Making Money in Costa Rica
Business, Real Estate
Private Lending

Make Money in Costa Rica

A large number of Americans and Canadians living in Costa Rica are currently earning “big returns” on their savings invested with private Costa Rican lending companies. In general these returns in dollars range from 13-36% depending on the duration and amount of the investment. With these programs you have the option of drawing your interest monthly or letting it earn compound interest.

Some Americans, have been in these programs for up to nine years, with no complaints and never a single problem. They are very, very, popular here in Costa Rica.

Let me tell you a little about the private lending companies and why they can very profitably pay you more on your dollar accounts than the average bank. This will come as a surprise to most of you but in fact the market interest rate for dollar accounts is much, much higher in other countries than what you may be getting from the banks in your country.

The higher rates these companies pay has nothing to do with risk. In fact the loans these private lending companies make, have considerably less risk than the loans made by many banks in countries where the banks are heavily regulated by the government. Government regulated banks rely more on government insurance for their loan security rather than on sound business judgement when making loans. I am sure you have read about the numerous bank frauds in the United States. Who ends up paying the bill? You do, with high income taxes and the low interest rates paid on your savings. Somebody always has to pay.

The high rates private lending companies are able to receive on making very secure loans in dollars, have more to do with supply and demand for dollars in Central American countries. These countries have very high rates of devaluation in their local currency and most businesses here need U.S. dollars to buy products from the United States, so there is a big business demand for U.S. dollars. Dollars are scarce here, so the private lending companies can get big returns making loans in U.S. dollars. Why, simple supply and demand. Big demand for U.S. dollars, small supply of U.S. dollars.

Why don't the local banks have much money? Would you put your money in a bank paying 7% per year if your local currency lost 20% per year in value against the dollar. Probably not. Neither do most Costa Rican individuals or corporations. The result is that the banks do not have enough money to supply the credit demand of a healthy economy, such as Costa Rica. This means the banks here do not have the money to finance various types of short-term business loans. In addition, there is a lot of paper work and endless delays when trying to borrow money from a bank in Costa Rica. So where do these companies go to borrow money? They go to private lending companies who do have the money and are easy to work with. These private lending companies have been operating for decades in Costa Rica and they are very, very profitable. Costa Rica is very unique, since it has a very healthy economy, extremely stable government, no military, very low wages, one of the highest standards of living in Central and South America but very little money in the banks to work with.

Private lending companies are not government-regulated institutions. They loan money to large Central American corporations and businesses. In Costa Rica, they currently earn about 6% to 8% per month on making short -term loans to businesses who put up more than enough collateral to pay the loan amount several times over. Most businesses here own their buildings and land free of debt. So the private lending companies never need to loan more than 20% to 30% of the liquidation value of the collateral the borrowers put up, which is typically land and buildings. Because of this, the private lending companies are able to very profitably pay their private clients very good rates of return on their deposits. These companies are much safer than any government bank. And best of all, they are completely private and not government regulated.

For example, a large coffee farm may put up a $10,000,000 coffee farm as collateral to borrow $200,000 at 6% per month for two or three months. Typically, at the end of their harvest season, they run out of money. So once per year they borrow, to pay their employees and expenses until the coffee beans are sold . Needless to say, they always pay the loan off. Even if something went wrong and they did not get paid for their coffee beans, they would sell off part of the farm to pay off the loan, rather than loose the entire farm. Doesn’t this sound safe to you? Wouldn’t you jump at a deal like this?

Large department stores here will borrow dollars from these private lending companies at 6% per month to buy electrical home appliances and other products from the United States. They need dollars to buy from the United States, so they borrow dollars from the private lending companies until the products are sold in their stores to their customers. They easily mark up their prices to pay for this loan so the consumer ends up paying for the financing. Why do they pay 6% for dollar loans, because the banks do not have dollars to spare to make these types of loans and the competition to work with the private lending companies is fierce? Only the biggest, most solid, stores qualify. What this means is great safety and great rates for you.

When a big company does negotiate a big loan from a bank here it usually takes 2 to 3 months after the loan approval for the bank to pay out the money. In the mean time, the big company will borrow from a private lending company at 6% per month until the bank pays out the money on their approved loan.

Factories here must give their retail store customers terms of 60 to 90 days to pay for products shipped. Why, because the stores need 60 to 90 days to sell the products and collect the money from their customers. Most factories are happy to pay 6% per month to get their money sooner, so they can manufacture more products. They simply add this cost to the products they ship to the retail stores. Who pays? The consumer does.

There are two additional ways where finance companies get funds to pay high interest to their clients. Many offshore sports book operations based in Costa Rica also depend on finance companies for short-term loans. Sports book businesses have to both receive and pay out money by credit cards. The credit card companies often freeze their clients funds for six months at a time. So, sports book operations borrow money from finance companies to keep operating. The finance companies in turn receive all interest up front and get to keep the sports books’ credit card vouchers as collateral.

Local casinos also depend on loans from finance companies when they are short on cash. The finance companies extend casinos a special lines of credit when the latter are short on funds.

