Financing in the Caribbean region is not as plentiful and easy to source as it is in the US or Canada. Banks are not reliable lenders in the region, with some pulling out all together. This can make purchasing a vacation or second home difficult to do if you need to finance part of it. So what are the options if the bank is not willing to help?
We obviously talk a lot about private financing on this site, as it is a big portion of what we do. However it doesn’t always work for clients who may not have necessary equity to put into the property (50% minimum). Ideally, they would finance through a bank who can finance a much higher loan to value than a private lender, but as we mentioned above, this is not always possible.
So what can you do to purchase a property in the Caribbean if you fall into one of these gaps in financing? Well, you need to get creative. It can be difficult as you likely need to find a willing vendor, but there are solutions there if you are willing to work for it.
A vendor take back is also known as vendor financing; the vendor finances part of the purchase for you. Again, you have to find a willing partner on this, who has the equity in the property to be able to do it. By using a private lender coupled with the vendor financing, you can get to a much higher loan to value than a private loan on its own.
Lets take a look to see what a vendor take back looks like on paper:
Property purchase: $500,000
Down payment: $150,000
Private Financing: $150,000
Vendor Financing: $200,000
This works for buyer as they get the financing they require. It also works for the vendor, as it helps them to sell their property where maybe they were having a hard time or were not getting the price they wanted. Assuming the seller did not need all his money upfront, he also is able to earn interest on his equity.
This deal has to be structured properly in order to satisfy the lender, primarily the lender will want to be first charge. But it can be a real win win for all the parties involved when a deal wants to be made.
If you are finding yourself in one of these financing gaps in the Caribbean, talk to us about how we can use some creative financing to make your vacation home in paradise a reality.