December 2005 was a different time in Punta Cana and the Dominican Republic. At that time, the Punta Cana and Dominican Republic real estate markets were experiencing what some would consider atypical growth.Demand was far greater than the supply, a thriving influx of international buyers, lowest interest rates in the history of the Dominican real estate market, both US dollars and Dominican pesos, national and international economic stability, high rental income, mega tourism developments sprouting like wild flowers, international financing, bonds were issued, free favorable press, and tourism numbers at an all time high. Buyers were looking for anyone developing or selling near the tourism hubs of the island.Those were the good ol’ times! It was about being in the right place at the right time.Many considered that there was no reason for the Punta Cana and Dominican Republic not to be known as the “Home of the World”; however, it was also emphasized that it was imperative for the real estate industry to take some necessary measures in order for development to continue in an organized fashion.Fast forward to end of 2008. Today, the real estate industry is also experiencing a completely atypical situation, which unfortunately can’t be called positive, but can’t be called negative either. It is going back to what is considered a normal, standardized real estate market. Supply and demand more in balance than in years past.Any real estate developer can tell you that it is not normal to sell an entire development in less than a year. Normal would be for at least two years to sell a small to medium size development and perhaps more time on the larger more ambitious developments within closed gated communities. Of course, it is normal to think that things are cooling off after coming out of the “BOOM” we have been experiencing for the past few years. Instead of cooling off, I would call it business as usual, going back to normal, supply and demand in equilibrium!At the moment it is important to sit down and analyze the “foundation” of our market as we take the necessary corrective measures based on lessons learned.First, let’s look at the foundation. Why the Dominican Republic? Why Punta Cana? What makes us so special? Why are Punta Cana and the Dominican Republic relevant investment markets? Why alternatives for second home buyers? Why should it be considered ideal places for retirement?Excellent geographical location that allows us to have year round tropical climate. The cold countries remain cool. We continue to have some of the best white sand beaches and turquoise colored crystal clear waters Legal Framework – No Restrictions for Foreigners, Equal Ownership Rights Economic Stability Social Stability Personal Safety, Dominican Republic crime rates are low in comparison to other Caribbean Neighbors Modern and adequate transportation and telecommunications infrastructure (airports, seaports, highways, telephone, internet). There is room for improvement, but we are headed in the right direction. Extensive complementary offer (water sports, golf, restaurants, grocery stores, resorts, casinos) Ecotourism The Dominican People – Always friendly and hospitable!Beyond these points, we must recognize that there has been encouragement for foreign investment by the local government. Foreign direct investment more than doubled in 2008, according to statistics from the Center for Exports and Investment (CEI-RD). Investment in 2008 totaled US$2.35 billion, for a 55.1% growth from 2007.Just last week, December 12, 2008, Dominican Republic President Leonel Fernandez broke ground for US$1.4 billion dollars VistaCana Resort & Country Club in Punta Cana. President Fernandez and the project’s main promoter, Salvador Termín headed the groundbreaking ceremony, with Tourism minister Francisco Javier Garcia also present. Mr. Termin spoke about the world crisis we are experiencing, and emphasized that they have prepared themselves for the crisis. “We have decided to continue to invest, since that is what we do. We believe in the Dominican Republic since it continues to be a safe place to invest with lower risks in comparison to other places around the world”.Venezuelan investors began construction of the tourist complex on six million square meters of land. The complex will have 6,000 residences, a 100 room business hotel, a 27-hole golf course and a 180,000 square meter artificial lake integrated to the beach area, and built at a cost of arond US$1.4 billion dollars. This will bring 20,000 new jobs to Punta Cana when concluded.President Fernandez said “this development is proof that within the global crisis that we live today, foreign companies like the developers of VistaCana, testify that the Dominican Republic still has economic and financial security for world wide investors, developers and end users alike. 