I love reading comments from readers of my book. It is so interesting to see how we all become connected to the Dominican Republic. I have lived in Santo Domingo for the past 4 years and absolutely love life. Thanks for all of your comments!
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Hello Ross,
I have bought and read your book “Moving to the Dominican Republic” and enjoyed it very much. It was highly readable and interesting. You found a treasure in Ana, that’s for sure. My wife and I live in Central Pennsylvania and we have traveled the Caribbean on vacations and we both fell in love with the DR as our favorite to visit. We stayed at the Iberostar all-inclusive in Punta Cana a few years back and will be staying a week at the Grand Paradise Bavaro middle of March 2011.
We are considering purchasing a 2BR condo in either the Bavaro / Punta Cana area or possibly Samana / Las Terrenes (we haven’t visited there yet, but like the fact that it is more of an expat community than tourist area). We do not wish to be in a big city.
Our goal would be to purchase the unit, and rent it out for 20 years as much as possible (short term, long term) – visiting perhaps twice a year ourselves as vacation time allows maybe a week or two. The primary goal would be investment, and using as a vacation home as secondary, and then when we retire perhaps living in the DR for a longer stretch of time - splitting time here in the US and at the DR. The investment could be a dollar inflation hedge, a possible currency hedge, and a good time to buy before prices go sky high with baby boomers starting to retire and look overseas.
It also seems the DR will start to improve infrastructure as years go on and investment increases. We absolutely fell in love with the white powdery sand beaches and beautiful people of the DR. Do you think the scenario I shared would be a decent investment in the DR, or are you thinking the DR is going to stay 3rd-world and the profit potential is low because of this?
Best regards,
Dan and Katie
I have bought and read your book “Moving to the Dominican Republic” and enjoyed it very much. It was highly readable and interesting. You found a treasure in Ana, that’s for sure. My wife and I live in Central Pennsylvania and we have traveled the Caribbean on vacations and we both fell in love with the DR as our favorite to visit. We stayed at the Iberostar all-inclusive in Punta Cana a few years back and will be staying a week at the Grand Paradise Bavaro middle of March 2011.
We are considering purchasing a 2BR condo in either the Bavaro / Punta Cana area or possibly Samana / Las Terrenes (we haven’t visited there yet, but like the fact that it is more of an expat community than tourist area). We do not wish to be in a big city.
Our goal would be to purchase the unit, and rent it out for 20 years as much as possible (short term, long term) – visiting perhaps twice a year ourselves as vacation time allows maybe a week or two. The primary goal would be investment, and using as a vacation home as secondary, and then when we retire perhaps living in the DR for a longer stretch of time - splitting time here in the US and at the DR. The investment could be a dollar inflation hedge, a possible currency hedge, and a good time to buy before prices go sky high with baby boomers starting to retire and look overseas.
It also seems the DR will start to improve infrastructure as years go on and investment increases. We absolutely fell in love with the white powdery sand beaches and beautiful people of the DR. Do you think the scenario I shared would be a decent investment in the DR, or are you thinking the DR is going to stay 3rd-world and the profit potential is low because of this?
Best regards,
Dan and Katie
Hey Dan & Katie!
Thanks for the note. I really appreciate the feedback and love hearing peoples' stories. I am going to answer your question by covering several areas you should consider. (My email is waaaay too long but you are talking about something pretty serious so I couldn't stop writing...)