If you do not believe this is all possible, come to Costa Rica and ask a few Americans here where they have their dollars deposited. It is highly likely that one out of ten of Americans living in Costa Rica have some of their money with a private money lending company. Many of them have been with private lending companies for more than five years. Some get directly involved on a small scale making private loans themselves. Why is this? Americans living in Costa Rica and tourists visiting Costa Rica are the two largest sources of bringing in dollars to the country. And this economy needs and uses dollars because dollars hold their value better than the local currency and because many products sold here are purchased from the United States and US companies only accept US dollars. So what are the risks? Currently the economy in Costa Rica is very strong and growing. However, should there be a slump, private lenders do not go out of business. Do banks stop loaning money in a slump, no, they simply lower their interest rates on loans to stimulate demand. Private lending companies simply do the same, they just lower their rates to loan money out, which in turn slightly lowers the rates they are able to pay on client deposits. Since supply and demand for dollars is typically a temporary fluctuation, the private lending companies prefer not to lower rates on existing client accounts. So they either lower rates on new accounts or stop accepting new accounts temporarily to make adjustments for loan demand.

To find out about these exciting investment opportunities contact: Relocation and Retirement Consultants, Fax: 011-(506) 261-8968, E-mail: crbooks@racsa.co.cr. This company only assists clients in opening and maintaining their accounts directly with the Private Lending Company, they do not handle any client funds. What they do for their clients is to find them safe, high yield financial products to invest their offshore funds.

Success Stories in Costa Rica
By Chris Howard
A Coffee Baron
Cafe Britt was founded by American Steve Aronson. Today the company has gone international with their many products available all over the world. They grow, roast and sell some of the best “Mountain Grown” coffeee in the world. They even make a cafe liqueur. Their coffee farm tour is one of the most entertaining half-days you will spend in Costa Rica. It takes place on a beautiful farm nestled in the verdant hills of Heredia. You will learn about the history of coffee, see how it is grown and purchase many interesting products in their gift shop at the conclusion of the tour.

A Service for Expats
About 10 years ago Jim Fendell realized the need for a fast reliable mail service as an alternative to the regular Costa Rican mail system. Thus Aerocasillas was born. Today they offer simiar services in Panama and several other countries in the region. Please see Chgapter 6 for more details about the history of this comapny and the services they offer.

A Company Which Protects Nature
In 1978 Michael Kaye the founded first white water tour company, Costa Rica Expeditions, when tourism was in its infancy. The company was started to help the sophisticated traveller explore Costa Rica - its flora and fauna, its people and culture, its wildlife and beautiful places. Their goal is to create unique travel experiences.

An American-Style School
Country Day School was started by American Woodson Brown around twenty years ago. The present campus is located in the hills of Escazú overlooking San José. You cant’t beat the school’s beautiful setting. The actual campus evolved from a few buildings into a huge complex which rivals any U.S. private school. The owner is a visionary who recognized the need for a first-rate U.S. type English school to cater to both the local and foreign population.

A Newspaper for Foreigners
Many years ago the late American journalist Richard Dyer founded TheTicoTimes newspaper. It has become Central America’s leading independent weekly covering news, business, tourism, culture and developments in Costa Rica and Central America. The classified ad section is very complete and there is now an on-line version of the paper. Fifteen thousand copies are printed weekly with some being shipped overseas.

Bagels Anyone?
David Feingold is from Lexington, Massachusetts. A few years ago with his Costa Rican wife started Boston Bagel. After much experimentation with local ingedients they managed to develop the only authentic bagels in the country. His secrect for success is understanding the local economy. Today his two stores which sell an exotic variety of delicious bagles. His products can also be found in one of the local super market chains.

A Hotel Fit for a King
The dynamic trio of Americans John Emerson, Greg Ruzika and Englishman Tim Hodgsen run San Jose’s most successful hotel. The owners spent a couple of years and a lot of money refurbishing the old building. Their hard work and persistence has really paid off. Today the hotel boasts the highest occupancy rate in the country. It is a haven for fishermen, tourists, expatriates and many local characters. The Blue Marlin Bar on the first floor is the most successful operation in Central American. At night the place really heats up. There is also a casino, travel agency and all-night restaurant on the first floor.

A Place to Learn Languages
American David Kaufman is the founder of Conversa, Costa Rica’s oldest and most successful language schools. David had a Masters Degree in linguistics and served in the Peace Corps in the Dominican Republic. At his school’s two campuses Spanish is taught to foreigners and English to Costa Ricans. Please see more about Conversa in Chapter 3.

The Local Tax Man
Gordon F. is a former U.S.tax attorney from California. Currently he helps foreigners with business matters, tax returns and other related matters. His services are very high in demand due to his expertise. In addition, he and his wife run Posada Quijote in the Bello Horizonte hills section of Escazú. The view is just spectacular. This small hotel is in a beautiful Spanish colonial home which has been totally renovated and exquisitely decorated.

Opening a Real Estate Company in Costa Rica