Dominican Republic: Punta Cana Yes or No?
Member since 2018 · 3 posts · 1 vote
With the Unites States market being so high and the fact that I travel to the Dominican Republic often a thought came to my head. What if I invested in the DR?? I live in Miami and everything here is out of this world expensive. Would love to here any stories from anyone if they have any experience in investing in the DR. Punta Cana appears to be booming and a good option. Thoughts?
Banks will never finance a property in a foreign country because they don't have the necessary means, knowledge and willingness to go through a foreign legal system to repossess the property should the borrower default on his mortgage.
If you hear or read that somebody got a property financed by a local bank in a foreign country, this is because that bank took some local assets as collateral or gave an unsecured loan. Obviously, this is not a financing specifically for the overseas property and the borrower could use the money to do anything they want.
I'm into doing joint ventures with local partners and I use to lend big money to Latin American banks in my previous corporate career so I get access to the local banking system and so the investors who invest with me can benefit from the leverage that goes with it.
So what can you do if you want to invest by yourself? Seller financing if you can find any. An alternative would be to invest in pre-development properties if you can get developer financing. I've done it elsewhere in Latin America through my connections but I don't know if you can get it in the Dominican Republic. I'm actually working on a beachfront condo project where my local partners and I are actually going to be the developers and sellers and our plan is to include financing as part of the package, which I think would be a first in the Dominican Republic.
Regarding locations:
Las Terrenas: big yes; that's where I'm the most active in the country
Cabarete: yes but less potential than Las Terrenas I think
Sosua: no because of the sex tourism
@Mayra Mangual I'm in the process of acquiring a property in Las Terrenas and what I've learned is that financing in DR can be very costly. You may want look at other type of financing in the US if you have equity. Here are the quotes I received from Scotiabank who is a big player in the country:
Fija means interest rate in spanish.
8% Fija durante 1 año
9.95% Fija durante 3 años
10.95% Fija durante 5 años
11.95% Fija durante 10 años
12% Fija durante 15 años
They will finance upto 25 yrs based on value.
I don't deal directly with developers in Las Terrenas. I'm actually looking at doing my own developments with local partners that would include arranging financing at good conditions for the buyers.
@Mike Lambert thank you for your response
@Pedro Florentino yes those rates are very high better off looking in the us for other options of financing
@Pedro Florentino hi let me know if you found properties and if you have a reliable realtor or developer you working with so I can get more information.
I don't deal directly with developers in Las Terrenas. I'm actually looking at doing my own developments with local partners that would include arranging financing at good conditions for the buyers.
I just got back from PC yesterday. About to pull the trigger on a 1bed pre construction condo by Noval.
They are by far the best and biggest builders in PC right now. Do they know something we dont? What are your thoughts?
Back in March i spent a week in Las Terrenas and the beaches are some of the best. Access was fairly easy. I agree with you that it could be a very big hotspot but it will be a long time before its anything like PC.
As you asked, this is my take on it. Bear in mind that I don't know the details about the property you're about to buy. However, my comments are of a general nature anyway.
It's probably fair to say indeed that pretty much everyone who has been to both Las Terrenas and Punta Cana agree that Las Terrenas is a much nicer place, except the people who's ideal holiday is to get drunk in an all-inclusive resort. There is just no contest. But this is besides the point if you buy a property as a pure investment, as investment is all about numbers.
I think you missed my point when it comes to the comparison between Punta Cana and Las Terrenas. Las Terrenas will never be anything like PC and I guarantee you that the overall majority of investors, residents or part-time residents of Las Terrenas would never want that to happen. Thankfully, strict building codes would prevent that.
Compare the situation with Cancun on the one side and Playa del Carmen and Tulum on the other side. Playa and Tulum have followed their own development path and thankfully, they should never become another Cancun. Building codes prevent that and prevent (new) all-inclusive resorts to compete against short-term rentals. This is why people invest in short-term rentals in Playa and Tulum and not in Cancun. People who go to Cancun go to all-inclusive resorts. When you rent a short-term rental, you want to be in a nice location and Playa and Tulum are much nicer cities than Cancun. While Playa and Tulum ultimately will see their supply constrained by geography and their building regulations, they can still build more skyscrapers and all-inclusive in and around Cancun.
I think the mistake you might be making is to only look at the demand side. PC will always attract many more tourists but you have to look at the supply as well. In Las Terrenas, you have a path of progress going on which increases demand but the supply in constrained. PC's path of progress story has already come and gone and companies like Noval are making sure there's no constraint when it comes to supply. Also then, there is my main point that PC is an all-inclusive destination; Las Terrenas isn't. And there's no way you can compete against an all-inclusive resort with your condo unless you offer a cheap package with flight and free booze included.
This has always been my own opinion but when my contact at the Ministry of Tourism who's in charge of bringing tourism and dollars to the country suggests that PC isn't the place to invest, I think I'm in good company.
Given that I've never been interested in buying anything in PC, I don't know much about Noval. Except that, some way I found myself on their mailing list. I can tell that they're very good at marketing. They're basically selling these same cookie-cutter condos that have nothing special by the boatload to unsuspecting foreigners who think they're great deals because they're cheap. I think they'd be surprised if they care to find out how much rental income they can realistically make with those kind of condos and that they might never get a capital gain on those.