Also, keep in mind I would need to know a lot more about your situation to give you specific advice. With that disclaimer, here is what I think:
1) Where to purchase property- I would make it a point to visit the DR a lot before I made a decision on where I wanted to purchase a property. I would also narrow down the area(s) I wanted to purchase in and then spend several long periods there, so I could get to know the "locals a bit." Knowing some locals will get you much further in your negotiations than I can portray. The Dominican Republic has a lot of great areas, but each is very different. You will find touristy areas like Barvaro/Punta Cana are great to visit, but I don't know how they would be to live on a longer term basis. The longer I am in the DR the more I appreciate the locals and really get annoyed by "foreigners" who often seem very extreme. It would be difficult for me to comment on the two areas you mention from a long term perspective, because I have only visited them as a tourist. You may also want to check out Casa de Campo, La Romana, Puerta Plata, Kite Beach, or if you want to find something that is not beach Jarbacoa/Constansa. I personally really like the South Western part of the Island, but you will not find much about this area because it is much less touristy for foreigners. Check out Barahona and my favorite--Bajia de los Aguillas, which does not have any development... (There are a couple here: http://www.movingtodr.com/vacations.html)
2) Owning a rental in the DR- I own rentals in the US and have for about 15 years. I am in the process of trying to rent an apartment in Santo Domingo, and have been for 6 months, so my opinion is probably a bit skewed... From a pure investment perspective, I like your idea of having something in a tourist area, because I think it would be easier to rent and charge tourist rates. Our property is not touristy and we are worried about doing short term rentals, since it has amenities that would cost much more than a week's rent if they were missing or damage. Also, with short term rentals, the problem you will have is finding someone to manage the property. There are management companies in many of the resort areas who will help you with the cleaning, maintenance, and sometimes with filling the property. I believe they want a 60/40 split for their efforts (you get 60). This fee is much higher than I pay in the US (8-12%), but is probably worth it. We stayed at a place called Olas de Oro near kite beach once. I believe most of the properties there are owned by foreigners and then left with a management company who rents and manages them. I suspect they cost a lot more than a small apartment because they are mostly large houses with pools, etc.
3) Paying for the property- If you are in a position to pay cash for the apartment you are much better off than having to try to finance it locally. Local interest rates are very often 16% or more. If you have to pay the loan payment out of the rental income I would really think about the investment. Also, qualifying for the loan may be a bit tricky without having residency and local income (I am not 100% sure about this...) If the property is paid for and you are able to use the income as income, then that is a different story.
4) Buying as a foreigner- As we have looked at properties I have noticed a very strong bias against me. Not that people treat me badly or anything like that. It is just that they think I am a gringo so I must be rich, and I should have prices quoted to me as if the property is in New York, or on Miami Beach. One property we looked at once was quoted to a Dominican Realtor as costing the equivalent of about US$80,000. The Realtor explained to us that the owner was flexible and really just wanted to get some money out of the property. It was a beach front property that was probably 2 acres. Even though the property was well outside of any big tourist areas, the beach was beautiful and did not get used by the locals much at all. I thought it sounded pretty good from the pictures, so we made a two hour drive to go look at it. As soon as the owner's Realtor saw me the price changed to US$800,000... needless to say we did not buy that property... (See a picture here. The last picture under the Paraiso photos is taken from the retaining wall on one end of the property. I am still bothered about the price change...) My point is until you are a local you will always be quoted gringo prices. I am lucky my wife is able to take care of our real estate transactions.
5)Dollar Hedge- My opinion is that the DOP is too closely tied to the Dollar to have this investment be a dollar hedge. I write about this a little in my book, but don't really get into too much detail. A good part of the Dominican economy is based on US income (tourists, exports, and money sent from relatives in the US, etc.). When the US $ is weak the DR economy suffers. The past few years there has been a lot more European money coming in for investments. If this continues my opinion here may change. (Note that the DOP has continued to go down in relation to the US$. Right now it is 37.25 to 1$. When we bought our place in Santo Domingo I think it was around 34.)
6) DR Investments- I think the DR economy will continue to grow. The past few years with the down turn of the world economy has not effected the DR as significantly. In the neighborhood where our apartment is in Santo Domingo there are no less than 20 high rise apartment buildings going up right now. The building has turned down, especially with some mega projects like Cap Cana, but generally the economy is still expanding. As long as you can get a good deal on a property you should see its value increase over the next 20 years.
7) Buying Property- When you get to the point where you are going to actually buy something. You have to have a law firm. My wife is an attorney with Squire Sanders in Santo Domingo. I would suggest them or ask them to suggest a local attorney in the area where you will purchase. Over the years I have met many foreign investors who have invested in real estate only to be swindled because the title was not done property or the project went bankrupt. I am not trying to scare you out of doing something because there is risk in any investment. I would just very strongly suggest you have the best people on your side looking out for your interests because the locals will always have an advantage. (I am happy to make referrals or introductions, etc if you ever need it)
8) DR 3rd World Country- I think the DR will continue to develop. At what point will it no longer be a 3rd world country I have no idea. The fact that it is a 3rd world country does not bother me at all. In fact, I really enjoy learning about all of the things I was able to take for granted my whole life. Just because the country is a 3rd world country does not mean everyone is poor. There are extremely wealthy Dominicans. There are a lot of people who make really good investments in the country and stand to do very well if the country continues to modernize. I do not see the country regressing. It is too close to the US and Europe for that to happen. Also, any apartment you purchase will likely be prepared with amenities like a generator so the 3rd world things in the country will not effect you. Our apartment has dual generators and other than the lights going off for a few seconds a couple times a day I have no idea when there is or isn't local power.
