Investing in The Dominican Republic
Aubri ParedesPro Member
Investor · Rahway, NJ · Member since 2021 · 21 posts · 10 votesHas anyone had any experience with investing in STRs in The Dominican Republic? Specifically with rental arbitrage? I'm looking into getting started and was curious about rental arbitrage while I do my research and my planning. This would mean putting the property that I rent (with the owner's permission of course) on Airbnb or VRBO.
I'm Dominican, I was born there and have family there. But I wanted to see if any foreigners have tried this tactic and what their experience was like?
I heard a podcast interview from someone who has been successful with rental arbitrage and STRs in Puerto Rico. They would look at homes that looked like they have been vacant for some time, find the owner, offer them to fix up the home, and lease it at FMV. More often they not, the owner would be happy to get the place fixed up and get some cash flow. This may or may not work in DR but it may be worth your time to look into. Also, ignore the naysayers.
Aubri, the rental arbitrage strategy makes no sense in a country like the Dominican Republic because the properties that are rented short-term and the ones that are rented long-term are different. It doesn't matter whether you're Dominican or a foreigner.
Anybody who owns a property that can be rented short-term will never rent it long-term because they'd make much less money and their return would be much lower and they can easily find a property manager if they want to manage themselves. The sole exceptions are people who don't want to rent short term and those who rent long term during the low season. If they don't want to rent short-term, they won't agree too have you do the rental arbitrage and, during the low season, rental arbitrage is unlikely to be profitable, otherwise owners would keep renting short-term.
I heard a podcast interview from someone who has been successful with rental arbitrage and STRs in Puerto Rico. They would look at homes that looked like they have been vacant for some time, find the owner, offer them to fix up the home, and lease it at FMV. More often they not, the owner would be happy to get the place fixed up and get some cash flow. This may or may not work in DR but it may be worth your time to look into. Also, ignore the naysayers.
Aubri, the rental arbitrage strategy makes no sense in a country like the Dominican Republic because the properties that are rented short-term and the ones that are rented long-term are different. It doesn't matter whether you're Dominican or a foreigner.
Anybody who owns a property that can be rented short-term will never rent it long-term because they'd make much less money and their return would be much lower and they can easily find a property manager if they want to manage themselves. The sole exceptions are people who don't want to rent short term and those who rent long term during the low season. If they don't want to rent short-term, they won't agree too have you do the rental arbitrage and, during the low season, rental arbitrage is unlikely to be profitable, otherwise owners would keep renting short-term.
Mike, thanks for the response. I appreciate all comments as I am trying to learn and am super excited to get in the STR game. Have you seen other people attempt to do rental arbitrage and this was the outcome? Or is your comment just based on your assessment?
The reason I asked about rental arbitrage is because I was introduced to it by many individuals who are already doing it and have been very successful. So when you say something like " rental arbitrage makes no sense in The Dominican Republic" I'm curious, what do you tell those people who are actively doing it and have been successful? Lol.
"Anybody who owns a property that can be rented short-term will never rent it long-term" This might depend on the area we are talking about. I can see this not working in certain areas, but in other areas, people have had a lot of success it seems.
I have spoken with individuals who have done just this. One example, an individual I was speaking with said this strategy worked particularly well with owners who were not having much success in the STR game because they didn't know how to market their property correctly. Once this individual took over and used rental arbitrage on that same property, he furnished it differently, and marketed it differently, and made more than triple what the owner made. This was in Santo Domingo.
The reason I mentioned I was Dominican is because the individuals I know doing this all live in the DR. I wanted to hear actual experience from someone who is not living in the DR that has tried this strategy.
@Eric Garcia
This sounds very interesting, do you recall the name of the podcast?
Even though I'm the only one who answered (negatively) before you to Aubri's post, I won't take your comment "ignore the naysayers" personally, especially since I'd often agree to that comment of yours :-). In any case, this isn't about being a naysayer, this is about sharing information and helping each other. I've already looked into this while in the country and talking to STRs investors and managers locally so I'm just trying to be helpful here (if you read many of my other posts here, you'll find out that I'm anything but a naysayer). If Aubri thinks it might be a good idea, of course she should investigate if she has time and not only rely on only comment (mine). My guess is that she's posting here because she doesn't to necessarily have that much time to spend on something that might not work. This is the beauty of the forum: you get both positive and negative answers/opinions to ponder. Negative comments are those who allow you to avoid mistakes; ignoring the negatives and only looking at the world through rose-tinted glasses is silly in my opinion. On another note, I'm not sure how much you know about the DR market but it's very different than the market in Puerto Rico.
@Eric Garcia
This sounds very interesting, do you recall the name of the podcast?
What you're talking about and what that person is doing in Santo Domingo is not rental arbitrage as we traditionally know it.
