Little I knew that the Puerto Rico rental market is on FIRE...

28 Replies

We where faced with the challenge to rehab or not a property we own free and clear in Puerto Rico. I am originally from there... This is a class C+ neighborhood in the Carolina area near a regional hospital. The economy is lagging there and real estate is under pressure. Unemployment is rampant at 14%, population is eroding and banks are not approving loans. 

We had a tenant in place for 3 years that decided to move one. Since they never complained we never did any repairs (I know shame on me). For this reason I knew things were going to be - ugly. A decision needed to be made... Stop our Miami operation and go or not. The property was going to sit vacant so screw it - I flew in. And oh boy, this thing needed everything; severe water leaks on roof, major pressure washing, painting (inside/outside/ceilings), replace plumbing, electrical, appliances, landscaping was a joke, etc. etc. I estimated around $9k to bring it alive. This project was too much for me or even 2 people. I needed a 4-5 people crew! Pronto... I felt defeated.

But I learned from my local intense South Florida market (and here in BP) that if you want to stay relevant you have to go out there, fight the noise, and get the business. So for 2 full days I knocked on doors and asked around if anyone knew of reliable people that could help me. Two full days went by and nothing. Then a good friend of mine raised his hand and said "yes, I have a crew. they will be there at 8am ready to go"... The next morning they were there. Outstanding work these gentlemen did. They took care of everything. The property was ready and with the "For rent" sign in 5-days. Total spent $6k. I have it all in a spreadsheet with local prices and labor cost.  

To my surprise the property received 25 calls, 12 appointments and 4 offers in just 3 weeks. It literally flew off the market. My underwritting was intense: good credit, clean criminal records and solid income. I was floored with the amount of veterans and federal assistance recipients that are shopping around in Puerto Rico for rentals (good quality families). Banks are not approving and these people just don't care to purchase a property at the moment.

This crew is now doing all the maintenance so no need to go back to handle Tenants, Toilets or Trash... Before leaving I stopped by La Placita (hangout social spot near San Juan) and met with an old high school friend. I shared my story and he said hit me up I didn't know you were investing - I am a portfolio lender! I almost felt off my chair... You're probably thinking exactly what I am thinking after this encounter ;-) 😊

Economic conditions are not the best down there now but make no mistake, the island is not going to disappear much less it will be abandoned completely... People will need a place to live. Lessons learned: 1) do not neglect your long distance properties, 2) constant networking is paramount. People do change careers. Some become portfolio lenders. 3) don't be afraid to hit the pavement and knock on doors. 4) where there is a contraction in a market thrust your gut, be calculated and expand into the market. 5) repeat 1 through 4 and purchase another property. Pics below. Saludos

Painting...

Pressure cleaning...

Roofing and leak repairs...

Interior walls and ceilings painted...

House rented...

Hi @Brian G.

I'm really glad you are doing OK in this deal and that it turned out perfect for you but as a word of caution to others... Not everything is peaches-and-cream in the rental market in Puerto Rico. My uncle has been a long time investor (more than 20 years) and at one point owned SFR in Dorado, Manati, Juncos and still owns two building with a total of 20 units in Mayaguez that he rents to UPR students. He is a full time investor and spend his days doing repairs and maintenance to keep all the units looking like new.

He recently started selling his SFR because some were vacant and hard to find tenants and now he is worried because for this coming semester he has too many empty units at the apartment buildings. Needless to say he is very nervous and doesn't know what else to do to attract students. He has been lowering rents to stay competitive and updating bathrooms and kitchens and everything looks amazing. The effect of people fleeing the island is very real and he is feeling it. The student apartments were a no-brainer thinking that as long as the University is there, students will need somewhere to rent (in PR universities don't have dorms like here in the states).

So again... I'm very happy for your investment and quick turn around but for others reading this post, know what you are doing before throwing your money out.

Good luck and happy investing.