I hope this was not so much you completely give up on your idea. Most people are really smitten by the beautiful beaches and the wonderful locals they meet, so your idea is completely understandable. I just want you to think about some of different aspects of owning property in a different country as you consider this.
Please feel free to send me more questions or comments. I will try not to write you another book in the future...
Thanks again for your email.
Best Wishes,
Ross
Thanks for the note. I really appreciate the feedback and love hearing peoples' stories. I am going to answer your question by covering several areas you should consider. (My email is waaaay too long but you are talking about something pretty serious so I couldn't stop writing...)
Also, keep in mind I would need to know a lot more about your situation to give you specific advice. With that disclaimer, here is what I think:
1) Where to purchase property- I would make it a point to visit the DR a lot before I made a decision on where I wanted to purchase a property. I would also narrow down the area(s) I wanted to purchase in and then spend several long periods there, so I could get to know the "locals a bit." Knowing some locals will get you much further in your negotiations than I can portray. The Dominican Republic has a lot of great areas, but each is very different. You will find touristy areas like Barvaro/Punta Cana are great to visit, but I don't know how they would be to live on a longer term basis. The longer I am in the DR the more I appreciate the locals and really get annoyed by "foreigners" who often seem very extreme. It would be difficult for me to comment on the two areas you mention from a long term perspective, because I have only visited them as a tourist. You may also want to check out Casa de Campo, La Romana, Puerta Plata, Kite Beach, or if you want to find something that is not beach Jarbacoa/Constansa. I personally really like the South Western part of the Island, but you will not find much about this area because it is much less touristy for foreigners. Check out Barahona and my favorite--Bajia de los Aguillas, which does not have any development... (There are a couple here: http://www.movingtodr.com/vacations.html)
2) Owning a rental in the DR- I own rentals in the US and have for about 15 years. I am in the process of trying to rent an apartment in Santo Domingo, and have been for 6 months, so my opinion is probably a bit skewed... From a pure investment perspective, I like your idea of having something in a tourist area, because I think it would be easier to rent and charge tourist rates. Our property is not touristy and we are worried about doing short term rentals, since it has amenities that would cost much more than a week's rent if they were missing or damage. Also, with short term rentals, the problem you will have is finding someone to manage the property. There are management companies in many of the resort areas who will help you with the cleaning, maintenance, and sometimes with filling the property. I believe they want a 60/40 split for their efforts (you get 60). This fee is much higher than I pay in the US (8-12%), but is probably worth it. We stayed at a place called Olas de Oro near kite beach once. I believe most of the properties there are owned by foreigners and then left with a management company who rents and manages them. I suspect they cost a lot more than a small apartment because they are mostly large houses with pools, etc.
3) Paying for the property- If you are in a position to pay cash for the apartment you are much better off than having to try to finance it locally. Local interest rates are very often 16% or more. If you have to pay the loan payment out of the rental income I would really think about the investment. Also, qualifying for the loan may be a bit tricky without having residency and local income (I am not 100% sure about this...) If the property is paid for and you are able to use the income as income, then that is a different story.
4) Buying as a foreigner- As we have looked at properties I have noticed a very strong bias against me. Not that people treat me badly or anything like that. It is just that they think I am a gringo so I must be rich, and I should have prices quoted to me as if the property is in New York, or on Miami Beach. One property we looked at once was quoted to a Dominican Realtor as costing the equivalent of about US$80,000. The Realtor explained to us that the owner was flexible and really just wanted to get some money out of the property. It was a beach front property that was probably 2 acres. Even though the property was well outside of any big tourist areas, the beach was beautiful and did not get used by the locals much at all. I thought it sounded pretty good from the pictures, so we made a two hour drive to go look at it. As soon as the owner's Realtor saw me the price changed to US$800,000... needless to say we did not buy that property... (See a picture here. The last picture under the Paraiso photos is taken from the retaining wall on one end of the property. I am still bothered about the price change...) My point is until you are a local you will always be quoted gringo prices. I am lucky my wife is able to take care of our real estate transactions.
