A Caribbean dream home on a white sandy beach is one of the many draws enticing foreigners and mainland Americans to Puerto Rico. However, as in any housing market, there are certain quirks in the Puerto Rico market that can lead first-time buyers to make common mistakes. Buyers and flippers alike should educate themselves and carefully prepare to achieve their Caribbean dream with as few headaches as possible.
General Rules for Buying Real Estate in Puerto Rico
Weather in the Caribbean can be very damaging to homes. Hurricanes can be devastating, of course, but more ordinary weather can wreak havoc too. Make sure your house or property can withstand a flood. If your home is on or near the beach, you may have to pay for additional insurance, as it will most likely be in a flood zone. Salty air from the ocean will rust stainless steel and increase maintenance for waterfront homes or those otherwise near the ocean.
Look up costs for hazard insurance on your specific property or location. Make sure your building is hurricane-proof and that your condo or property has a backup generator. If you are building or renovating, always use the most durable materials.
Puerto Rico generally stays in range of 80–85 degrees Fahrenheit. However, that can be very hot if your property has no wind and no pool. You will certainly need a dehumidifier for your home in Puerto Rico. But before you buy, find out the direction of the wind at each property and choose ones with the best ocean breezes.
Never Buy from Photos
View the property in person before you buy. Never buy property based solely on photos online. Sometimes real estate websites or property owners simply post photos of the nearest beach, not the view you actually have. They may even share a rendering of what a dream house on the property could look like, not what it actually looks like. It is essential to view any property for yourself prior to making an offer and to understand exactly what amenities and utilities are already available at the site.
Property Inspection and History
Before making an offer, ensure your chosen property is free from any encumbrances, such as debts, liens, easements, or undisclosed owners. A licensed realtor can provide you with the property title before signing.
You can also request a more comprehensive property background check, which could encompass a professional appraisal, title search, property survey, and explanation of homeowner’s association (HOA) dues. Taking these steps is strongly advised to guarantee you get exactly what you are paying for in Puerto Rico.
Inspection & Equipment
Hiring a professional property inspector in Puerto Rico is essential and costs as little as $300. A property inspector can inspect and uncover huge and costly flaws that might otherwise be overlooked.
Be sure to also inspect the equipment on the property that you wish to keep, such as any hot tub, pool engine, stove, washer/dryer, hot water heater, refrigerator, or even certain furniture. Make sure such items are included in the sales contract.
Flipping Houses in Puerto Rico
Don’t Skimp on Labor
Hiring the cheapest labor available may actually prove more costly in the long run, as inexperienced laborers take longer than vetted tradespeople to do the same amount of work. And often, their work will need to be redone, as it may not be up to an owner’s standards or the government’s building codes. Hiring experienced tradespeople may cost more up front, but you can rest assured that their work will be done right the first time.
Expect the Unexpected
You never know what you may find after you have bought a house, even one that fully passes inspection. Unforeseen termites, hidden rot, and other shocks that balloon costs and derail schedules are not uncommon in Puerto Rico. Add a generous cushion to both your renovation timeline and budget, allowing for flexibility to your plans.
Selling Takes Time.
Depending on your market, reselling your flipped property can take time and effort in Puerto Rico. When searching for property to flip, aim for waterfront homes, tourist areas, and relatively high-income neighborhoods.
Vacation or Rental Property in Puerto Rico
No Loans for Fixer-Uppers?
If you intend to buy a fixer-upper as a second home or for rental income, you may have a hard time finding loans. This is because Puerto Rican lenders, using a Federal Housing Administration (FHA) 203k loan, will only finance both purchase and repairs for primary residences, not secondary residences. Secondary homes will only be financed if all necessary repairs are completed. Thus, buying an FHA “as is” foreclosed home may be relatively cheap, but if you have to spend all your personal savings to purchase it, with no money for repairs, you may be putting yourself at great financial risk.
Condo Fees & HOA Rules
If you intend to rent out your condo, make sure the condo’s HOA rules allow for short-term rentals. Many do not. If you have pets, verify whether or not your condo allows them. Condo fees themselves are worth investigating, too—do they include insurance, pool or gym keys, utilities, etc.? Even parking spaces are worth a closer inspection. Ask about how many are included with your deed and the cost to rent additional spaces, if needed.
Home Loans in Puerto Rico
Puerto Rico is a United States territory. All laws, including those governing loans, must follow U.S. federal regulations in addition to those on the island. As such, the process of applying for a loan in Puerto Rico is often very similar to that of the mainland United States.
As in the rest of the United States, your credit report will be run by the lender. Be sure to check your credit score yourself before seeking a pre-approval for a home loan to avoid any potential setbacks or delays.
Documents to Provide
- Two years of W-2s and tax returns
- A recent 30 days’ worth of paystubs
- Bank statements for two months
- Quote for homeowner’s insurance
- All financial information regarding any homes or businesses you own
- Paper trails for any recent withdrawals or deposits over $1000
- Your business’s financial statements from the previous year, if you are self-employed
For more information on loan restrictions regarding second homes or rental income properties, see “Tips for Vacation or Rental Property in Puerto Rico” above.
Tips for First-Time Home Buyers
Factor All Costs
There are more costs to buying a home than the price of the property. Realtor fees, insurance fees, closing costs, and repairs can sap your savings and put first-time buyers in an unexpected bind. Such payments and up-front costs can be prohibitive and ruinous if buyers are weighed down by a mass of other payments already, such as a child’s tuition, car payments, loan payments, etc., not to mention the costs of utilities and maintenance of the home. It is better to choose a smaller home that requires less upfront costs and less upkeep than a “dream” home that will drown a buyer in debt.
Never pay out of pocket for a home if it means depleting your savings. You at least need an emergency fund to fall back on. Speak to several different lenders about what they are able to offer. One may try to force you into high monthly payments or interest rates, while another could save you thousands with a simple reduction in penalties. Know your options and never risk your savings.
No matter how you would like your Caribbean dream to unfold, the team at PRelocate is here to help. With years of experience in the local real estate market and expertise in Puerto Rican law, PRelocate can guide you to your island paradise. They can even help you find government incentives that save you thousands while making your dream of living on “la Isla del Encanto” a sustainable reality, even as prices have started to rise quickly.
They are also a licensed real estate brokerage firm (license C-21696) with experience and extensive knowledge of the Puerto Rico real estate market. Our team is professional, responsive, friendly, and experienced, and with both native English- and Spanish-speaking staff, we can help you break down any language barriers you might encounter. We can save you time and effort by helping you find the right Puerto Rico property for you quickly and easily. In the meantime, you can view current real estate rental and for sale listings.
For more information on real estate and to learn how to benefit from Act 60, contact PRelocate today.
Get our help to buy, rent, or sell property in Puerto Rico
Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.