1,500 homes have been purchased by an investment fund for North Americans retirees out of Washington D.C. plus more than 200 units sold to individuals.” President Fernandez added that in addition to VistaCana, just last week he was in La Romana for the groundbreaking event for the mega development Playa Nueva La Romana by Spain’s Grupo Piñero, owners of the Gran Bahia Principe Resorts. This represents US$2.5 billion dollars in foreign investment. In addition, in the coming days, President Fernandez will be alongside the Prince of Monaco, in the groundbreaking ceremony for Punta Perla located in Cabeza de Toro near Punta Cana, with another US$1.6 billion dollars in foreign investment from the U.K.That is a total of US$5.5 billion dollars of foreign investment in the month of December alone for the real estate industry. These are big numbers from world wide known companies and investors that have very deep pockets to conduct feasibility and market studies. They have decided that the Dominican Republic is the safest place with the best investment opportunities in the Caribbean and perhaps the western hemisphere.In addition to encouraging foreign investment, local government has achieved:Enactment of new laws that attract retirees and baby boomers. Incentive for pensioners and annuitants Reduction of taxes related to real estate Firm decision to improve communication infrastructure to the tourist areas Efficient and better system for the approval of new developments Public sector working hand in hand with private sector to help develop joint activities aimed at strengthening the real estate industry.We can say that without a doubt we have a solid foundation for sustained growth in the real estate industry; however, no longer is location, location, location the most important part of deciding where to buy real estate in the Dominican Republic. Investors and buyers alike are looking for security, security, security.First and foremost, the security and safety of their investment. Investors and buyers understand that property acquired in the Dominican Republic is not going to suffer the effects of devaluation that other world markets have experienced. This is for several reasons: Historically in the Dominican Republic property values have always tended to go up and never down The Dominican Republic does not have a secondary market for the marketing of securities where good and bad mortgages come together. We all now about the USA mortgage mess that has property values on a downward spiral. Given our past experience with the banking system, the mortgages could be considered “healthy”, meaning that the market value of the property exceeds the value of mortgage.Second, security of ownership rights, of course. Foreign buyers are guaranteed the same rights as those available to Dominican buyers.Third, security of return on your investment. Real estate-tourism products have the potential to generate revenue because they can be rented to employees in the tourism sector and also because each day is further developed the so-called “residential tourism.” Refers to those tourists who prefer to rent a villa or apartment to take a more familiar experience and learn more about the area of access.What do we need to do as industry leaders and real estate professionals?Find end users: Avoid clients who seek an immediate capital gain. This refers to buyers/flippers who have neither the intention nor the ability to close on the real estate transaction. The best way is to ask for a significant down payment that the buyer/flipper will lose if decides to walk away from the real estate transaction. Pre Qualify Buyers: Provide the buyers with the proper forms and contact information for pre qualification with local banks. This will prevent from future headaches in the future. Perform target marketing plans for buyers and investors required for the particular development. Carry out strategic alliances with government institutions to promote the Dominican Republic as a tourist destination, not just a real estate destination. Join forces with high profile tourism developments for further commercialization of the Dominican Republic. Be aggressive in marketing products in more than one way: create alliances with international real estate agencies, non traditional advertising, speaking engagements, eMarketing, and so on.The most important thing is to understand that we have a good product. We are in a cycle of the market where change is inevitable and considered normal. There is no need to panic. Punta Cana and the Domincan Republic have become world destinations. We still have many great years of selling Punta Cana real estate and Dominican Republic real estate. We just need to roll up our sleeves, continue to work with ethics, be honest, creative and pro-active. We have no doubt, sooner or later Punta Cana and the Dominican Republic are destined to become the HOME OF THE WORLD!We expect many good things to come in 2009 and are very positive that we will make a difference and separate ourselves from the rest of the crowd. With the alliances that we are forming with real estate agencies from around the world, we will definitely position ourselves as the #1 real estate company for developers, buyers, sellers and investors that are looking for the right company to assist with buying or selling real estate in Punta Cana and the Dominican Republic. Hope we can be of assistance in 2009! We will help you find the right home in Paradise!
