Financing Belize Real Estate
Belize has become increasingly popular for its residency programs. It is a top relocation and retirement destination. Many people look at Belize and Belize real estate for personal use and lifestyle. That said, Belize also appeals to potential property owners and investors. What makes Belize real estate so desirable is more than just the climate. In Belize, foreigners purchasing land or property are afforded the same rights as Belize citizens regarding property ownership. Belize is also a tax haven and low-tax jurisdiction, as property taxes are low, and there are no capital gains or inheritance taxes in Belize.
Even though Belize recognizes full-foreign ownership and grants fee-simple title to foreigners (foreigners have the same ownership rights as locals), it can be challenging for a foreigner to finance a property traditionally in Belize. For offshore owners or investors, Belize does not have standard mortgages or bank financing like you are used to in the US or Canada. Most people buying real estate in Belize have to do a cash sale transaction.
The appeal and advantages of Belize property ownership are undeniable – for lifestyle/personal use or investment. Short of purchasing Belize real estate with cash, what financing options do potential property owners or investors have?
Obtaining local conventional bank financing or a standard mortgage can be challenging for a non-resident in Belize to finance real estate.
However, for non-residents (foreigners), there are creative ways to finance property in Belize. Below, you can see some Belize real estate financing options to consider:
- Owner Financing
- Offshore Financing
Owner or Vendor Financing is the easiest way to finance real estate in Belize. Vendor (owner) financing is a convenient and popular form of real estate financing in Belize. Vendor financing or owner financing (aka seller-carried), is when the seller offers owner financing to the buyer of the property offered for sale.
If you are looking for something with vendor financing, you will be happy to know it is an easy process. It is generally a non–recourse loan with the seller/vendor carrying
The terms vary with the seller; typically, the down payment would be a minimum of around 25% down. The seller-finance loan agreement is filed along with transfer and deed forms with the lands department in Belize to protect both buyers and sellers. The title transfer is completed once the final payment has been made and the terms of the financing agreement have been met.
Some offshore banks or international banks offer mortgage loans or financing to non-residents or foreigners looking to purchase fee-simple property in Belize. These off-shore banks can provide financing options for individuals and International Business Companies (IBCs).
The terms can range from 5-30 years. Down payment requirements are higher than what many are used to in domestic markets, as most offshore banks lend at a maximum of 60% LTV (Loan to Value). The down payment requirement is often at least 50% down. One of the big advantages of offshore lending over domestic lending is that you can choose the currency of your loan. This facilitates transactions conducted in U.S. dollars (since real estate in Belize is typically in USD) and facilitates acquisitions by Americans.
Buying a home with a co-investor means you share your property’s equity with the investor from the start. Put simply: They’ll share in the profits if your home increases in value and the loss if it does the opposite. Also, share the revenue/passive income.
Investing in a private Belize company that acquires investment properties through pooling funds or local or offshore secured financing is another way to acquire real estate in Belize without having to deal with the headaches and paperwork of obtaining financing on your own.
Whether through pooling funds with other investors or providing the capital for the investment, co-investing is an easy and efficient way to acquire real estate in Belize.
Options for Belize Real Estate Financing
As mentioned above, financing in Belize is more complex than in domestic markets. We do not have the same standard mortgages and bank financing people are used to in the USA or Canada. Most real estate transactions in Belize are cash sales.
You can get a mortgage or loan in Belize from the banks. The bank will charge a high interest rate and require a larger down payment. Because of the conservative nature and banking policies in Belize, the banks are still at a stage where the interest rates are higher than off-shore purchasers are used to. Most banks in the US will not loan to an out-of-country real estate purchase. There are, however, real estate opportunities in Belize with seller or vendor financing. Due to the Belize real estate market conditions, most owners and investors go the route of owner/vendor financing.
Seller/vendor financing (if available) is straightforward. It is a non-recourse loan with the seller/vendor carrying the note on the property (similar to how a bank carries the note on a home mortgage in the US). You take complete control of the property when all parties sign the agreement, and the down payment is made.
There are three ways for purchasers to receive financing for Belize real estate:
- Local Belize Financing: Local banks in Belize do offer to finance land and/or property, though it is not easy (especially for foreigners). It is also important to note that the interest rates with Belize banks and terms for financing are usually higher than what people are used to at home. Local banks in Belize usually have much higher interest rates in the range of 10-18% interest with fixed terms of only 12 months. When you get financing from a local bank in Belize, the loan is closed every year and renewed at the new rate. When borrowing or lending from a local Belizean bank, it will be in Belize dollars, and most real estate transactions in Belize are in US dollars. Because most of the Belize real estate transactions take place with U.S. dollars, local financing is challenging. Local banks in Belize will also often only lend money to Belize residents or citizens.