5)Dollar Hedge- My opinion is that the DOP is too closely tied to the Dollar to have this investment be a dollar hedge. I write about this a little in my book, but don't really get into too much detail. A good part of the Dominican economy is based on US income (tourists, exports, and money sent from relatives in the US, etc.). When the US $ is weak the DR economy suffers. The past few years there has been a lot more European money coming in for investments. If this continues my opinion here may change. (Note that the DOP has continued to go down in relation to the US$. Right now it is 37.25 to 1$. When we bought our place in Santo Domingo I think it was around 34.)
6) DR Investments- I think the DR economy will continue to grow. The past few years with the down turn of the world economy has not effected the DR as significantly. In the neighborhood where our apartment is in Santo Domingo there are no less than 20 high rise apartment buildings going up right now. The building has turned down, especially with some mega projects like Cap Cana, but generally the economy is still expanding. As long as you can get a good deal on a property you should see its value increase over the next 20 years.
7) Buying Property- When you get to the point where you are going to actually buy something. You have to have a law firm. My wife is an attorney with Squire Sanders in Santo Domingo. I would suggest them or ask them to suggest a local attorney in the area where you will purchase. Over the years I have met many foreign investors who have invested in real estate only to be swindled because the title was not done property or the project went bankrupt. I am not trying to scare you out of doing something because there is risk in any investment. I would just very strongly suggest you have the best people on your side looking out for your interests because the locals will always have an advantage. (I am happy to make referrals or introductions, etc if you ever need it)
8) DR 3rd World Country- I think the DR will continue to develop. At what point will it no longer be a 3rd world country I have no idea. The fact that it is a 3rd world country does not bother me at all. In fact, I really enjoy learning about all of the things I was able to take for granted my whole life. Just because the country is a 3rd world country does not mean everyone is poor. There are extremely wealthy Dominicans. There are a lot of people who make really good investments in the country and stand to do very well if the country continues to modernize. I do not see the country regressing. It is too close to the US and Europe for that to happen. Also, any apartment you purchase will likely be prepared with amenities like a generator so the 3rd world things in the country will not effect you. Our apartment has dual generators and other than the lights going off for a few seconds a couple times a day I have no idea when there is or isn't local power.
I hope this was not so much you completely give up on your idea. Most people are really smitten by the beautiful beaches and the wonderful locals they meet, so your idea is completely understandable. I just want you to think about some of different aspects of owning property in a different country as you consider this.
Please feel free to send me more questions or comments. I will try not to write you another book in the future...
Thanks again for your email.
Best Wishes,
Ross
Hi Ross,
Wow, I’m going to have to take some time to digest your responses. I appreciate the time you took to answer my questions. Give me some time to review and form intelligent follow-up questions if you don’t mind. You must have become a Dominican as you are very friendly J Thanks again,
Dan
Wow, I’m going to have to take some time to digest your responses. I appreciate the time you took to answer my questions. Give me some time to review and form intelligent follow-up questions if you don’t mind. You must have become a Dominican as you are very friendly J Thanks again,
Dan
Hi Ross,
Let me try to respond by adding comments to each of the numerated items you listed. See below – comment if/when you can.
Thanks,
Dan
Hey Dan & Katie!
Thanks for the note. I really appreciate the feedback and love hearing peoples' stories. I am going to answer your question by covering several areas you should consider. (My email is waaaay too long but you are talking about something pretty serious so I couldn't stop writing...)
Also, keep in mind I would need to know a lot more about your situation to give you specific advice. With that disclaimer, here is what I think:
1) Where to purchase property- I would make it a point to visit the DR a lot before I made a decision on where I wanted to purchase a property. I would also narrow down the area(s) I wanted to purchase in and then spend several long periods there, so I could get to know the "locals a bit." Knowing some locals will get you much further in your negotiations than I can portray. The Dominican Republic has a lot of great areas, but each is very different. You will find touristy areas like Barvaro/Punta Cana are great to visit, but I don't know how they would be to live on a longer term basis. The longer I am in the DR the more I appreciate the locals and really get annoyed by "foreigners" who often seem very extreme. It would be difficult for me to comment on the two areas you mention from a long term perspective, because I have only visited them as a tourist. You may also want to check out Casa de Campo, La Romana, Puerta Plata, Kite Beach, or if you want to find something that is not beach Jarbacoa/Constansa. I personally really like the South Western part of the Island, but you will not find much about this area because it is much less touristy for foreigners. Check out Barahona and my favorite--Bajia de los Aguillas, which does not have any development... (There are a couple here: http://www.movingtodr.com/vacations.html)
Dan: excellent advise, some real wisdom here. I will check out each of these areas in more detail – I do want to keep close to the beach areas though.