Author Archives: schatzi
Think Like a Millionaire: How to Invest in Real Estate
Many people fail to see that skills fade, but assets are forever.They don’t know their entire financial education in their lives is completely WRONG!Too many people believe that a good job, good skills, and a positive attitude will make them great wealth. The problem is that it just doesn’t work that way. People who make an hourly wage and an annual salary cannot build wealth. This is because their money doesn’t work for them, and instead they work for their money. This idea keeps them from understanding that the only way to build wealth is to invest in multiple sources of income that you don’t have to work for, but instead build yourself or purchase from someone else.Another misconception of multiple sources of income and passive income is that people assume government and financial institutions offerings such as the stock market, CD’s, and many other financial instruments are passive income. Most of the time however, unless it is a note or bond that pays you regular interest. It is not actually passive income or a stream of income. As a stream of income or passive income is income that you make every day, every month, and every year continuously as cashflow. Stocks and the like only make you money on the sale and never anything in the meantime. Meaning they don’t ever actually cashflow. For example, it is the same as purchasing a piece of fine art and hoping that it appreciates the longer you hold onto it. Which is risky and locks your money up from better uses.Real Estate as an InvestmentReal Estate is the King when it comes to creating wealth for people. No other offering has the traits and abilities like real estate does. It is constantly appreciating and gaining value. It is always in demand because people need a place to live. And most important of all, it is a real asset that isn’t going anywhere soon. Allowing you to borrow against it as collateral and even to write off all expenses and costs associated off on your taxes. Now let’s not wait a moment longer to get into Real Estate as an Investment.Real Estate You Can Buy as InvestmentsThere is so many ways to invest in real estate and the major differences comes to how much capital you will need to put down to purchase them. This could be as little as $40,000 -$50,000 to buy a condo outright, to only $10,000+ to purchase a $100,000 single family home, or to as much as $20,000-$30,000 to purchase a multifamily home (2-4 units). All of which are Residential and can be easily financed.Once you get past 4 units, small office buildings, and industrial properties. You’re going into commercial territory and have a lot more hoops to jump through as well as have to start working with commercial lending which can require sizable amounts of capital before they will lend. In the rear, is my personal favorite of mobile homes and parks. Which are hard to sell, but can cashflow in all sorts of amazing ways from lending on the mobiles themselves to charging them for renting the use of the land. All of which is taxed as land which is the cheapest tax rate you can have on property.· Condos/Flats – Condos and flats are some of the best to buy for cashflow as they give the best cap rates. The only issue comes on the resale as many can be hard to finance as an investment property, preventing a large portion of the population from being able to purchase them.· Single-Family Homes – Single-family homes are easy to rent, easy to sell, and easy to finance.· Duplexes/Triplexes/Quads – Small multifamily properties (2-4 units). These property types combine the financing and easy purchasing benefits of a single-family home with the cashflow benefits and less competition found in larger investments.· Small Apartments – Small apartment buildings are made up of between 5-50 units, they can make great cashflow, but can be very illiquid on the resale.· Small Commercial Office Space – Buying small commercial buildings and renting out office space to business professionals.· Industrial Properties- Manufacturing, warehouses, distribution centers, etc.· Mobile Homes – Inexpensive way to enter the world of real estate investing and can also experience significant cashflow.· Mobile Home Parks – The entire park in which mobile homes are situated on can also be bought and sold. Rent the individual lots to mobile home owners, and as well as have corporately owned and leased ones.Strategies in Finding Investment PropertiesJust as there are a million ways to skin a cat, there is a million ways to find properties for investment. Of the many ways to find the properties for investment. The most common ways are to find the owner directly and give them a cash offer, to find properties that are owned by a lender or bank that they want to get rid of at a discount, or purchase a lien on the property so you can foreclose on the property yourself.
Lease Options – Buying the property and “renting” it with the legal right to buy it later.
For Sale By Owners (FSBO) – Private owners sell their property themselves with a sign or newspaper advertisement, they may want to sell their properties at a discount to avoid paying a realtor
REO’s – Foreclosed Property owned by banks can be bought under market if the demand isn’t too high
Auction at the Courthouse Steps – During the process of foreclosure, a home is brought to the courthouse steps to be sold to the highest bidder.
