Tips for buying a home in Puerto Rico

From the beautiful beaches and gorgeous year-round weather to the comparatively low living costs and vibrant Caribbean island culture, there are countless reasons to buy a home in Puerto Rico. And people do—Puerto Rico is one of the top destinations for vacations and second homes for U.S. citizens, given its status as a U.S. territory. Puerto Rico’s lucrative tax incentives constitute a further reason to purchase property on the island—in fact, the 2019 enactment or Puerto Rico’s Act 60 has made the purchase of property within two years of obtaining a decree mandatory. So, if you’re enjoying the generous tax benefits of Act 60 Individual Resident Investor, which offers a 100% capital gains tax exemption on interest, dividends, long- and short-term capital gains, and cryptocurrencies, you’ll need to purchase a Puerto Rico home to maintain your decree.

Where to Buy a Home in Puerto Rico

The first step to making a home purchase in Puerto Rico is determining the location. The island is dotted with breathtaking landscapes and charming cities, and whether you’re looking for a beachside abode or a home in the mountains, Puerto Rico has something for you.

Among the hottest real estate markets in Puerto Rico are San Juan, Palmas del Mar, Dorado Beach, and Bahia Beach, all popular among foreign homebuyers. San Juan houses about 80% of the island and is both the political and cultural capital of Puerto Rico, offering no shortage of entertainment options for inhabitants. Palmas del Mar, Dorado Beach, and Bahia Beach are all beachside resort communities favored by expats looking to soak up the Caribbean sun. These communities offer the ultimate in luxury, security, and comfort, although prices have started to rise quickly.

When narrowing down a location, keep safety in mind—while Puerto Rico is generally no more dangerous than the United States, as in all places, certain neighborhoods may have higher criminal activity. San Juan, the capital of the island, is a popular destination for expats, and districts like Old San Juan are safe and beautiful with a rich history, but some areas are best avoided.

Obtaining Funding

If you’re like most homebuyers, you’ll want to secure a mortgage for your property. Being preapproved for a loan is a requirement to buy a house in Puerto Rico, unless you plan to pay cash, in which case you’re required to demonstrate evidence of sufficient funds. To procure a mortgage, you’ll need a good credit score and enough liquid funds to make a 20% down payment. The only exception to this is if you’re planning to purchase through an FHA loan, giving you an option to purchase with a 3.5% down payment. However, in Puerto Rico, as of 2021, FHA’s maximum loan limit is $356,362.00.

Looking for a mortgage broker—or a loan officer, if you’re forgoing the mortgage broker—can present some challenges if your Spanish language skills aren’t up to par. If Spanish isn’t your strong suit, it’s best to go with a broker who speaks fluent English and can easily explain all the terms and conditions to you in English. Be prepared to wade through a bureaucratic nightmare, with a mountain of time-consuming paperwork and higher rates than in the US—especially if you’re considering going the FHA route.

Minimal fees are also required of buyers when making a transaction, such as for Hacienda (Puerto Rico’s Internal Revenue Service) stamps, registration and filing fees, and attorney’s fees. All in all, fees amount to roughly 1.15–2.5% for buyers. Of course, a deposit to the tune of 5–10% will also be necessary to move forward after an agreement is reached, usually paid by the buyer.

Finally, keep your documents well organized in a cloud storage service that you have access to at all times—it’s quite possible that your documents will be misplaced and you will need to send them more than once.

Looking for a Property

Agents and Lawyers

Once you’ve determined a location—or multiple potential locations—it’s time to start house-hunting. In some ways, the process is dramatically different from in the United States, so to avoid buyer’s remorse, it’s important to read up on how homebuying in Puerto Rico works.

In Puerto Rico, real estate agents usually work as dual agents, serving both the seller and buyer. On the buyer’s end, that means realtors will guide you to their own listings, and once you’ve exhausted one realtor’s repertoire, you’ll have to work with another agent. Fortunately for the buyer, the realtor’s commission is covered by the seller, although buyers are sometimes made to pay a “hunter’s fee.”

It is also possible to hire a buyer’s agent, sometimes termed a cooperating broker or co-broker, in which case the commission fees are usually split 50–50% between the two agents. However, the agent may have to negotiate their fees with the seller agent, which can lead to delays.

