How to evaluate the profitability of an investment property in the Dominican Republic

If you are going to investing in Dominican Republic real estateIf you are looking for a property, you should not only look at the purchase price, but also at the possible profitability of the property.

Investors are sometimes unclear about how to value the profitability of a property because they have not yet determined how they will recover their investment.

In this post we will show you some keys for you to determine how to evaluate the ROI of your real estate for invest in Dominican Republic.

How to know the profitability of a property in Dominican Republic?

To evaluate the profitability of a property in Dominican Republic you must consider two fundamental elements: income and expenses.

The difference between these will allow you to calculate the annual profitability of your real estate property, which in the DR has greater advantages given that taxes are much lower than in other markets.

Operating expenses

Operating expenses are one of the most complex aspects when it comes to determining the ROI of a propertybut you can check in the following elements.

Taxes

Vacancy

In the Dominican Republic the IPI (Real Estate Wealth Tax) is paid, but if your real estate assets are less than RD$9,860,649.00, then you are exempt from paying this tax.

Also in the cases of investors who are 65 years of age or older, and also if the real estate property you have acquired can benefit from the Confotur Law, which we told you about in an article.

In case you do not meet any of the conditions, you should consider that IPI has a tax rate of 1%, and it is applied on the total exempt amount. That is to say, the first RD$9,860,649.00 are exempted.The rest you would pay only that 1%, which can be paid in two annual installments.

Another aspect that you should take into account when calculate the profitability of your property is the vacancy period. That is to say, the time in which your property is empty. You should only calculate the days of the year that you are going to have the property rented, and contemplate a vacancy period during the low season.

The occupancy rate of a real estate property is a very important aspect. Therefore, as an investor, you must approach your strategy with a business mentality, and it is much more effective to bet on small units in condominiums associated with a hotel brand, than a larger property, but with which it is more difficult for you to stand out and compete.

Our advice is to focus your investment on the busiest areas and avoid investing in rural areas, where the occupancy rate will be much lower. The ideal is to focus on luxury properties in Punta Cana, as it is one of the best options in this market.

Commissions

Maintenance and insurance costs

The majority of real estate investors that bet on tourist rentals will have to pay commissionsWhether it is to real estate agencies, tourist rental platforms or the branding fee you must pay to the hotel brand to be able to market a housing unit.

This annual expense is deducted from the estimated income from tourist rentals to determine the annual return on your investment. Remember that the commissions of online tourist rental platforms tend to be more expensive and allow you less differentiation.

Obviously, if you have a property, you will have to assume some maintenance costsThe company has a large number of expenses, such as payments for common areas, home insurance, and furniture replacement and repairs.

In many cases, these tasks do not usually attract much attention from the investor, which leads to underestimating their cost. However, you should keep in mind that many times it is more worthwhile to pay for the management fee of an apartment in a condohotel in Dominican Republic The cost of these tasks, which not only involve the cost of maintaining the property itself, but also the management and time invested, has to be taken care of by someone else.

If you calculate the annual rental income and subtract from it the annual operating expensesyou would obtain the annual net profit. Following this principle, to calculate the ROI of your home you only have to apply the following formula.

ROI = Annual net profit / Total investment * 100

For example, if you have invested $300,000 in a property (purchase price), the property is ready to move in, and the net annual profit is $30,000 after deducting all expenses (commissions, properties), you would be getting an ROI of 10%.

Improve your profitability by investing in properties in Dominican Republic

At Vivantia, we are aware that there are a number of factors that can influence the annual net income of investors.

For this reason, we show you the best investment opportunities in the best areas of the Dominican Republic, so that you can maximize your rental income and forget about the worries of managing your properties.

Find out now without obligation on our website for more details. Contact us at.