lender can enforce that mortgage through the Costa Rica courts.

A fund gives you indirect exposure. You own an interest in the fund, not a lien on any particular property. The fund’s assets stand behind the fund as a whole, but no individual investor holds a mortgage over a specific parcel.

Getting Your Money Back

Neither route offers instant access to your money. This is private-market investing. A private loan, though, has a fixed maturity date: when a 12-month loan ends, the borrower repays the principal, and you decide whether to fund another loan or step out.

Fund liquidity depends on how the fund is built. Closed-end funds can hold your capital for many years. Open-ended funds may offer redemption windows, but those can be suspended when too many investors want out at once, which tends to happen exactly when markets are weak.

Transparency and Control

With private lending, you see the specific property before you commit: where it is, what GAP values it at, the loan-to-value, what the borrower is using the money for, and the exact terms. You decide loan by loan whether it fits your comfort with risk.

With a fund, those decisions belong to the manager. You are relying on the manager’s choice of deals, their standards, how well they run the properties and how disciplined they are about fees, and fund-level fees come out of your return.

Minimum Investment

Private lending through GAP Investments starts at US$50,000, the same minimum that applies on the borrowing side. Fund minimums vary widely and are set by each fund’s own offering documents, so compare them line by line rather than by headline.

Why GAP Suggests Starting Near 9%

GAP encourages new lenders to consider loans near the 9% end of the range, and the reason is file quality, not volume. The rate on a private loan reflects the file behind it.

Borrowers with the strongest files, meaning a low loan-to-value, a valuable property in a good location and a clear repayment plan, have choices, and their rates reflect that. Borrowers who end up at 14% or 16% are usually there because something in the file calls for it: a higher loan-to-value, a property that would be slower to sell, or a thinner track record. The rate is a signal of risk, not only a measure of return.

A lender who will only accept 16% is not getting a better deal on a risk-adjusted basis. They are getting the files that could not qualify for less, and they wait longer between loans, because there are fewer of them. A lender open to 9% sees the cleaner files and keeps their capital working more of the time. The final rate on any loan is set after GAP reviews that specific file.

Which Fits You?

Private lending tends to suit investors who want predictable monthly income rather than a share of future appreciation, who want to see exactly what secures their money, and who prefer terms of 6 months to 3 years over a commitment of many years, starting from US$50,000.

A fund may suit you better if you want your money spread across many properties under professional management, are comfortable with a longer horizon and returns that rise and fall, and would rather not assess individual loans yourself. If you are also weighing owning property outright, see owning the building vs. holding the loan against it.

Explore Private Lending With GAP Investments

If the private lending route appeals to you, with contractual interest, a registered first-position mortgage and a defined term, contact GAP Investments to review current lending opportunities and talk through whether this structure fits your goals.

Private lending carries risk; returns and repayment are not guaranteed. This article is general information and is not investment, legal or tax advice.

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)