It is also recommended to hire a lawyer. The few hundred dollars you’ll spend in fees is more than worth it to secure favorable terms and conditions in any agreement you enter into, and a lawyer’s assistance is invaluable when you’re navigating an unfamiliar housing market in a foreign language. Your lawyer can help you add provisions to the option agreement that make your decision to purchase contingent on the repairs of any problems found in a home inspection or on the appraisal of the property.

Title Study

Any bank will require a title study to be performed—even if you’re buying a property cash, a title study is a must. The typical cost for a title study in Puerto Rico is around $100. Pay close attention to these findings—many properties in Puerto Rico are unmarketable due to complex inheritance law issues that can take years and thousands of dollars in legal fees to correct.

Comparable Sales Data

Another area where buyers must exercise caution is property listing databases. Unlike the continental United States, Puerto Rico doesn’t enjoy a regulated multiple listing service (MLS), and the most popular real estate listing databases—Point2Homes and ClasificadosOnline—often present outdated, duplicate, or otherwise inaccurate information. Although Zillow technically works in Puerto Rico, it is rarely used and hence not very useful to buyers in Puerto Rico. Be prepared to find great properties only to be told they already sold six months ago.

If you’re interested in viewing comparable sales data, be warned: it’s not as straightforward as in the United States. Comparable sales data can be difficult to come by and may not always be a reliable factor in the homebuying process. In Puerto Rico, large discrepancies in prices are normal, and houses don’t always sell at comparable prices. That being said, the most trusted service for comps is TasaMax.

Preforeclosure Sales

If you’re looking for a good deal, it can be worth it to check out preforeclosure homes, which generally go for lower prices and offer less competition than foreclosure sales. Reach out—gently—to the homeowner to inquire about purchasing the property. When you make an offer, the homeowner may favor you if you have a preapproved loan, if you have already inspected the property, or—if foreclosure is imminent—if you can close the deal quickly and somewhat salvage the homeowner’s credit rating.

Closing a Transaction on a Puerto Rico Home

Property purchase transactions are closed at the lending bank’s office typically around 15 to 45 days in advance and, unlike in the United States, require the physical presence of all involved parties. Puerto Rico’s legal tradition draws heavily from its past relationship with Spain, so like many other Latin American countries, notaries must also be attorneys. This results in the closing process usually dragging on for hours, with the attorney drafting a deed dozens of pages long, which attaches hefty fees to the process. Additional fees can include overdue property tax and homeowner association dues, given that many homeowners in Puerto Rico fail to pay these fees. Fortunately for the buyer, these all fees are covered by the seller.

Presenting a predetermined purchase agreement may ease the Puerto Rico homebuying process and help protect a buyer’s interests. Acknowledging that every home purchase is unique, PRelocate has drafted an easy-to-use purchase agreement template that can work in general Puerto Rico home purchases. Homebuyers can fully customize the template to their liking, facilitating the process of composing an agreement.

Creating an escrow agreement is equally important, facilitating the transaction and protecting both parties’ interests. Thanks to PRelocate’s escrow agreement template, this step is easy as well—the buyer can easily customize the escrow agreement to fit their needs, saving headaches and making the Puerto Rico homebuying process that much easier and quicker.

If the buyer is married, both spouses must be present and sign at the closing, unless a prenuptial agreement is in place and the deed is to be put in only one name. In such a case, Puerto Rico’s community property laws stipulate that the deed document must reference the couple’s prenuptial agreement. The island also throws complex inheritance laws into the mix, further complicating matters for foreign buyers: to sell a house in Puerto Rico, signatures from multiple heirs are usually required. Homeowners have little choice in who these heirs are, as Puerto Rico’s family inheritance laws automatically position children in queue for inheritance. In the absence of children, the property goes to grandchildren, with parents third in line if there are no grandchildren. Therefore, solely naming a spouse or other non-blood heir can be difficult.

Get our help to buy, rent, or sell property in Puerto Rico

PRelocate’s Real Estate Brokerage Services

If you’re looking to buy a home or other real estate in Puerto Rico, PRelocate can help. We’re 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.

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.