2) Owning a rental in the DR- I own rentals in the US and have for about 15 years. I am in the process of trying to rent an apartment in Santo Domingo, and have been for 6 months, so my opinion is probably a bit skewed... From a pure investment perspective, I like your idea of having something in a tourist area, because I think it would be easier to rent and charge tourist rates. Our property is not touristy and we are worried about doing short term rentals, since it has amenities that would cost much more than a week's rent if they were missing or damage. Also, with short term rentals, the problem you will have is finding someone to manage the property. There are management companies in many of the resort areas who will help you with the cleaning, maintenance, and sometimes with filling the property. I believe they want a 60/40 split for their efforts (you get 60). This fee is much higher than I pay in the US (8-12%), but is probably worth it. We stayed at a place called Olas de Oro near kite beach once. I believe most of the properties there are owned by foreigners and then left with a management company who rents and manages them. I suspect they cost a lot more than a small apartment because they are mostly large houses with pools, etc.
Dan: I didn’t realize the extreme cost of 60/40 split for rental management, that sounds oppressive for me. My ROI would need to be sufficient and this sounds like a killer to my idea at 40% for sure.
3) Paying for the property- If you are in a position to pay cash for the apartment you are much better off than having to try to finance it locally. Local interest rates are very often 16% or more. If you have to pay the loan payment out of the rental income I would really think about the investment. Also, qualifying for the loan may be a bit tricky without having residency and local income (I am not 100% sure about this...) If the property is paid for and you are able to use the income as income, then that is a different story.
Dan: I would pay cash (i.e. borrow locally in the US, move funds around) to avoid financing in the DR.
4) Buying as a foreigner- As we have looked at properties I have noticed a very strong bias against me. Not that people treat me badly or anything like that. It is just that they think I am a gringo so I must be rich, and I should have prices quoted to me as if the property is in New York, or on Miami Beach. One property we looked at once was quoted to a Dominican Realtor as costing the equivalent of about US$80,000. The Realtor explained to us that the owner was flexible and really just wanted to get some money out of the property. It was a beach front property that was probably 2 acres. Even though the property was well outside of any big tourist areas, the beach was beautiful and did not get used by the locals much at all. I thought it sounded pretty good from the pictures, so we made a two hour drive to go look at it. As soon as the owner's Realtor saw me the price changed to US$800,000... needless to say we did not buy that property... (See a picture here. The last picture under the Paraiso photos is taken from the retaining wall on one end of the property. I am still bothered about the price change...) My point is until you are a local you will always be quoted gringo prices. I am lucky my wife is able to take care of our real estate transactions.
Dan: Another excellent insight. It seems to me a market could be made for a local ‘buyer’ who could package a deal and resell to us gringos as a flip. I would be willing to pay a finder’s fee as a foreign investor (legally that is) for the right deal. We have agencies like this in the US, and you may have come across them in your experiences. A better option would be to be-friend some locals in a genuine way and ask their help somehow. I guess some of the expats may have some stories too ! Sorry to hear about the 80 to 800K difference in the property you were reviewing, that’s a real displeasure.
5)Dollar Hedge- My opinion is that the DOP is too closely tied to the Dollar to have this investment be a dollar hedge. I write about this a little in my book, but don't really get into too much detail. A good part of the Dominican economy is based on US income (tourists, exports, and money sent from relatives in the US, etc.). When the US $ is weak the DR economy suffers. The past few years there has been a lot more European money coming in for investments. If this continues my opinion here may change. (Note that the DOP has continued to go down in relation to the US$. Right now it is 37.25 to 1$. When we bought our place in Santo Domingo I think it was around 34.)
Dan: I’m surprised as I have seen posts saying that money deposited in a DR bank could toss off 10% or more interest in local currency. I read as high as 25%. Yes, there is inflation so it is not adjusted. I do understand your point about the DOP being closely tied to the US dollar. I suspect the US dollar to continue to fall in 2011 as will real estate here in the US.