So, if you want to rent one of these condos, you not only have to compete against the all-inclusive but also against this large amount of other investors who bought similar condos, pretty much all as an investment. Because, unlike in Las Terrenas where foreigners are moving there to live full- or part-, very few do so in PC so few people would ever want to live in that kind of condos. This means that, when you want to sell, you're pretty much limited to sell to another investor, which will have plenty of choice among the other similar condos to yours that are for sale, not to mention the new ones that Noval will continue to build since their recipe seems to be working.
I hate to be the party pooper but you ask for my opinion so I gave it to you. If you're interested to go ahead and if I were you, I'd try to estimate how much rental income I can conservatively hope to make, based on real figures as opposed to how much you hope you could get, if you haven't already done so.
Hope this helps.
@Mike Lambert
I appreciate your input. I agree that Samana has much more growth, especially in the eco-tourism sphere.
We have family in PC which is also an added benefit to the purchase. I was also talking to someone else who sold two of their condos because they felt there was over saturation of AirBnBs.
I guess as long as i am cognizant that this is likely not going to be a cash positive income purchase, but rather a vacation apt with some return potential then its fine.
The numbers guy in me though, hates that idea. DR is expensive to finance in and cash outlays are huge compared to the US. The idea of property is to use as little of ones own money and it seems the DR is the complete opposite. Maybe i need to rethink this and just keep throwing as much of my money as possible to index funds which require no effort or work.
You're welcome.
Two more things here.
Generally speaking, the Dominican Republic is a great place to invest in real estate and it's my number two in the region behind Mexico. The government is very investor friendly and has been investing massively in infrastructure and marketing to bring tourism the country and it has worked. Foreigners are treated equally according to the law and there are very nice tax benefits. Non-US citizens can also benefit from a favorable tax system. Over the last 20 years, the country has had one of the fastest economic growth in the Americas.
Real estate investing can be much more profitable than investing in an index fund or than investing in US real estate but you'd need to invest in the right kind of properties in the right location. There are much better places in the DR for that than Punta Cana because PC is mainly an all-inclusive affair, unless you buy a luxury villa and therefore don't compete for the same clientele as the resorts. I imagine that you were counting on your family to help you manage the property. Maybe they can still assist if the property is in another location. And, if they can't, there's a well-established property management industry.
You mention that you're looking first at a lifestyle purchase. The bar is much lower to have a property that you use for yourself at times and rent the other times. Costs are very low in the DR so it's not necessarily that difficult to cover your costs. I was looking at things from the standpoint of making a nice return on investment. Mind you, you might want to choose a better location and combine lifestyle with nice profitability!
Finally, there's nothing wrong about investing in an index fund for a while until you find the right opportunity.
Hope this helps but feel free to reach out to me directly if you think I can help out any further.
@Mike Lambert thank you for the valuable insight. You affirmed many of the hunches I had about PC after being persuaded by an acquaintance to invest there.
Knowing the region, what would be your qualifying criteria for finding a good property for a short term rentals in Samana or Las Terrenas?
I tend to think closeness to the beach, single family size and outside a development, yes?
Closeness to the beach: not necessarily. Beachfront is hard to beat but it will cost you more. The properties on the hill have beautiful views but, while not far, the beach is not next door. However, some renters will prefer that to close to the beach but no view, which will be the case if you're not beachfront. It'll depend on the renters. Those who want to walk only will want to be close to the beach while those who use a vehicle or don't travel that much might not.
I guess your other question/suggestion is that a villa is better than a condo. That's not necessarily true. A condo might have amenities that a villa doesn't have and, even at equal amenities, it'll depend on the price. A villa is bigger and could therefore cost more but you might not be able to get the villa premium in your nightly rate. Indeed, you buy by the square footage but you rent by the number of bedrooms. So the answer is the same: not necessarily.
For both topics, it'll depend on the deal and all of its characteristics.
@Mike Lambert Terrenas definitely has potential. I have been there before. It’s in a much earlier stage then punta cana I agree. I think for me I want to start with punta cana and my next place would actually be in Terrenas. My girlfriends family is from the DR and does some real estate themselves. I think I need a few more connections and I am in the earlier stages of investing. How does investing in the DR affect taxes?
yes, las Terrenas is a very good place to invest.
@Mayra Mangual I'm in the process of acquiring a property in Las Terrenas and what I've learned is that financing in DR can be very costly. You may want look at other type of financing in the US if you have equity. Here are the quotes I received from Scotiabank who is a big player in the country:
Fija means interest rate in spanish.
8% Fija durante 1 año
9.95% Fija durante 3 años
10.95% Fija durante 5 años
11.95% Fija durante 10 años
12% Fija durante 15 años
They will finance upto 25 yrs based on value.
I could find you something better with some contacts I have in other bank
but normally yes, you are right is higher than in the USA. In another way, I recommend getting a mortgage in the USA and using that money to invest out of the country.
if you need help with the bank let me know i have some contacts to share.
I don't deal directly with developers in Las Terrenas. I'm actually looking at doing my own developments with local partners that would include arranging financing at good conditions for the buyers.
good decition
@Mike Lambert thank you for the valuable insight. You affirmed many of the hunches I had about PC after being persuaded by an acquaintance to invest there.
Knowing the region, what would be your qualifying criteria for finding a good property for a short term rentals in Samana or Las Terrenas?
I tend to think closeness to the beach, single family size and outside a development, yes?
Las terrenas is located in Samana.
Best places to invest:
1-Punta Cana
2- Samana ( las terrenas )
3- Pedernales