Investor Questions

Following is a list of the most common questions we've encountered. If you have a question that is not covered here, we invite you to contact us and we will get in touch with you as soon as possible.

How long do I lend out the money for?

Depending on the loan type, terms can range from 6 months for some hard money loans to up to 5 years for home equity loans. Loan terms can be renewed at the express wishes of the lender, producing interest for longer time periods.

How is my investment assured?

All loans are secured by mortgage lien on the property, or in the case of larger loans, the property is transferred in trust to the lender. In the case of multiple lenders a numbered holding corporation is formed, which in turn is the beneficiary of the property in trust. This corporation is used exclusively for the individual project and nothing else. As an investor you receive ownership in that holding corporation according to your level of investment.

The loan limit of Gap Investors is 60% of the appraised value of the property, assuring that in the event on non-payment, quick liquidation is likely to recover the entire loan's principal.

What happens if the borrower defaults on the loan?

If the borrower defaults on the loan, then Gap will assist the lender in foreclosure proceedings or execution of trust guaranty on the property, and the property's sale or transfer will be forced by law. The lenders may opt to purchase the property with the funds owed -- at that point the lenders become the owners and have full decision-making capabilities and may proceed any way they wish.

What does Gap Investors require from its borrowers?

Gap Investors Ltda. requires from its borrowers all necessary documents including an appraisal from a respected appraiser that we provide. All loan funds are held in escrow until the lien has been placed on the property, or it has been transferred in trust.

Do you use a title search/insurance company?

We require a complete title search and title history on the land for which any project is proposed. We work with reputable, well-known title insurance companies who will appraise the property and verify its title.

Why use Gap Investors instead of lending on my own?

At Gap Investors you receive the benefit of a wealth of knowledge and experience specific to Costa Rica, including the market, and laws and regulations. One shouldn't be lending in Costa Rica on their own without a great deal of knowledge about the country. At Gap our goal is to give you a higher return than what you could get on you own, with the risks properly assessed and managed.

What is the minimum and maximum that I can invest?

The minimum investment with Gap Investors is US $5,000. There is no maximum investment amount.

Can I lend to more than 1 borrower?

Yes, you can invest in as many loans as are available.

What kind of interest rate should I expect?

Typical interest rates paid to lenders will range between 8% and 24% per annum. Every loan is different depending on the risk, amount of collateral and duration of the loan.

How are you able to pay those returns?

Bridge loans are typically higher because they are not conventional bank loans. These interim loans are a means to an end, and involve interest-only payments with the goal of refinancing or through the property's sale.

Why doesn't the borrower go to a bank?

Banks are highly risk-averse and have certain collateral and income requirements for their loans. Someone going to the bank looking for a $10 million loan will have to have more than that in property, and possibly over a $1 million in yearly income. The borrowers coming to Gap are typically equity rich but cash flow poor, which leaves gap financing as an attractive choice.

How does the borrower cover the initial payments on the loan?

Depending on the borrower's income and use of funds, the loan can involve a cash reserve -- for example, the first year of payments are held from the borrower, allowing the borrower to concentrate fully using the remainder of the funds.

This is why the borrowers come to Gap in the first place -- they typically own a parcel of land, but they don't have liquidity or the kind of income required to immediately service a bank loan.

It looks like you are brokering multiple loans. If one loan fails does it affect the other loans?

Absolutely not. Each loan is brokered, created and managed independently from every other. Unlike a general investment fund, the funds you provide for the loan are used exclusively for that loan, which is from you direct to the borrower.

Hypothetically speaking, what would happen to the funds I lent to a borrower, if Gap were to disappear?

Absolutely nothing would happen to the funds. The loans that Gap Investors Ltda. brokers are directly between the borrower and the lender.

I'm reading about 18%, 24%, 6 month term, 3 year term, mortgage lien or title in trust. As the lender, do I have to choose these terms?

At Gap we work with our lenders to determine the mortgage terms on a case-by-case basis, meeting investor needs.

How much time do I get to decide to participate in a loan?

