Hard Money Lending in Costa Rica: How It Actually Works

If you moved here from North America, hard money lending is probably the phrase you already know: a short-term loan secured against real property, funded by a private lender rather than a bank. In Costa Rica it is usually called private lending or property-backed lending, but it is the same thing, and it is how a great deal of real estate here actually gets financed.

Here is what it looks like from the lender’s side.

Why borrowers here need private lenders at all

A property owner in Costa Rica who needs capital has fewer doors to knock on than they would at home. Bank lending here is slow — months, not weeks — and for foreign owners it is frequently not available at all.

The reason is worth knowing, because it tells you a lot about who your borrowers are. A foreigner living in Costa Rica generally cannot borrow from a bank here until they hold permanent residency, and that is a minimum of four years away for someone who has recently arrived. Without it you cannot open the kind of account the lending system runs on. No account means no local credit history, and no credit history means no mortgage — however much property you own outright.

The people asking for these loans are therefore rarely in trouble. They are your neighbours — Canadians, Americans and Europeans who own a home here free and clear and have assets back home, locked out of the banking system by a residency rule. Costa Rican owners come for a related reason: bank approval runs to months, and a sale or a build will not wait.

Meanwhile the property itself may be worth a great deal. A private loan solves a timing problem for someone who is asset-rich and cash-poor — funding a build, bridging a sale, freeing capital for a business — and it is secured against a registered property the whole time.

Who makes a great lender?

The short answer is anyone with capital to put out. The lenders on our files sit in Canada, the United States, Europe and here in Costa Rica, and a good number have never set foot in the country their loans are secured in. Capital that is currently doing nothing is the only real qualification.

Many arrived here after selling a property at home, looked hard at buying a restaurant or a rental, and concluded that they wanted an income, not an occupation. Others never considered moving at all and simply wanted their money somewhere other than a savings account.

What none of them needed was a background in finance or any grasp of Costa Rican property law. Reading a file carefully and knowing your own appetite is the whole skill; the technical side is ours.

What the terms look like

Rates run from 9% to 16%, and terms from six months to three years. Those are the norms of this market, not fixed rules — as the lender you set your own terms, and if you want a five-year term or something outside the usual range, that is your call. Loans start at $50,000, and there is no maximum.

For scale, our rates sit in a similar territory to what banks here charge foreign borrowers — the difference is speed, and the fact that the loan actually happens.

One thing worth knowing early: most lenders prefer several smaller loans to one large one. Three or four files means different properties, different borrowers and staggered maturity dates, so capital comes back at intervals rather than all at once.

Where the good files are

GAP advertises lending from 9% and up. It is worth understanding what sits at each end of that range before you decide where you want to be.

Rate follows the file. An owner in a sought-after location, asking for a modest slice of what the property is worth, with registered title in order and an obvious way to repay, is in a strong bargaining position and will not accept the top of the range. The consequence is that the cleanest files cluster at the bottom end. Where a rate climbs toward 16%, something in the file is asking you to accept more uncertainty — a slower resale, a thinner cushion, an exit that depends on more going right.

Which means the lenders who will look at 9% and 10% get shown a wider pool, and a better one. Telling us you are open at 9% is a signal, not a commitment — after the property, location, loan to value and exit have been studied, that same borrower may well be placed with you at 12%. Over a few years a book tends to settle into a spread rather than a single number. There is more on how a rate is arrived at in what interest rate a private lender should expect.

Set against a portfolio at home

The comparison most people reach for is the money they have in the market back home, and the difference that matters is certainty of terms, not size of return. Before a dollar leaves your account you have agreed a rate and a maturity date, both written into a registered instrument. An index fund makes no such undertaking — its number is whatever it turns out to be on the day you look.

None of that makes an outcome certain, and it is not offered as one. Borrowers can and do fall behind, and lending against property carries risk like anything else. What is different is that the terms are agreed at the outset and tied to a real, registered asset, instead of being repriced by the market every morning.

What GAP does, and where our job ends

Lenders come to us because the legwork is ours, not theirs. Title is pulled and examined, liens searched, the property inspected and valued against what it would genuinely fetch, the loan to value set, the paperwork drawn and the mortgage entered in the register. Everything from the first look at the title to the day the mortgage is registered is on us — and we do not disappear once it is done.

What follows is simple enough: your borrower pays you, month by month, without us standing in between. Watching the insurance, the municipal account and the date the loan matures falls to you — modest work, but yours. Anything unexpected, pick up the phone. Nearly every lender does, and we help from what we know of the file.

The attorneys we work with have been closing loans of this kind for years and understand the structure inside out; if you would rather have your own counsel cast an eye over the file as well, nobody minds. Preferences vary — trust arrangements for some lenders, escrow at closing for others, crypto funding where that suits. Say how you like to operate and the file is built around it. The page on how lending works in Costa Rica lays out the sequence.

Beyond residential: project funding and commercial loans

Most lenders start with residential files, but they are not the whole market. GAP also arranges project funding and commercial loans, and these can be structured with drawdowns — money released in stages as a build hits its milestones rather than all at once. Different rhythm, different file, and some lenders come to prefer it. See project financing in Costa Rica for how those are built.

Common questions

Is hard money lending the same as private lending here?

Yes. “Hard money” is the North American term; in Costa Rica the same loans are usually called private or property-backed lending. Short term, secured against real property, funded privately.

Do I need residency to lend in Costa Rica?

None whatsoever is required, and living here is not required either. New arrivals lend, long-term residents lend, and so do people who have never been to Costa Rica in their lives. Worth speaking to someone about tax in your own country; beyond that there is nothing standing in the way.

How much do I need to start?

The floor is $50,000; above that there is no ceiling. Say what size you would be comfortable with and we will put the matching files in front of you.

What if the borrower stops paying?

Your position is secured by a mortgage on the register, and foreclosure is a step you can take. GAP’s formal job finishes at closing, though in practice most lenders call us and we help where we can — we know the file, the property and the borrower. Our article on what happens in a foreclosure in Costa Rica covers the steps and timelines.

How is this different from buying a rental property?

Owning a rental brings guests or tenants, upkeep, management and empty months. A loan brings a set rate, a set end date and a mortgage on the register behind it. Some people do both. Our article on how to make money in Costa Rica without starting a business compares the options.

See what is available

If this is the kind of opportunity you came here looking for, browse our current lending opportunities or contact GAP Investments and tell us what you have in mind. Nothing is placed without your say-so, and no outcome is promised.

This article is for general information only and is not investment, legal, or tax advice. All lending and investment decisions should be made based on independent due diligence and with qualified professional guidance.

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