| Until 2003, a large number of North Americans living
in Costa Rica earned high returns on their money by investing
in private finance companies. In general, these returns in
dollars ranged between 13 to 42 percent, depending on the
duration and amount of the investment.
Some foreigners had been in these programs for many years
with no complaints and never a single problem. The most successful
of these unregulated companies operated for 20 years without
missing a single payment to its creditors. Other companies
sprung up, but they were basically riding the success and
credibility of the company with the longest track record.
Unfortunately, this bonanza came to an abrupt halt with a
major change in the financial climate of the country. The
private banking industry could not compete with these private
finance companies. So, with the help of their ally the Costa
Rican government, they managed to surreptitiously undermine
all unregulated investment in the country.
Let me tell you a little about these finance companies and
why they were able to 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 loans these private finance companies made were 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 judgment 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 the companies were 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 currencies,
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 is it that local banks do not have much money? Would
you put your money in a bank paying 7 percent, per year if
your local currency lost 20 percent, per year in value against
the dollar. Probably not. The result is that the banks do
not have enough money to supply the credit demand of a healthy
economy, such as Costa Rica's. 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 did some people and companies go to
borrow money? They went to private lending companies that
had the money and were easy to work with. A couple private
lending companies had been operating for decades in Costa
Rica and were very, very profitable. Costa Rica is very unique,
since it has an extremely stable government, no military,
very low wages and one of the highest standards of living
in Central and South America, but very little money in the
banks with which to work.
Private lending companies were not government-regulated institutions.
They loaned money to large Central American corporations and
businesses. In Costa Rica, they paid excellent monthly returns
on making short-term loans to businesses that 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 needed to loan
more than 20 to 30 percent of the liquidation value of the
collateral the borrowers put up, which is typically land and
buildings. Consequently, the private lending companies were
able to profitably pay their private clients very good rates
of return on their deposits.
For example, a large coffee farm had to put up a $10 million
coffee farm as collateral to borrow $200,000 at six percent
per month for two or three months. Typically, at the end of
their harvest season, they would run out of money. So, once
a year, they would borrow to pay their employees and expenses
until the coffee beans were sold . Needless to say, they always
paid 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 lose the entire
farm.
Large department stores here would also borrow dollars from
these private lending companies at six percent per month to
buy electrical home appliances and other products from the
United States.
When a large company negotiates a big loan from a bank here
it usually takes two to three months after the loan approval
for the bank to pay out the money. In the meantime, the big
company would borrow from a private lending company at six
percent per month until the bank paid 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, because the
stores need 60 to 90 days to sell the products and collect
the money from their customers. Most factories were happy
to pay six percent per month to get their money sooner so
they could manufacture more products. They simply add this
cost to the products they ship to the retail stores. Who pays?
The consumer does.
However, the days of these unregulated high-yield investments
all came to an end due to the Costa Rican government's change
of policy and a few unscrupulous individuals.
Local real estate expert Rudy Mathews shares his perspective
on the future of Costa Rican Real estate: One has only to look here in Costa
Rica, and see what has happened in the last five years. Now
the baby boomers are coming and the market should continue
to improve.
By the way, you can legally use your pre-tax IRA to purchase
real estate in Costa Rica. The company listed below can help
you with this. Depending on your particular situation, it
also has the contacts to help you obtain partial financing
in Costa Rica.
Now you can be part of bigger things by participating in
joint venture groups. This is not a solicitation for investments,
but for those who wish to join forces with other like-minded
people seeking larger tracts of land.
To find out about these opportunities contact: Retirement
and Vacation Properties at
E-mail: robert@costaricaretirementvacationproperties.com or
call toll-free from the United States or Canada, 1-877-815-1535.
You may view some of these incredible properties at, Prime
Costa Rica real estate and retirement properties
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