What is RevPar? Profitability of tourist housing

You may not be familiar with the concept of RevPar, but if you want to invest in rental real estate, it is an aspect that you should take into account.

We must understand real estate investment as a business, thinking that our profitability will depend mainly on the income we obtain from short-term rentals, especially if we are talking about very touristic areas such as Punta Cana, where the income can be much higher than renting the property at a fixed monthly rate.

In this article we will tell you what RevPar is and how you can calculate the profitability of your tourist property in order to make a good decision as real estate investor in the Dominican Republic.

What is RevPar (Revenue Per Available Room)?

The RevPAR (Revenue Per Available Room) is one of the key indicators in hotel management. But it is also widely used by investors and owners of tourist accommodations, since it allows measuring the capacity of an establishment to generate income from the number of available units.

It is very important to bear in mind that not everything depends on the price at which you rent the rooms or units in a condominium, but also the level of occupancy you will have throughout the year. There are days when they will be empty and others when there will be guests. You need to maximize the efficiency in the level of occupancies to obtain the desired level of profitability in your apartment.

How is RevPAR calculated?

Calculating RevPAR is a very simple process. It is a matter of dividing the total revenue per rooms or apartments you have available and the total number of rooms in that period.

Another way to calculate it is to multiply your average daily rate (also sometimes called ADR, for Average Daily Rate) by the percentage of occupancy over a period of time.

Example of RevPAR calculation in tourist accommodations

Following this last formula, let's see an example of how RevPAR is calculated. Suppose you have 5 apartments in Punta Cana. Each apartment has an average nightly rate of $120 USD and you had an average of 20 occupancies in relation to the 31 days of the month.

Thus, we first obtain that the average occupancy of your apartments is 64.5% (20/31). Then we apply the RevPar formula (ADR per average nightly rate), so we get that your RevPar has been $77.40 USD.

This means that each day a unit was available, on average it generated $77.40 of income, even if not all nights were occupied. This is a useful indicator to compare the profitability of your rentals with other similar accommodations or with past seasons.

Increasing your RevPar is beneficial for you because you increase your profitability without having to acquire more properties, while a decrease in RevPar would mean that you are earning less because your apartment is empty most of the time.

What factors influence the RevPAR of a tourist accommodation?

There are different elements that can influence RevPAR improvement to increase your profitability.

1. Set an appropriate price per night

If you need your tourist apartment to be rented at a price adequate to the demand, so that you do not lose money, nor put at risk the occupancy by too high rates.

2. Delegate property management to a hotel brand.

Promotions and marketing have a big influence on the number of occupied nights you get each month. Many owners do not have time to dedicate to sales, so a good idea may be to invest in properties managed by a hotel brand. At Vivantia Homes you can find real estate opportunities that operate under this model.

3. Consider the location and attractiveness of the property

You are not going to have the same number of reservations if your apartment is close to the beach as if you have it hidden in the interior of the Dominican Republic, and with bad access.

The amenities and quality of the property are also another factor that will considerably influence the price per night that you will be able to charge and the demand that you will obtain.

4. Avoid platforms and sales channels with high commissions.

Your real estate profitability can be affected by the sales channels you use. It is much more advisable, as we pointed out before, to delegate marketing and promotion to a hotel brand, which already has its own channel, as opposed to tourist accommodation booking platforms, whose commissions can greatly reduce your income.

Find out how to calculate the profitability of an investment property in Dominican Republic. Book your video call with us.

Risk mitigation in real estate investments

Every real estate investment involves a certain degree of risk. Those who invest without experience or knowledge of the market may end up suffering the worst consequences. There are ways to reduce the chances of losing money or even maximize our profits when buying an apartment.

If you enter a foreign market, such as the Dominican Republic, the disadvantages may be less than in many countries. We are talking about a scenario with a buoyant tourism, a stable growth of real estate valuation and a great legal security compared to Spain and other countries in Latin America.

However, let us show you some strategies so that you can mitigate the risks in your real estate investments and increase your chances of success.

What are the risks involved in a real estate investment?

Risks in real estate investments are often associated with bad decisions. For example:

● Buying a property and renting it to a squatter, and taking about 3 years to get your property back, as happens to more than one owner in Spain.

● Buying an apartment and selling it for less money: this can happen in countries where there is a strong bubble and the property is bought at a bad time, as opposed to more stable markets that are less sensitive to changes in the market, such as luxury apartments in Punta Cana.

● Buying a property, without having full proof that it has no encumbrances or mortgages, or ensuring that the owner is who he claims to be and that the property is duly registered.

These are, in any case, the most visibly negative situations that an owner can face. When we talk about risks, however, we should not only look at whether we make or lose money, but also at how much money we miss out on because we did not make a good decision.

Tips to mitigate risks when buying an apartment in the Dominican Republic

At Vivantia Homes we want you to make your decisions with confidence and knowing exactly what you are doing. Now that you know what the risks are, let's see what our recommendations are to maximize your benefits and mitigate possible risks.

1. Invest in real estate markets with high legal certainty, such as the Dominican Republic.

If you do not want legal problems with your property, invest in a market with high legal security, where the owners are protected and there is no squatting phenomenon that could jeopardize your profitability. Previously we have already talked to you about the problem of squatting in Spain vs. other countries.

In this way, you could legally recover your property the moment a tenant does not pay, or if someone accesses your property without being the owner or having permission to do so.

2. Rent on a short-term basis and reduce unforeseen expenses.

Long-term rentals can involve huge expenses when tenants move out. Yes, you may be able to keep the deposit, but you may still need to do some renovations, as furniture deteriorates over time, and even more so when there is one or more people living there permanently.

Renting your apartment to tourists allows you to have more control, since after each person leaves, you can do a cleaning and control that everything is kept in perfect conditions.

3. Delegate property management to a hotel brand.

Do you want to avoid economic risks due to the variability of prices in the real estate market? Do you want to avoid having to manage the rents and the maintenance of the property yourself? In addition to short-term rentals, you should opt for apartments that are directly managed by a hotel brand.

Property management involves many advantages. Apartments located in condominiums and managed by a recognized hotel take care of everything necessary: welcoming guests, attending to their demands during the trip, cleaning and maintaining the property in perfect condition, and looking for new clients to increase the booking rate.

4. Purchase in areas that benefit from the Confotur Law.

If you are going to invest in real estate in the Dominican Republic, it is best to purchase your apartment directly in condominiums that benefit from Law 159-01. This regulation allows you to enjoy some tax exemptions, which greatly reduces the taxes you have to pay during the first 15 years.

There are those who buy apartments in remote areas of Punta Cana, far from the beach, because they see that it is a good price, or a lot of land space, but this does not necessarily guarantee excellent results in rents, or revaluation.

5. Diversify your real estate portfolio

Several apartments are better than one. They allow you to scale profits when there is a high demand for short-term rentals. And they also help you even out your income when one of the properties is not getting the desired booking rate, so you can offset the results. Diversification can be a good way to maximize your profits.

At Vivantia Homes we have selected the safest and most reliable real estate opportunities in the market. We want you to feel confident about investing in the Dominican market and have all the information you need to make your way in this attractive investment scenario. Talk to us for more details.