Importance of cash flow in real estate investments

One of the elements that you must take into account when making a real estate investment in the Dominican Republic is cash flow.

The investment cash flow is an essential aspect that allows you to assess whether you are making a good financial decision. The fact that it is negative does not necessarily mean that it cannot be a good investment if you sell the property in the future, but you should consider all the variables before making the purchase of an apartment.

If you are thinking of applying for a mortgage to buy an apartment in the Dominican Republic, consider what we are going to tell you below.

What is cash flow in real estate investment?

Cash flow as applied to real estate transactions is the relationship between the income coming in or the expenses going out on an investment, such as the purchase of an apartment.

For example, if you apply for a mortgage to buy an apartment in Punta Cana, and the cost of the mortgage is $$600 per month and you were able to rent the apartment for $$800, you would have a positive cash flow.

On the other hand, if the cost of the mortgage were higher than the price of the rent, we would be talking about a negative cash flow, so every month you would lose liquidity. This does not necessarily mean that you are losing money, since you now own an apartment, and that is an asset that you can sell to maximize your profits.

What to consider when calculating cash flow when buying an apartment in the Dominican Republic?

When buying an apartment in the Dominican Republic and renting it out to earn income from it, you must take into account some elements that add to the cost of your mortgage when calculating your cash flow.

The commissions of the apartment rental platform you are using. Keep in mind that these tend to be higher than when you use the service of a hotel brand.

● Maintenance and property management costs. The unit you have purchased in the condominium has common expenses. For example, if the facilities have a swimming pool, gym or coworking room, this increases the monthly costs, although when renting the apartment for long periods, you can pass the costs on to the guests.

● Taxes: the taxes involved in owning an apartment also represent an outflow of money, so you must account for them. That is why it is very important that when you buy an apartment in the Dominican Republic you can evaluate the possibilities of reducing the tax expenditure, for example by choosing an apartment that takes advantage of the benefits of the Confotur Law.

Many investors do not take these costs into account when assessing cash flow. The consequence? They may not achieve optimal terms for financing the property and find that they end up with a negative balance every month.

This may at first sight be a setback, but you should bear in mind that, with the appreciation of the property, if you sell it in the future you will most likely be able to recover what you have been losing due to the negative cash flow and even make a profit. However, the risk is greater than if you had achieved a positive cash flow.

Investing in apartments in the Dominican Republic and maximizing profitability

It is always desirable to be able to obtain a positive cash flow from the beginning, or at least a balance between income and expenses, although we know that this is not always possible in all real estate operations.

However, a positive or neutral cash flow allows you to acquire an asset with minimal expenses, or even with monthly profits, which reduces the risk of the real estate transaction.

Now, in a booming real estate market and with high tourism growth in the Dominican Republic, sometimes a negative cash flow does not have to be a bad investment. By the time you have finished paying the mortgage, on the other hand, you can move to a positive cash flow.

Even more important than the rental price and maintenance costs is the occupancy rate of the property. Because someone may think that he will have a positive cash flow with short term rentals, but due to the high competition in tourist rental applications, he may not achieve the desired occupancy rate to achieve a positive cash flow.

In other words: tourist rental platforms can reduce the expected cash flow and complicate your expectations.

In this sense, from Vivantia Homes we advise you to reduce risks and take care of your cash flow. In addition to looking for good financing options, it is best to opt for properties in which the property management is linked to a hotel brand, which allows you to increase the occupancy rate, reduce expenses in commissions and delegate the management. This ultimately influences long-term profitability, even if you decide not to sell the property in the future.

If you want to find the best real estate opportunities in Dominican Republic, talk to us now.