6) DR Investments- I think the DR economy will continue to grow. The past few years with the down turn of the world economy has not effected the DR as significantly. In the neighborhood where our apartment is in Santo Domingo there are no less than 20 high rise apartment buildings going up right now. The building has turned down, especially with some mega projects like Cap Cana, but generally the economy is still expanding. As long as you can get a good deal on a property you should see its value increase over the next 20 years.
Dan: I am amazed at how much Cap Cana can sell their luxury units for in the DR. I love the DR, but to buy/invest at a rate of over 500 sq/ft is crazy. I do think a small 2BR close to Punta Cana or something like that I can get for 130K for 1200 sq/ft ( 108 sq/ft ) may be a good investment. With Panama, Costa Rica retirement benefits – with Mexico, Uruguay, Ecuador, Brazil up-coming for baby boomers retirements I can’t see the extreme benefits for Cap Cana or Tao (Mexico). Seems to me very excessive – Joe Retired American who moves out is not going to be able to afford this, and Europeans are not much better off I hear.
7) Buying Property- When you get to the point where you are going to actually buy something. You have to have a law firm. My wife is an attorney with Squire Sanders in Santo Domingo. I would suggest them or ask them to suggest a local attorney in the area where you will purchase. Over the years I have met many foreign investors who have invested in real estate only to be swindled because the title was not done property or the project went bankrupt. I am not trying to scare you out of doing something because there is risk in any investment. I would just very strongly suggest you have the best people on your side looking out for your interests because the locals will always have an advantage. (I am happy to make referrals or introductions, etc if you ever need it)
Dan: Thank you for the reference and to your own family. That is very nice of you. I can always use help. Although reading through your comments and your book, I am more inclined to do more homework and ‘field’ work if you will before I toss caution to the wind. J
8) DR 3rd World Country- I think the DR will continue to develop. At what point will it no longer be a 3rd world country I have no idea. The fact that it is a 3rd world country does not bother me at all. In fact, I really enjoy learning about all of the things I was able to take for granted my whole life. Just because the country is a 3rd world country does not mean everyone is poor. There are extremely wealthy Dominicans. There are a lot of people who make really good investments in the country and stand to do very well if the country continues to modernize. I do not see the country regressing. It is too close to the US and Europe for that to happen. Also, any apartment you purchase will likely be prepared with amenities like a generator so the 3rd world things in the country will not effect you. Our apartment has dual generators and other than the lights going off for a few seconds a couple times a day I have no idea when there is or isn't local power.
Dan: I am sure you are right – thanks for the comments here. The prospect of Haiti trouble kicking up and spilling over to the DR is scary too.
I hope this was not so much you completely give up on your idea. Most people are really smitten by the beautiful beaches and the wonderful locals they meet, so your idea is completely understandable. I just want you to think about some of different aspects of owning property in a different country as you consider this.
Dan: My wife and I discussed, and we came upon another less risky idea – one in which involves a trade off. We build up our net worth as much as possible for the next 20 years and then ‘rent’ for 3 to 6mo at a time in different locations around the DR ( and possibly other locations ) when we retire. We would keep the US as home base, and when we get too old to run around anymore to all these locations we ‘settle’ on a location and buy at that time. For the next 20 years, we vacation at different places we find interesting and keep our eyes and ears open for opportunities. Life is a trade-off, and being open to travel during the next 20 years hedges our bet that neither of us gets sick or dies prior to enjoying some paradise prior to retirement. We would think of retirement as a way we can extend our 1-2 week ‘vacations’ to 3 to 6mo mini-adventures in the target country and location. Of course, we can downsize our home at that point in the US as well.
There’s always the lottery !
Let me try to respond by adding comments to each of the numerated items you listed. See below – comment if/when you can.
Thanks,
Dan
Hey Dan & Katie!
Thanks for the note. I really appreciate the feedback and love hearing peoples' stories. I am going to answer your question by covering several areas you should consider. (My email is waaaay too long but you are talking about something pretty serious so I couldn't stop writing...)
