Property evaluation please

[jagpill]

I have a opportunity to purchase a duplex in playa Guiones Costa Rica. The property is currently long term rented and after all expenses is generating $9800.00 per year. The cost is 300k.

The area is one of the best if not the best location and is super close to the beach in a beautiful neighborhood. This is a very high demand area for rentals and the real estate is very hot and selling fast.

The rents could probably be increased a little but not much. The units themselves need to be remolded and have AC added as well as separating the electric meters. Then the rents could be increased substantially. There is also potential to vacation/ short term rent one or both units but right now I do not have the capacity to manage the short term. In 3 to 5 years however, I will.

I appreciate any input

[Archipelago]

Am I correct in saying you would be purchasing in cash and that there are zero property taxes?

[jagpill]

The taxes are approximately 600 per year. Yes I will pay cash

[Archipelago]

From a pure numbers standpoint you're looking at:

$9800/$300000 = 3.27% annualized ROI

You would do better with plenty of other investment strategies.

[jagpill]

Thanks for your input

[stachestache]

Is this strictly an investment? or is part of your plan to vacation/live there in 3-5 years when you have more free time?

Are you buying it outright? If so, why?

[jagpill]

No it is not strictly an investment. I travel for work months at a time and when I am off work will probably live in one of the units. I have also been traveling to this town for over ten years to surf so there is some emotional attachment to it.

When I have more free time my plan would be to short term rent it. There is a lot more money in that and the demand is very high.

I have some financing lined up if it makes sense. The rate is approximately 5% and would need to be repaid in 5 years.

I would put 100k down and finance the rest putting the payments at around $3600.00 per month and adding 25k in interest to the cost of the property.

Since my first post the owner has reduced the price 10k to 290k

[stachestache]

I think it is a solid plan. Sounds like you wont have any trouble short term-renting it out.

Not a bad rate especially when considering how short the life of the loan is. Shoot, you could consider leaving it a long-term rental for those five years to use that cashflow towards the property. Or at least keep the higher dollar unit occupied.

I'm looking at doing something similar on the west side of Puerto Rico in the coming years.

It is really cool to see someone doing it!

[Another Reader]

I think it is a solid plan. Sounds like you wont have any trouble short term-renting it out.

Not a bad rate especially when considering how short the life of the loan is. Shoot, you could consider leaving it a long-term rental for those five years to use that cashflow towards the property. Or at least keep the higher dollar unit occupied.

I'm looking at doing something similar on the west side of Puerto Rico in the coming years.

It is really cool to see someone doing it!

It would really be helpful to see one that was done successfully...  Numbers on a piece of paper are not very good predictors of the result.  It's a hard pass for me, given the numbers and the location.  A lot of money has been lost investing in beachfront property in Central America over the years...

[Archipelago]

I think it is a solid plan. Sounds like you wont have any trouble short term-renting it out.

Not a bad rate especially when considering how short the life of the loan is. Shoot, you could consider leaving it a long-term rental for those five years to use that cashflow towards the property. Or at least keep the higher dollar unit occupied.

I'm looking at doing something similar on the west side of Puerto Rico in the coming years.

It is really cool to see someone doing it!

OP stated that the annual profit is $9800 after all expenses. Does that account for vacancies, capital expenditures, maintenance and property management?

Even with short term renting it for higher the OP is not local. Property management fees start at 10% and get as high as 20-30% for short term rentals.

Even if the OP invested $100k, financed the rest, AND had the same cashflow after debt service it's still:
$9800/$100,000 = 9.8% ROI

The S&P did 28% alone in 2019. How exactly is this a solid plan?

[stachestache]

I think it is a solid plan. Sounds like you wont have any trouble short term-renting it out.

Not a bad rate especially when considering how short the life of the loan is. Shoot, you could consider leaving it a long-term rental for those five years to use that cashflow towards the property. Or at least keep the higher dollar unit occupied.

I'm looking at doing something similar on the west side of Puerto Rico in the coming years.

It is really cool to see someone doing it!

OP stated that the annual profit is $9800 after all expenses. Does that account for vacancies, capital expenditures, maintenance and property management?
Even with short term renting it for higher the OP is not local. Property management fees start at 10% and get as high as 20-30% for short term rentals.

Even if the OP invested $100k, financed the rest, AND had the same cashflow after debt service it's still:
$9800/$100,000 = 9.8% ROI

The S&P did 28% alone in 2019. How exactly is this a solid plan?

OP stated it is not strictly an investment. I'm aware of the S&P, hardly relevant.

OP's attachment accounts for property management and a handful of other misc. expenses and shows the $9800 after a few months of vacancy in one of the units. I do not see a bucket for future maintenance or CapEx.

I mentioned the option of keeping the higher dollar unit (see attachment) as a long-term rental which could cover monthly, and the bulk of the long-term (capex, maintenance, vacancy, etc...), expenses in the long run as he is going to pay it off in a short period.

OP has been traveling there for a decade and has an idea what is going on there to say the least I'd venture.

Live out your dream jagpill, I'm right behind ya!