The Dominican’s growing tourism economy is giving rise to a booming buy-to-let market. Below are some factors to consider when researching your buy-to-let property investment in the Dominican Republic.
"Buy-to-Let" simply means the purchase and ownership of a property through the normal procedure in the Dominican Republic and when complete, the owner seeks to rent the property out for a regular income, sometimes exceeding annual mortgage repayments.
A combination of great recreational activities, stunning natural scenery and a spectacular climate has always been behind the Dominican’s successful tourism market. The country is a favourite destination for travelers from North America, while an ever-increasing number of European visitors are also visiting, buying and renting due to easy access via direct flights from many international airports – all good news for buy-to-let investors.
In addition to reaping the benefits of the Dominican’s lower real estate prices than in much of the rest of the Caribbean, buy-to-let investors are taking advantage of many off-plan developers’ low entry pricing and beneficial rental guarantee schemes, safe in the knowledge that the tourists will come: This year tourism has risen by some 8% (2008) and currently one of the government’s targets is to increase tourism figures by some 17,000 visitors per annum until 2012. This, in turn, gives rise to an unprecedented need for extra tourist accommodation, in the form of both hotels and rental properties on many of the stunning new resort developments currently under construction.
Purchasing a property to let in the Dominican Republic will involve careful consideration as to whether or not the property is ideally located for tourists, while careful analysis will need to be done on matters such as tourist amenities and accessibility to airports as well as what type of tourist will be visiting. Early investment and the correct formula to suit your market will bring you excellent returns on your buy-to-let property in the Dominican Republic.
John decides to purchase an investment property and he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3,000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid). Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 months during the high period earning €2,000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.
Total rental income = €13,800 after subtracting the €5,772 mortgage repayments John has made a profit of €8,028.
* In this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.
The final decision to be made is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season; however, you must bear in mind the increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.
Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.
Be aware that it is very difficult to evict long term tenants in the Dominican Republic if they stay longer than the term on their rental contract (normally 3 to 6 months). However, if they continue to pay after the contract expires, they are legally permitted to stay. Buy-to-let investors therefore prefer to rent short-term to tourists in order to minimise the risk of over-staying tenants.
The “Buy-to-Let" strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximise occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.
This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage. Meanwhile it is providing an off-peak Caribbean holiday home for your personal enjoyment.
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