Addt'l info for Short Term Investment, Puerto Rico
Good afternoon ya'll -
Still narrowing in on a region to focus on, but leaning towards N/NE coast (Carolina, Rio Grande, Fajardo, Luquillo, Ceiba) given the volume of properties compared to other areas; I'm also becoming a little more familiar with the search/acquisition process in PR, which I have to admit, is a fun little treasure hunt bouncing around Zillow/Realtor, Point2, Xposure, and Clasificados. I was hoping I might pick some of the brains of those local investors/market players on the following to help in our decisions:
1) Air Conditioning - my wife (Mayaguez-native) simply giggled when I asked about central air; that being said, I've noticed about 90% of listings either have fans/window units for air conditioning, with a select few having mini-splits installed.
a) In your experience, have you found the lack of A/C (modular or otherwise) to be detrimental to getting a good short term rate, or something that would deter vacationers?
b) I've installed mini-splits on travel trailers and sheds here in FL; considering that it's *relatively* straight forward, am I missing the reason more units in PR don't have these installed? Is it a lack of qualified installers? Prohibition? Price of energy/electric? Difficulty in acquiring the parts/kits? I figure it's a route we'll explore to maximize comfort, and wanted to rule out any regulatory limits and other barriers when deciding on any particular unit....that, or more favorably weigh those properties that already have them installed.
2) Due Diligence - after searching around, it sounds as though the proto-typical "home inspection" isn't really a thing for PR closings. Here in FL, the home inspection is more than just a QC of the major property components, but also plays heavily into financing and insurance:
a) Is the going assumption that the property is sold "as is" or that repairs will be the responsibility of the buyer prior to closing?
b) Does the appraisal act as the "inspection?" Do lenders routinely balk at repairs prior to closing?
c) Do local insurance providers require any kind of inspection reports? Wind/Hurricane mitigation? 4PT?
d) Is there anything specific to PR that I should keep an eye out for, or ask the listing agents/seller? For instance, in FL, roof/window/HVAC age are hot topics and are typically included as part of the listing description. Termites, and the inclusion of a termite protection plan, would be another big "must have" here.
3) Financing - we have a pre-approval from PenFed, but was planning to shop around a bit (SunWest, Co/Lab); setting expectations:
a) Minimum 25% down on a SFH / 40% down on a condo/apt pretty standard (as of 2022)?
b) Closing costs - for those that have purchased in the states...anything dramatically different? I typically set aside 5-6% of the purchase price for closing (outside down payments) in FL, which would include: taxes on the deed/mortgage, title insurance/fees, appraisal, etc.
4) Property Management
a) Any recommendations for brokerages/companies that perform all services in-house for short term occupancy (i.e., advertisement, tenancy, cleaning/turn-over)?
Thanks!
Hi Mark, Welcome to Puerto Rico! You ask many great questions, I'll try to answer a couple.
Appraisals are common and of course required for bank loans. As of July 1 Law 52 requires every single sale to have a plot plan and an appraisal even if its a foreclosure or cash sale. It is being challenged but for now it's on the books. Regardless, sellers tend to accept only offers that are not subject to appraisal, because the appraisals here tend to be notoriously low and it's simply accepted that the appraisal is not going to be the sale price.
Window a/c units are the most common and easy to install. But they use more power, and power is not cheap. Splits are more efficient but way more work to install. The amount of electrical work can be very cost prohibitive. I haven't personally used a bank to close a loan, so I can't speak to that. If you are in the San Juan area, we meet weekly (Dealmakers Breakfast) and monthly. You will find lots of people in our whatsapp group that you can post these types of questions to. There is a vibrant group on investors here that network and share tips, you are welcome to join us.
@Kathryn Morea Thanks for the reply - PM’d for WhatsApp details.
For the appraisal piece, I assume that means most buyers are waiving appraisal but capping their “over-appraisal” amount to X dollars? (Ex. Buyer waives appraisal contingency; buyer to pay up to $10,000 over purchase price).
For the mini-splits:
- Materials + install is typically $3000-$5000 here in Florida; obviously a little more depending on how many you have installed. Is the cost for install significantly different in PR?
Also, you mentioned the cost of electric; don’t suppose you could give me a general idea on the average electric bill in the summer? (Ex. 3/2 Single Family ~$300/mo); want to make sure we’re accounting for appropriate utilities costs in our upfront math.
Hi Mark,
I don't know if they are capping the over-appraisal. That sounds like a reasonable clause, I just don't know if sellers are accepting it. I think some sellers here have gotten used to being in a sellers market for the last few years.
The cost for the install on the splits sounds similar. I haven't had a 3/2 I can give you a comparison for yet. My 3/2 has only been online for a couple weeks. A 1-2 bedroom condo is under 100/mo in electricity in my experience. I've heard electricity is going up (either just got raised or is about to be raised) although this is probably true in many places, not just Puerto Rico.
Quote from @Mark Manship:
@Kathryn Morea Thanks for the reply - PM’d for WhatsApp details.
For the appraisal piece, I assume that means most buyers are waiving appraisal but capping their “over-appraisal” amount to X dollars? (Ex. Buyer waives appraisal contingency; buyer to pay up to $10,000 over purchase price).
For the mini-splits:
- Materials + install is typically $3000-$5000 here in Florida; obviously a little more depending on how many you have installed. Is the cost for install significantly different in PR?
Also, you mentioned the cost of electric; don’t suppose you could give me a general idea on the average electric bill in the summer? (Ex. 3/2 Single Family ~$300/mo); want to make sure we’re accounting for appropriate utilities costs in our upfront math.
Hi Mark, I have a 3/2 here in PR with 4 mini-splits (1 is in an office) 2 12,000 BTU & 2 18,000 BTU. Other big spenders pool motor, dryer, electric stove, and tank heater. It is an STR and we got to around $600 in electricity in summer.