Also, keep in mind I would need to know a lot more about your situation to give you specific advice. With that disclaimer, here is what I think:
1) Where to purchase property- I would make it a point to visit the DR a lot before I made a decision on where I wanted to purchase a property. I would also narrow down the area(s) I wanted to purchase in and then spend several long periods there, so I could get to know the "locals a bit." Knowing some locals will get you much further in your negotiations than I can portray. The Dominican Republic has a lot of great areas, but each is very different. You will find touristy areas like Barvaro/Punta Cana are great to visit, but I don't know how they would be to live on a longer term basis. The longer I am in the DR the more I appreciate the locals and really get annoyed by "foreigners" who often seem very extreme. It would be difficult for me to comment on the two areas you mention from a long term perspective, because I have only visited them as a tourist. You may also want to check out Casa de Campo, La Romana, Puerta Plata, Kite Beach, or if you want to find something that is not beach Jarbacoa/Constansa. I personally really like the South Western part of the Island, but you will not find much about this area because it is much less touristy for foreigners. Check out Barahona and my favorite--Bajia de los Aguillas, which does not have any development... (There are a couple here: http://www.movingtodr.com/vacations.html)
Dan: excellent advise, some real wisdom here. I will check out each of these areas in more detail – I do want to keep close to the beach areas though.
2) Owning a rental in the DR- I own rentals in the US and have for about 15 years. I am in the process of trying to rent an apartment in Santo Domingo, and have been for 6 months, so my opinion is probably a bit skewed... From a pure investment perspective, I like your idea of having something in a tourist area, because I think it would be easier to rent and charge tourist rates. Our property is not touristy and we are worried about doing short term rentals, since it has amenities that would cost much more than a week's rent if they were missing or damage. Also, with short term rentals, the problem you will have is finding someone to manage the property. There are management companies in many of the resort areas who will help you with the cleaning, maintenance, and sometimes with filling the property. I believe they want a 60/40 split for their efforts (you get 60). This fee is much higher than I pay in the US (8-12%), but is probably worth it. We stayed at a place called Olas de Oro near kite beach once. I believe most of the properties there are owned by foreigners and then left with a management company who rents and manages them. I suspect they cost a lot more than a small apartment because they are mostly large houses with pools, etc.
Dan: I didn’t realize the extreme cost of 60/40 split for rental management, that sounds oppressive for me. My ROI would need to be sufficient and this sounds like a killer to my idea at 40% for sure.
3) Paying for the property- If you are in a position to pay cash for the apartment you are much better off than having to try to finance it locally. Local interest rates are very often 16% or more. If you have to pay the loan payment out of the rental income I would really think about the investment. Also, qualifying for the loan may be a bit tricky without having residency and local income (I am not 100% sure about this...) If the property is paid for and you are able to use the income as income, then that is a different story.
Dan: I would pay cash (i.e. borrow locally in the US, move funds around) to avoid financing in the DR.
4) Buying as a foreigner- As we have looked at properties I have noticed a very strong bias against me. Not that people treat me badly or anything like that. It is just that they think I am a gringo so I must be rich, and I should have prices quoted to me as if the property is in New York, or on Miami Beach. One property we looked at once was quoted to a Dominican Realtor as costing the equivalent of about US$80,000. The Realtor explained to us that the owner was flexible and really just wanted to get some money out of the property. It was a beach front property that was probably 2 acres. Even though the property was well outside of any big tourist areas, the beach was beautiful and did not get used by the locals much at all. I thought it sounded pretty good from the pictures, so we made a two hour drive to go look at it. As soon as the owner's Realtor saw me the price changed to US$800,000... needless to say we did not buy that property... (See a picture here. The last picture under the Paraiso photos is taken from the retaining wall on one end of the property. I am still bothered about the price change...) My point is until you are a local you will always be quoted gringo prices. I am lucky my wife is able to take care of our real estate transactions.
Dan: Another excellent insight. It seems to me a market could be made for a local ‘buyer’ who could package a deal and resell to us gringos as a flip. I would be willing to pay a finder’s fee as a foreign investor (legally that is) for the right deal. We have agencies like this in the US, and you may have come across them in your experiences. A better option would be to be-friend some locals in a genuine way and ask their help somehow. I guess some of the expats may have some stories too ! Sorry to hear about the 80 to 800K difference in the property you were reviewing, that’s a real displeasure.