Dennis

Hi @Account Closed . When it comes to the islands I have been keeping an eye on the top five. Puerto Rico, T&T, Barbados, Dominican Republic and Jamaica. Based on economic indicators Puerto Rico and Trinidad & Tobago seems to have the strongest indicators when compared to the the rest. T&T facing some inflation. See table below... 

Now, I dont have a clue how the real estate markets are at the other countries, but I stack their economic numbers against Puerto Rico's for my own guidance/reference. PR is not at the bottom of the barrel. 

For other projects, once I had my rental under control I decided to test the demand for tourist rentals - AirBnB, etc. I stayed at 4 different places in Condado and Old San Juan. These places all had between 90-99% occupancy. Those guys are making bank with the these apps. I just need to evaluate the right property and the appropriate resources for the business to make sense (access, cleaning, maintenance).  For now just doing homework, homework, homework. Will see. 

All the best 

Hey @Victor Chico      

@Justin Jocewicz

Here are some numbers...

Property purchased 15 years ago. It became a rental 6 years ago. This is a 3 bd/1ba single home. We purchased for $20k and assumed the loan of $12k. Original seller was distressed. The mortgage was paid-off shortly after. It rents for $650. Annual tax is around $1400 a year. At the moment I do not have insurance. The property is solid concrete all walls and roof. Windows are protected with window bars all around (see pics above). The place is a fortress. I figured the tenant is responsible for interiors and in case of fire minimal damage is expected. Tenant provides appliances (defined by the market).  Hurricane is not a concern as it is solid concrete. Yes, Im exposed but is very minimal - an earthquake will wipe me out though. Repairs? Well it depends. $6k last rehab after a 3 years rental. I neglected the property. Again, shame on me. When you look at the scope of work $3k went directly to repair the roof leaks (including labor). Leaves and dust obstructed water drainage. I literally had a pool as a roof. Water accumulation + hardcore sun = massive leaks. $1500 in annual repairs a year for is my goal (paint, misc). Attainable if you have boots on the ground doing periodic inspections which now I should be able to do. 

Hi @Dennis Rodriguez

Thanks! To be honest with you I had my reservations about doing all this. Time, money and resources deployed in a place first perceived as "declining" - I totally hear you. I don't know about Mayaguez, Juncos or Dorado but this is what I know. Regardless of all the noise (bad economy, people leaving and unemployment, etc.) there are some things that will never disappear - families, babies and diapers. If per capita in Puerto Rico is around $20k per year (more or less) it will make sense to have rentals around $600 - $700 a month. $20k / 12 = $1600 income a month. Divided by 2.5  and they should be able to afford around $660 a month. That's rent... Now the house. Families (we know) prefers 3 beds, single home houses in good areas with a patio all day long. Now the area. Where are the jobs? Major employers and work force concentration? That will be metropolitan areas near malls, airports, hotels, hospitals, universities and near San Juan. Now the neighborhood. Is the area a ghetto? Drug activity? Can a family honestly live there? Now the price. If anybody can get in on a property as described say at $30k-$40k I would be interested on learning about it (just curious --- oh yeah).  

Is not for everyone and I could be wrong but the fury of qualified prospects blowing off my phone was real...

Regarding your uncle I will be curious where are the students going? They are staying somewhere for sure... where? How healthy is the registration at the campus? All the best to him because I know it will be difficult to unload at this moment. 

@Joe Fairless it depends. At least for some REO's where the lender is not local the process is the same as US. For example, Puerto Rico has also an FHA program so if you go to HUD you will notice that the contracts are in english and offers are to be mailed to the US asset manager. Sometimes you get to pick your own closing agent in the US. Below is an instruction example from HomeTelos located in Tennessee for an active REO managed by them in Puerto Rico. For purchasing directly from sellers there is a local contract which is in spanish (2-3 pages).

@Joe FairlessI just hanged up with my attorney in Puerto Rico after gathering actual results on this (I hate to be misleading). The answer is yes.