Many of our loans are funded in days if not hours, so keep that in mind when you receive a term sheet. Just like with bank loans, all our borrowers have an immediate need for cash flow, and the better the terms, the more likely the loan will be funded by our lenders quickly. Our lenders know a good thing when they see it and jump on it fast.

How does Gap pick the borrowers?

At Gap Investors we have many loan applications come to us on a regular basis. It's up to Gap to choose the best ones based on our previous experience with mortgages, and we try to get the best terms for our lenders.

What was the largest project you've been involved with?

We were involved with the Playa del Sol development on the Caribbean coast of Costa Rica, which is an 1,100-acre property with 3 miles of titled beachfront. The plan calls for 500 residential lots in Phase 1, with an additional 1,500 lots in later phases, along with hotels, golf course, and commercial units.

The entire project was purchased by ECI Ltd., a group of investors from the USA, which is going ahead with the development under the name Gran Caribbean.

What is Latent Value?

Latent value is the value possessed by a property which has potential for development because it is currently not employed at its highest and best use. One example is a large piece of land that was purchased long ago when it was rural and now finds itself in the middle of a fast-growing suburban community; this land is better used as a suburban housing development. Another example is an old home in a large lot purchased in the city long ago, a city which has since grown into a metropolis with skyscrapers; this land is better used as a multi-floor apartment building with commercial units on the first floor.

What is a gap or bridge loan?

In the real estate context, a gap loan, or bridge loan, is a non-traditional mortgage, secured by the property and not always by the borrower's income potential. Bridge loans are usually short in duration, providing a high Return on Investment (ROI) for lenders, while effectively creating a financing bridge from the start to the point where banks are interested, or the property's sale repays the principal.

An example of a situation requiring a bridge loan is a large undeveloped property that was inherited by a family member. The new owner would like to take advantage of the high development potential (known as latent value) by subdividing the land and building homes for sale. The owner approaches the bank for a long-term mortgage to make his dream happen but does not have the income requirements to service a fairly large bank loan. Instead, the bank may tell the owner that when the construction is underway and pre-sale contracts are provided, they'll consider a loan.

So a construction loan is required from the secondary lending market where Gap Investors comes in. The construction loan is a bridge loan with higher interest rates due to the nature of the loan, providing a bridge to the long-term bank mortgage with market interest rates.

What is a syndicated loan?

A syndicated loan is a form of loan that a group of lenders collectively extend to a single borrower. The group of lenders is known as a syndicate.

For example, for a loan of $1 million, instead of one lender providing financing for the entire loan, multiple lenders could each contribute an amount that adds up to the loan's total. 4 lenders could provide $100,000, $200,000, $300,000, and $400,000, which adds up to $1 million, allowing the borrower to acquire the financing. The returns for each lender are in proportion to the amount invested.

What are the benefits of loan syndication?

The borrowing requirements of large-scale real estate development projects are sometimes beyond the funding and credit risk capacity of a single lender. Though there is a single loan agreement, each participant to a syndicated loan maintains a separate claim on, and bears the credit risk for, the portion of the loan that it has provided. These loans enable lenders to achieve greater diversification in their loan portfolios.

Are you registered with SUGEF, the financial regulator in Costa Rica?

No. SUGEF regulates banks and financial intermediaries, including investment funds that raise money from investors to place investments through their own company. At Gap Investors, we simply introduce lenders to individual loans requiring funding. Gap Investors Ltda. generates a commission for brokering the loan. Gap is a mortgage broker, not an investment fund.

What is in it for Gap Investors Ltda?

As a mortgage broker, we charge a percentage of the loan in the form of a closing cost upon the signing of the mortgage contract. Just like regular bank mortgages, this closing cost is taken out of the funds disbursed to the borrower. Our closing costs are higher than your typical bank mortgage, because they cover the costs involved in the trust guaranty, escrow fees, borrower broker fees, lender broker fees, legal costs, formation and full management of the loan holding company, loan repayment collections, accounting, reporting -- as well as our profit as mortgage brokers.

How do I get started?

You can get started by using our contact form and we will get in touch with you with loan projects that work for your investment needs.