Financing a Bed and Breakfast in Costa Rica

A bed and breakfast is one of the most common ways expats turn a Costa Rican property into an income. It is also one of the most common ways they discover that the bank will not help, because a B&B has no trading history until it is already trading.

The chicken-and-egg problem

A bank wants to see the income before it lends. The income does not exist until the rooms are finished. Add the residency requirement that closes the bank door to most foreign owners anyway, and the conventional route usually is not a route.

Property-backed lending sidesteps that because the security is the property, not the projections. If you own something registered with real equity in it, we are looking at the collateral and the exit — not at an occupancy forecast that neither of us can verify.

What people actually finance

• Converting a house you already own — adding rooms, bathrooms, a commercial kitchen, parking.
• Buying a property to convert, particularly when the seller wants a fast close.
• Finishing a half-done project that ran out of money before the rooms were rentable.
• Building casitas on land you already hold.
• Bridging a purchase while another property sells.

Four things to sort out before the money

These decide whether the project is real, and they are cheaper to find out now:

Water. A water letter confirming availability is what makes an expansion permittable. Without it, additional rooms are an idea, not a plan.

Zoning and land use. Not every residential zone permits a lodging business. Check the municipality before you build.

Title. A registered folio number with no surprises on it. Concession land in the maritime zone and possession without a folio cannot carry a registered lien, whatever the property is worth.

The legal and tax setup of the business. Worth talking to an accountant before you open, not after.

The question we will ask, and you should ask yourself

How does the principal come back?

Our loans run six months to three years. A B&B rarely repays a principal balance out of room revenue in that window — and a plan that depends on it usually is not a plan. The exits that work in practice are a refinance once the business has a trading history a lender can look at, a sale of the improved property, or another asset being sold.

Room revenue services the interest. Something else repays the principal. Being clear-eyed about that at the start is the difference between a project that works and one that ends in a difficult conversation.

Terms

From $50,000, 9% to 16% annually, six months to three years, up to 50% of appraised value with most files between 30% and 40%, closing costs around 8%. Interest-only is common, which keeps the monthly cost predictable while you build. Residency is not required — registered property is.

Related reading: construction and renovation financing, financing for tourism property and why the water letter comes first

Talk to us about your situation

WhatsApp us at +506 4001 6413, call 855-562-6427 from the US or Canada, or email info@gap.cr.

Four things let us give you a real answer instead of a brochure: the folio number of the property, roughly what it is worth, how much you need, and how you plan to pay it back. With that we can tell you straight away whether the file works and in what range, at no cost.

And if it does not fit, we will say so. We would rather save you the time.

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