The purchase of a Boutique Hotel on the Caribbean coast can be easy if you know what you’re doing. For an inexperienced hotel buyer and someone who doesn’t know how to do business in Costa Rica, it’s definitely not. Buying a hotel through a FSBO might only be a good option if you have a lot of experience.
Recently, I received an email from a reader of one of our weekly newsletters, let’s call him Kenneth. In his email, he raised questions about the purchase of a Boutique Hotel on the Caribbean coast.
The introduction
Kenneth started this email by saying “I was reading your blog and had a question that you may be able to answer. I am a US citizen and contemplating the purchase of a Bed Breakfast or Boutique Hotel on the Caribbean coast.
It is a private home with multiple (3-4) separate houses/units for nightly rent. It is a business that is for sale. It’s listed on hotel sites where it can be booked.
The question(s)
Kenneth has not one but several questions. Clearly, Kenneth is just starting to do his homework. His questions are good questions though, the reason I am doing this article about it.
Of course, requesting assistance from our affiliate agent, Jose Tercero, in the purchase of a Boutique Hotel on the Caribbean coast is a much better idea. Buying a Boutique Hotel on the Caribbean coast from a FSBO is asking for a lot of trouble. So, let’s go to the questions and give Kenneth the answers to his questions anyway.
A mortgage
Kenneth’s first question is “Can I get a mortgage on such a property? Would that be a commercial or a residential mortgage? “
The answer to that question is very similar to the topic that I covered in “Can I finance a home in Costa Rica?”
Only if you are a citizen or a resident in Costa Rica, you can apply for a commercial mortgage from a bank. Besides, the commercial mortgage interest rate in Costa Rica is much higher than residential. For sure, it is also not the rate you are looking for.
You could try to get a residential mortgage from a lender and not tell them that it is an income generating property. But as soon as the appraiser appears on the premises, the report will show that this is a commercial property and not residential. For that reason, you should apply for a commercial mortgage.
If the Boutique Hotel on the Caribbean coast you are buying already has a mortgage, it might be possible to take it over. Do your homework on this before you write a check to the seller.
For citizens or residents
The government owned banks like Banco National and Banco de Costa Rica already have a lot of experience in lending to the hospitality industry. A visit to any of their agencies will give you all the needed information on commercial mortgages and loans. But you’ll want to look at other options too.
To finance the acquisition of a Boutique hotel on the Caribbean coast, I strongly recommend you try with international lenders such as JLL or Dentons. With international lenders, businessmen like Kenneth might even be able to use his assets in the United States or elsewhere as collateral. Costa Rican lenders will not allow for that.
Often, owner financing is the only way to go. If you don’t have at least 60% of the purchase price, don’t even go any further. You will, on top of that, also need a healthy amount of starting capital for all the new little projects that will be necessary for a worthwhile ROI.
Buy the corporation?
Kenneth’s second question is “Do people buy these or corporations?”.
I have written a blog about buying a business but for hotels, there are specific needs.
First, ask your accountant to check the financials of the company before you buy a large debt that might not be worth paying off.
Check who owns the property, if it is owned by a separate corporation or the same one that runs the business owns the licenses and has any existing mortgages.
Find out if the existing corporation owns what we call the “patentes”. One of the “patentes” is the business license that you get from the municipality This can be easily replaced by starting a new corporation. The “patente de salud”, from the Ministry of Health, is also easily replaceable. Other patentes are possibly not so easy to be replaced. These are the liquor license and the license to stay open 24/7 in case there is a discothèque or other important anchor in the hotel.
Which corporation is used for the hotel reservations? Often, a totally different corporation is used for the room reservations for tax reasons.
Then, you will also want to find out which corporation is used to pay employees, pay suppliers and to run the day to day business. This can be replaced by a new corporation. It might even be recommendable if it doesn’t own the licenses and property.
In other words, it is really important to understand what you are buying. You want to get a better overview of how this Boutique Hotel on the Caribbean coast is managed. You also want to know who owns all the assets.
Release of financial info
A serious hospitality manager will never release any financial information before a serious buyer has visited the property in person. So do not try to get such information by email, you’re wasting your time.
In any case, we can assist professionally in the purchase of a Boutique Hotel on the Caribbean coast. Often, hotel owners do not allow their Boutique Hotel on the Caribbean coast to be publicly listed. They are afraid that this will affect their business negatively. Often, they don’t want to tell their employees the hotel is for sale either. For this reason, always ask the real estate agent for any pocket listings within your budget.
For those, who are also interested in buying a Boutique Hotel on the Caribbean coast, before you start running around, check our inventory first. Then, contact our affiliate Jose Tercero, and make an appointment to visit.
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While we’re at it, I DO want to remind our readers that we appreciate any referrals you can send us. Finally, please remember the American-European real estate Group’s agents when you refer a real estate agent. Because we DO appreciate your business.