Rental arbitrage is renting a property long-term and subletting it as a short-term rental to pocket the difference in income. What that guy is doing in Santo Domingo is totally different. He takes an existing mismanaged STR and manage and market it better. This is akin to co-hosting, a different model in which the co-host, who is better at managing and marketing, will take over the management property from the underperforming host, increase the revenue and both the host and co-host will share the profit.
While rental arbitrage is converting an LTR into an STR, co-hosting is converting an underperforming STR into a performing STR (it can be converting an LTR into an STR too). It's very different. While rental arbitrage generally shouldn't work in The Dominican Republic for the reasons I mentioned in my previous post, co-hosting can work there and pretty much anywhere in the world for that matter. For it to work, you'll need to be a good STR manager and marketer and find owners who aren't.
Mind you, rental arbitrage could work in The Dominican Republic if, like the person you mentioned, you find an owner that doesn't know how to market and therefore has an underperforming STR. You could do either of the following:
1. Offer him to rent the property long-term and subletting it short-term so he's getting a guaranteed income and you pocket the difference. That's what's generally referred to as rental arbitrage;
2. If the owner's problem is that his ST rental rates are too low compared to what he could charge, you could rent from him short-term and sublet short-term at a higher rate, thereby pocketing the difference. I don't know of anybody doing this and it can be extremely risky as you'd have to pay for 100% occupancy and you're unlikely to get anything close to that when you sublet.
I'm not sure how easy it is to find owners like that. In theory, given that The Dominican Republic has a well-established short-term rental industry with an abundance of property managers, you'd expect that any owner who doesn't know how to properly play the STR game would hire a property manager. Like in the case you mentioned, some owners, however, don't know better and that's where there might be an opportunity. How many owners like that there are and how easy it is to find them? I have no idea. I decided that I have better things to do than trying to find needles in a haystack in a foreign country. Moreover, as BP podcast guests keep mentioning, rental arbitrage and co-hosting are jobs, not investing strategies. But that's me. Everyone is different.
You may have misread my previous response or maybe I wasn't clear in the information I provided. The individuals are not co-hosting. They take over the property with a long-term rental agreement and in turn, use that same property as an STR. So like you mentioned, the owner gets that guaranteed income no matter how the STR performs (that's their benefit) while you assume the risk.
I was thinking of getting started out that way, and use the profits made from that strategy to purchase an STR later on.
I don't think I misread. Putting everything together, the property was an underperforming STR and then these guys convinced the owner to rent long-term so they can sublet short-term so, overall, it's still an STR to STR. The owner weren't marketing their property properly and probably making little money so all these guys had to to is to offer them a higher rent long-term. That's probably a bad deal for the owners, as they could instead have given their short-term rental to a property manager and would have made much more money. They just didn't know better.
So, for this model to work, you need to find these owners who don't know they can hire a property manager. If you live in the country, it's easier to do. I'm not sure you'll find many people doing that from overseas. Just ask yourself how you're gonna find the owners. Again, how many are there? Is it worth the effort? Do you have family or friends there who can help?
In the US, long-term renting is profitable thanks to the cheap financing so the arbitrage works for both parties. In the Dominican Republic, long-term rentals aren't very profitable so the arbitrage generally won't work for the owner but I guess some will be happy with low returns. The nice properties that rent short-term in The Dominican Republic are either owned by foreigners or wealthy locals. The foreigners generally won't rent long term because 1) they want to use their property part of the time and 2) they know that short-term rentals are much more profitables. Most of the wealthy Dominicans don't like to rent and don't need the money and they'll only rent if they can make a substantial amount of money so they won't do long term rentals. There are exceptions though. There are nice long-term rentals for executives in Santo Domingo and also (seasonal) long-term rentals for retirees or snowbirds in places like Las Terrenas. However, in these cases, the long-term rent is at a level that makes rental arbitrage much less profitable and potentially very risky. These are all the reasons why I wrote from the beginning that, generally speaking, rental arbitrage doesn't make sense in the Dominican Republic.
These people are on the ground and looking for the exception like the owners that are frustrated with their underperforming short-term rental activity or those who don't know better. However, they'll be the exception rather than the rule so you'll need a system too find these owners. Maybe you can get help from these people you know.
@Aubri Paredes good luck! I would love to invest in DR 1 day.
You may have misread my previous response or maybe I wasn't clear in the information I provided. The individuals are not co-hosting. They take over the property with a long-term rental agreement and in turn, use that same property as an STR. So like you mentioned, the owner gets that guaranteed income no matter how the STR performs (that's their benefit) while you assume the risk.
I was thinking of getting started out that way, and use the profits made from that strategy to purchase an STR later on.
Hi BP family if you are looking to invest in the Dominican Republic you can make it I live in DR and I invest in PUNTA CANA the best place in the Caribbean.
if you need contacts let me know I have multiple rental properties that are good for Airbnb or regular rent.
DM me if you need more information
i am open to partnering