Now Is The Best Time To Invest In Real Estate In Puerto Rico, But Should You?
This article is for potential real estate investors who are looking to tap into the real estate opportunities in Puerto Rico,
American investors have largely overlooked Puerto Rico. However, with property values so low and tax incentives galore, the Puerto Rico real estate market might represent a gold mine for investors who are willing to take a chance on the island. However, there are some fundamental things to take into consideration if you are thinking of investing in this market.
Hurricane Maria struck Puerto Rico pretty bad back in 2017 leaving the real estate market broken. Puerto Rico was already struggling financially when the hurricane devastated the island. The real estate market had already been on a downward trend for years. After the storm, the market plummeted even more — creating many opportunities for would-be investors. It is definitely a buyers market in Puerto Rico.
Homes in Puerto Rico decreased in value by an average of 15 percent after Hurricane Maria, according to a real estate study. This drop represents the lowest in eight years. The same survey shows that interest in the island from investors has been on the rise ever since. Puerto Rico ranks 3rd in the top home-buying destinations in North America for United States residents right after Canada and Mexico.
Real Estate Professionals Are Optimistic
Local real estate professionals are optimistic about the rehabilitation of the real estate market in Puerto Rico. More than 77 percent of local agents are confident about the recovery of the real estate business in Puerto Rico.
What Makes Puerto Rico Such a Great Opportunity?
Besides the incredibly low prices, there are a couple of other things that make Puerto Rico such a great investment opportunity.
Unlike buying real estate in Mexico or other international locales, it is easy for U.S. citizens to purchase real estate in Puerto Rico. It is as easy as purchasing in Florida or anywhere else.
It is easy to travel back and forth between Puerto Rico and the mainland. There are lots of non-stop flights from New York, Orlando, Miami, and other major U.S. cities. San Juan, Puerto Rico is just a short two and a half hour flight from Miami.
A Healthy Rental Market With Little Competition
Puerto Rico is an up-and-coming trendy travel destination. The hit song “Despacito” by Luis Fonsi and Daddy Yankee helped bring awareness to this exotic island. Puerto Rico offers many draws for tourists. The main island has it all — lush rainforest, historic forts, breathtaking scenery, and a lively art scene. The increased coverage of Puerto Rico since the hurricane has helped bring even more awareness to the commonwealth.
More than 80 percent of Puerto Rico's hotels are already back in business. Tourism is up in spite of the damage from the hurricane. The upcoming cruise season is estimated to generate more than $250 million in revenue. Hotel prices in Puerto Rico tend to be expensive. Meanwhile, vacation rentals are scarce. This represents a significant untapped market for investors. The substantial increase in tourism coupled with limited competition makes investing in Puerto Rico vacation properties a potential goldmine.
A Tax Haven
To stimulate the economy, Puerto Rico has passed a series of tax breaks that make it one of the best tax havens in the world for United States citizens. In 2012, the Act 22 tax law was passed. This legislation eliminates federal income taxes for most new residents. If you live in Puerto Rico for at least 183 days a year, you could pay close to zero in taxes on capital gains, dividends, and interest.
There are substantial downsides to buying investment property in Puerto Rico. However, with proper planning, a lot of these can be minimized.
- Continuing economic problems - Puerto Rico’s economy has been struggling for a long time. Puerto Rico’s debt has reached an all-time high of $73 billion. The median household income hovers around $19,000, according to The Economist. About 40 percent of Puerto Rico’s population over the age of 65 live in significant poverty. Residents are exiting the island at a record pace. More than half of a million residents have left in the past couple of years. In spite of these grim statistics, economists assert that Puerto Rico will recover.
- Insurance costs - Investors should take insurance costs into account when considering whether or not to invest in the hurricane-ravaged island. Insurance can be quite high and could rise even more.
Where to Buy Real Estate in Puerto Rico?
- San Juan - San Juan is the largest city in Puerto Rico and the capital. It is located on the Atlantic on the northern coast of the island and is a major tourist area and port city for cruise lines. San Juan features cobblestone streets and colorful Spanish architecture.
- Aguadilla - Located on the far northwest coast of Puerto Rico, Aguadilla offers incredible views of the Atlantic and white sand that stretches for miles. This area is quickly becoming a popular surfing destination.
- Fajardo - This is one of the island’s most beautiful locations. It is starting to pick up a lot of interest from tourists visiting Puerto Rico. Right now, you can get a multi-unit home that features ocean views from some units for just over $225k.
Tips on Buying in Puerto Rico
- Hire a tax professional - To get the most out of Puerto Rico’s tax incentives, you should hire an enrolled tax agent. Check out this article to find out the difference between an enrolled agent vs. tax preparer.
- Focus on marketing - Online marketing is a must when it comes to real estate. Facebook ads for real estate investors can bring awareness to your investment properties.
- Talk to a financial advisor - You don’t need a lot of cash to invest in properties. Most investors finance their properties with a combination of cash and a conventional mortgage. Don’t get discouraged even if you have filed bankruptcy. Learn more about debt collection and bankruptcy 101. It is a good idea to talk to a financial advisor to figure out if Puerto Rico real estate investing would make sense for you.
Investing in real estate in Puerto Rico offers a variety of benefits for Americans, including unbeatable tax breaks, amazing deals, and ease of travel.