Buying in Pre-foreclosure – Sellers on the brink of losing their home can be very motivated to sell their home and save their credit and their lives
Short Sales – A bank will often take less than the loan amount on a property to save from the hassle and costs of foreclosing and reselling.
Tax Liens – When homeowner’s refuse to pay their taxes, the government can foreclose and resell the property.
HUD Foreclosures – When a US government ensured loan is foreclosed on, it often becomes the property of the department of Housing and Urban Development.
VA Foreclosures – Similar to the HUD foreclosures, the US Department of Veteran’s Affairs sells their homes as well after foreclosing on one of their insured properties
Strategies in Buying, Renting, and Selling Properties:When you finally have the property in your grasp, there are many techniques you can use to maximize your return. Some properties are great for buy n’ holding. Meaning you buy them for cashflow, but are expecting to also make a sizable return on the resale due to appreciation. Next up is Fixing N’ Flip/Hold, which is finding properties undervalue and fixing them up to either hold onto for cashflow or to sell immediately for instant profit. Then there is Turn-key-Investing, this is where you find the property, turn it into a profitable cashflow and sell it as a source of income to a big fish investor. For Big Commercial, there is NNN leasing that entails having the company renting the property takes care of all the trimmings of the property and pays you for leasing the space. Another Buy N’ Hold strategy that can make decent money is to turn your Buy N’ Hold property into a Vacation Rental and charge 3x as much than a normal lease. Then there is hard money lending, where you finance others in their fix n’ flips, buy n’ holds, or primary residence.
Buy-N-Hold – Buy real estate, rent it, and hold it until the market is up and a great buyer comes along
Fix-N-Hold- Buy below market value, remodel to force appreciation, and held until the market improves and sell it
Fix-N-Flip – Buy well below market value, remodel to market prices, and sell it immediately to get your return.
Turn-Key-Investing – fix-and-flipper, but sells remodeled properties to out-of-town individuals seeking a good place to keep their money moving.
NNN Lease – Big Businesses rent the building and pay all costs associated with the building such as maintenance, taxes, insurance, and more. We can own these buildings for highly-passive income.
Vacation Rentals – Buying vacation property and renting it out off and on season (Snowbirds)
Cash Purchase, Sell on Contract – Buy properties and immediately re-sell them to buyers who may not be able to conventionally qualify for a mortgage. Collect a large down payment when using this method.
How to Finance:Financing is readily available to anyone who has a cash for a down payment. Below is the major ways you can finance your Real Estate Investments.
All Cash – Property with no mortgage attached is very stable and a safe return. May not be as great as when using leverage (like a mortgage)
Seller Financing – Seller owns a property free-and-clear (no mortgage), and can be negotiated with to find a finance deal
Unconventional Lending – There are many lenders who will lend on any deal you have as long as the number make sense, this can be anything from landlord loans, had money, and much more
Self-Directed IRA – If you have a 401(k), throw it out, it’s time to put that money in a self-directed IRA and make that money finally work for you than expecting some money manager who is just trying not to lose your money than make you any. You can use your money in your SD-IRA to do all the strategies in buying, selling, and renting.
20%-25% Down Conventional Investment Mortgage – buy a real estate investment through a bank. Come up with 20-25% down payment and have the bank finance the rest
10% HomePath Investment Mortgage- These loan types are only available on Fannie-Mae backed bank REOs, but can allow an investor to purchase the home for just 10% down payment with other benefits.
Home Equity Line of Credit (HELOC) – With significant equity in real estate, M&T can borrow a line of credit off M&T Real Estate equity.
Small Business Loans – Banks often will finance a line of credit or loan for small businesses- to include a real estate investment company
Conclusion:If you have the mind for real estate or want to hire someone who does. Then you should forego a large portion of your portfolio to invest in real estate. It easily as one of the highest returns than any other investment in the world, the only caveat, like anything else, is that you need to do it right to be successful.