5)Dollar Hedge- My opinion is that the DOP is too closely tied to the Dollar to have this investment be a dollar hedge. I write about this a little in my book, but don't really get into too much detail. A good part of the Dominican economy is based on US income (tourists, exports, and money sent from relatives in the US, etc.). When the US $ is weak the DR economy suffers. The past few years there has been a lot more European money coming in for investments. If this continues my opinion here may change. (Note that the DOP has continued to go down in relation to the US$. Right now it is 37.25 to 1$. When we bought our place in Santo Domingo I think it was around 34.)
Dan: I’m surprised as I have seen posts saying that money deposited in a DR bank could toss off 10% or more interest in local currency. I read as high as 25%. Yes, there is inflation so it is not adjusted. I do understand your point about the DOP being closely tied to the US dollar. I suspect the US dollar to continue to fall in 2011 as will real estate here in the US.
6) DR Investments- I think the DR economy will continue to grow. The past few years with the down turn of the world economy has not effected the DR as significantly. In the neighborhood where our apartment is in Santo Domingo there are no less than 20 high rise apartment buildings going up right now. The building has turned down, especially with some mega projects like Cap Cana, but generally the economy is still expanding. As long as you can get a good deal on a property you should see its value increase over the next 20 years.
Dan: I am amazed at how much Cap Cana can sell their luxury units for in the DR. I love the DR, but to buy/invest at a rate of over 500 sq/ft is crazy. I do think a small 2BR close to Punta Cana or something like that I can get for 130K for 1200 sq/ft ( 108 sq/ft ) may be a good investment. With Panama, Costa Rica retirement benefits – with Mexico, Uruguay, Ecuador, Brazil up-coming for baby boomers retirements I can’t see the extreme benefits for Cap Cana or Tao (Mexico). Seems to me very excessive – Joe Retired American who moves out is not going to be able to afford this, and Europeans are not much better off I hear.
7) Buying Property- When you get to the point where you are going to actually buy something. You have to have a law firm. My wife is an attorney with Squire Sanders in Santo Domingo. I would suggest them or ask them to suggest a local attorney in the area where you will purchase. Over the years I have met many foreign investors who have invested in real estate only to be swindled because the title was not done property or the project went bankrupt. I am not trying to scare you out of doing something because there is risk in any investment. I would just very strongly suggest you have the best people on your side looking out for your interests because the locals will always have an advantage. (I am happy to make referrals or introductions, etc if you ever need it)
Dan: Thank you for the reference and to your own family. That is very nice of you. I can always use help. Although reading through your comments and your book, I am more inclined to do more homework and ‘field’ work if you will before I toss caution to the wind. J
8) DR 3rd World Country- I think the DR will continue to develop. At what point will it no longer be a 3rd world country I have no idea. The fact that it is a 3rd world country does not bother me at all. In fact, I really enjoy learning about all of the things I was able to take for granted my whole life. Just because the country is a 3rd world country does not mean everyone is poor. There are extremely wealthy Dominicans. There are a lot of people who make really good investments in the country and stand to do very well if the country continues to modernize. I do not see the country regressing. It is too close to the US and Europe for that to happen. Also, any apartment you purchase will likely be prepared with amenities like a generator so the 3rd world things in the country will not effect you. Our apartment has dual generators and other than the lights going off for a few seconds a couple times a day I have no idea when there is or isn't local power.
Dan: I am sure you are right – thanks for the comments here. The prospect of Haiti trouble kicking up and spilling over to the DR is scary too.
I hope this was not so much you completely give up on your idea. Most people are really smitten by the beautiful beaches and the wonderful locals they meet, so your idea is completely understandable. I just want you to think about some of different aspects of owning property in a different country as you consider this.
Dan: My wife and I discussed, and we came upon another less risky idea – one in which involves a trade off. We build up our net worth as much as possible for the next 20 years and then ‘rent’ for 3 to 6mo at a time in different locations around the DR ( and possibly other locations ) when we retire. We would keep the US as home base, and when we get too old to run around anymore to all these locations we ‘settle’ on a location and buy at that time. For the next 20 years, we vacation at different places we find interesting and keep our eyes and ears open for opportunities. Life is a trade-off, and being open to travel during the next 20 years hedges our bet that neither of us gets sick or dies prior to enjoying some paradise prior to retirement. We would think of retirement as a way we can extend our 1-2 week ‘vacations’ to 3 to 6mo mini-adventures in the target country and location. Of course, we can downsize our home at that point in the US as well.
There’s always the lottery !