Say, the purchase price of a property is $50k cash. The closing costs in Puerto Rico will be between $800 and $1300 depending on who pays (seller or buyer) for the preparation on the Deed of Purchase - usually .5%-1% of selling price. I got your message on my inbox. Let me get organized on my side before proceeding. Best Regards... 

I was very interested in reading about your experience in Puerto Rico. I work with a group that has advised the Puerto Rican banks that took over the four failed banks on the island. I know for a fact that these banks have had problems liquidating REO and problem loans. If anyone has any interest in acquiring REO from any of the four PR banks that acquired assets from an FDIC assisted transaction please let me know. I may be able to help with the negotiations with the banks.

So glad I came across this thread.

My mom passed away 4 yrs ago and I've had her house rented (in Bayamon, PR).  The realtor i've been using is terrible ... I really want to sell the property, but living in AZ and having a full time job in AZ makes it difficult for me to go there.  Plus, I was worried that it would never sell due to economic straits that PR is in right now.

Any recommendations on a good realtor locally I can contact in Bayamon/San Juan area?

BTW, the roof paint is actually a sealant to prevent water leaks.  It's a cottage industry in PR, lol.  I just paid (via the realtor) $3,600 to have it re-sealed (first they had to take off the original black/tar sealant).

A potential distressed seller here... @DeAnna Nieves Are you the only heir? Do you have pics? Can you describe it? How many beds? Is this a single home? Where in Bayamon?

I can recommend my crew for the roof, but you already took care of it, correct?

@Brian, would love a recommendation for a reliable realtor and lawyer. 

It'll be a messy transaction; no will, so has to thru probate court. I had started the process but that lawyer was completely inept, as well as the realtor.

But if the market is not THAT bad, now might be a good time to try and sell it. 

Yes, roof leaks ( I hope!) have been taken care of. 

@DeAnna Nieves I figured that before the BP admin complaints any deals should be discussed at the designated marketplace not this forum, my bad for my approach. Second, I'm sorry about your situation. I do have the reliable attorney and the broker on the ground. Please private message me on this.

@Brian G.

This is one of the first blogs that I followed when I joined this community a couple days ago, besides being an interesting conversation to follow, it's a great plus that you are local too.  This topic definitely reassures = what I have been thinking, there is no need to only look around my immediate vicinity.  The opportunities could be anywhere and if I limit myself to only what I can drive to, then I may be missing out on some big markets, maybe another "bubble" that South Florida had about 10 years ago.

Having a property in another location gives you a good excuse to travel anyways doesn't it? lol

What motivated you to start investing in the Caribbean, or more generally, outside of your immediate area?

@Mario Bermudez thanks!

Puerto Rico is not the only long distance we manage. We are in Gainesville, Saint Augustine, Palm Beach and locally in Miami Dade. Some properties were house-hacked (I lived in it) others were purchased solely as investments. All this long distance stuff is not for everyone. Whoever thinks that managing long distance is easy will at some point fail, give up the property or lose money. The market will discipline those than don't follow common sense or are not calculated. The original post here helps illustrate that. How come my units in US were better treated with all the resources around them to make them appeal but Puerto Rico was in shambles. How come? My answer is people. The problem was me listening to "people". They somehow inserted in my head that the PR place is... not worth it. What an idiot! What was I thinking! People don't control my destiny, I do. I just need to break through the noise. Peoples noise. Here in BP and around this business you learn from leaders that didn't follow what others say. They all challenged the status quo and do the opposite of what "people" attempt to tell them. Marc Cuban being one of my favorites.. Oh I love his phrase "You listened to people - you  made a huge mistake" - with his muscled face.

At the end you can have many properties in your background thinking that you are swimming like a fish. But without the appropiate support and resources from contractors, lawyers, realtors and other investors you will be more like a fish without water. Cardone helps bring my idea home.