- Offshore or Domestic Financing: If you are not a resident or citizen of Belize and are looking for financing, you can borrow U.S. dollars through an offshore bank. In Belize, Caye International Bank is one of the only off-shore banks in the country. Interest rates with international banks in Belize are still much higher than people are used to in their domestic markets and are around 12% to 18%, and most offshore banks, when lending to people who are not Belize residents or citizens, require a high degree of collateralization with a high down payment (often 50%). Some people do acquire domestic financing in their home country through a line of credit or refinancing their home/mortgage.
- Owner, Seller, or Vendor Financing: This is the most common way foreigners acquire financing for land in Belize. It is also far more common for someone to find land with financing than it is with a home or condo. Belize property owners and/or developers usually agree to property financing at better rates than the local banks. It is also very easy to qualify, as it is a non-recourse loan. The rates through seller or vendor financing are often less than what is available at local banks and financial institutions. Around Secret Beach, you are able to secure property with 20% down. Within Mahogany Bay, you can secure canal-front land with 25% down.
Using a Self-Directed IRA or 401K
One way to manage costs, minimize the out-of-pocket investment, and ease the burden of taxation is to purchase real estate under a Self-Directed IRA or 401K. These structures are very easy to do in Belize and allow Americans to purchase an off-shore investment property using investment funds. The benefits of ownership under these legal entities include; access to capital for investment, and less taxation on capital gains, thus earning greater profits from the Belize real estate investment.
Real estate investors (from the US) can hold investment real estate in an IRA or 401K to gain access to capital (without paying high taxation) and reduce the tax exposure (as long as the investment capital has not been distributed to the IRA owner).
Under the IRS’s self-directed IRA rules, contributions to Self-Directed IRA accounts can be used to purchase real estate (commercial, residential, or raw land) inside and outside the United States. This allows investors to use Self-Directed IRA funds or a 401K to invest in Belize real estate.
However, contributions to offshore real estate IRAs are subject to additional rules. For example, while the property in your IRA can be rented to others, you can’t rent it out to your family. The property can also not be used for your own personal use (it has to remain strictly an investment).
Another advantage is that the rental income from an offshore Belize real estate investment through IRA is deferred and can be made tax-free if purchased using a ROTH IRA. Under this setup, you could, in theory, collect decades’ worth of rental income and not pay US tax. You only need to worry about taxes when you distribute the income from the property to yourself in the future.
Belize Real Estate Financing
Here are some general steps and considerations for financing real estate in Belize:
- Local Regulations and Laws:
- Familiarize yourself with Belize’s real estate regulations and laws. It’s important to understand the legal framework for property ownership and financing in the country.
- Currency Exchange:
- Belize uses the Belize Dollar (BZD) for general transactions, but US Dollars (USD) is commonly used for real estate.
- Local Lenders:
- Research local banks and financial institutions in Belize that offer real estate financing. Some international banks may also have a presence in Belize.
- Mortgage Options:
- Explore the types of mortgages available, including fixed-rate mortgages, variable-rate mortgages, and other financing options. Mortgage terms and interest rates may vary, so compare offerings from different lenders.
- Down Payment Requirements:
- Understand the down payment requirements. In Belize, it’s common for lenders to require a substantial down payment, often ranging from 20% to 30% of the property value.
- Loan Eligibility:
- Lenders will assess your eligibility based on factors such as income, credit history, and the property’s value. Be prepared to provide documentation to support your financial stability.
- Interest Rates:
- Interest rates can vary, so compare rates from different lenders. It’s important to understand whether the interest rate is fixed or variable and how it may change over the life of the loan.
- Loan Terms:
- Review the terms of the loan, including the repayment period. Some loans may have longer or shorter terms, and this can affect your monthly payments.
- Insurance Requirements:
- Lenders may require you to purchase property insurance. Make sure you understand the insurance requirements and factor the cost into your overall budget.
- Legal Assistance:
- Consider hiring a local attorney with experience in real estate transactions in Belize. They can help navigate the legal aspects of property acquisition and financing.
- Due Diligence:
- Conduct thorough due diligence on the property you intend to purchase. This includes title searches, property surveys, and any potential legal or environmental issues.
- Closing Costs:
- Be aware of closing costs, which may include legal fees, stamp duties, and other expenses. Factor these costs into your budget.
For more information on financing in Belize and Belize real estate opportunities with financing available, contact us at RE/MAX Belize.