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 Worries
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.
Need Assistance?
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.
FAQs
Is it smart to buy real estate in Puerto Rico? ›
Puerto Rico offers many advantages to homeowners, including a lower cost of living, tax benefits, beautiful weather and beaches, and a rich culture. However, there are also potential challenges to be aware of, such as natural disasters, property values, and infrastructure challenges.
How much does a home inspection cost in Puerto Rico? ›Inspection & Equipment
Hiring a professional property inspector in Puerto Rico is essential and costs as little as $300.
100% exemption from Puerto Rico income taxes on all short-term and long-term capital gains generated after the individual becomes a bona-fide resident of Puerto Rico (“Puerto Rico Gain”). Special rules apply to capital gains on the sale of securities held before moving to Puerto Rico and sold after the move.
Is Puerto Rico good for real estate? ›The Bottom Line. Buying real estate in Puerto Rico offers a number of logical investment perks for Americans, including flexible finance possibilities, zero immigration concerns, and amazing tax breaks (should you qualify).
Are home prices dropping in Puerto Rico? ›House prices were down 2.67% during the year to Q3 2022
Puerto Rico's housing market remains weak.
Puerto Rico real property is subject to an annual real property tax.
How much does the average house cost in Puerto Rico? ›Rates range from 8.03% to 11.83%. Even at 8.03%, property taxes on a home at Puerto Rico's median home value of $127,500 would be over $10,000 a year!
Is it easy to buy a house in Puerto Rico? ›Buying a property on the island can be very different than on the mainland. To purchase a home in Puerto Rico, you are required to be pre-qualified for a loan. If you are planning a cash purchase, you must show evidence of sufficient funds. A good credit score and a 20% downpayment is the norm for getting a loan.
What is the average cost of living in Puerto Rico? ›Summary of cost of living in Puerto Rico: A family of four estimated monthly costs are 3,360.5$ without rent. A single person estimated monthly costs are 969.5$ without rent. Cost of living in Puerto Rico is, on average, 10.8% lower than in United States.
How can I avoid taxes when moving to Puerto Rico? ›U.S. citizens who become bona fide residents of Puerto Rico can maintain their U.S. citizenship, avoid U.S. federal income tax on capital gains, including U.S.-source capital gains, and avoid paying any income tax on interest and dividends from Puerto Rican sources.
How often do you pay property tax in Puerto Rico? ›
As a reminder, property taxes in Puerto Rico are paid twice a year, with the first installment due at the end of June and the second at the end of January.
Do you have to pay federal taxes if you live in Puerto Rico? ›Federal taxes. Residents of Puerto Rico are required to pay most types of federal taxes. Specifically, residents of Puerto Rico pay customs taxes, Federal commodity taxes, and all payroll taxes (also known as FICA taxes, which include (a) Social Security, (b) Medicare, and Unemployment taxes).
Who qualifies for Act 60 in Puerto Rico? ›Individuals who are bona fide residents of Puerto Rico are eligible for a possession-source income exclusion, and therefore not subject to U.S. income tax on work or business income sourced from within the territory.
What is the most affordable place to live in Puerto Rico? ›Rio Marr, Puerto Rico: Affordable, Walkable, and Chill
Consistently rated as one of the best places to live in Puerto Rico, Rio Marr is a stunning place. It's also very affordable, mostly because the area has little nightlife.
The portion of the estate reserved for forced heirs in a will is two thirds. In the absence of a will (intestate estate), estate is distributed equally among forced heirs. The portion reserved for forced heirs in a will is reduced to 50%. In the absence of a will, estate is still distributed equally among forced heirs.
Why is Puerto Rico declining? ›“Puerto Rico's population continues to decline, with all 78 municipios experiencing population loss in 2022,” the Census Bureau said in a press release accompanying the data. “The drop in population is largely a result of natural decrease, as all municipios had more deaths than births and negative net migration.”
What happens to abandoned houses in Puerto Rico? ›“Any abandoned property that has a mortgage will be subject to a judicial foreclosure process. Until then, the ownership will be retained by its lawful owners,” he said. “Then if they are finally foreclosed, it will become a real estate owned (REO) property of the particular bank.
What does crim mean in Puerto Rico? ›CRIM, which stands for "Centro de Racecaudacion de Ingresos Municipales," translates to the Center for Municipal Revenue Collection Center in English. Property owners in Puerto Rico are required to pay their property tax payments in July and January each year.
What is the Act 60 in Puerto Rico property tax? ›What does this mean? It means that once the person becomes a resident individual investor of Puerto Rico unde Puerto Rico Incentives Code 60 — and until 1/1/2036 — any dividend or interest income is exempt from tax in Puerto Rico.
What is the law 68 and 187 in Puerto Rico? ›Law 68: Promotes acquisition and investment into the housing market on the island LEARN MORE. Law 187: Exempts buyers from paying property taxes for five years as well as certain closing costs for the purchase of the new residence as a primary residence, second home or investment property.
How long can a US citizen stay in Puerto Rico? ›
An approved ESTA for Puerto Rico allows a stay of 90 days with each entry for tourism, transit, or business purposes, and is valid for a total of 2 years from issue, meaning there is no need to re-apply for every trip to US territories.
What is the average electric bill in Puerto Rico? ›| Prices | ||
|---|---|---|
| Electricity | Puerto Rico | United States |
| Residential | 23.60 cents/kWh | 15.96 cents/kWh |
| Commercial | 26.38 cents/kWh | 12.77 cents/kWh |
| Industrial | 23.90 cents/kWh | 8.15 cents/kWh |
| Nation | City | Price in USD Regular/Gallon |
|---|---|---|
| Nicaragua | Managua | $2.61 |
| Panama | Panama City | $2.19 |
| Russia | Moscow | $2.10 |
| Puerto Rico | San Juan | $1.74 |
The term 'resident individual' means an individual who is domiciled in Puerto Rico. It should be presumed that an individual is a resident of Puerto Rico if they have been present in Puerto Rico for a period of 183 days during the calendar year.
Is it smart to move to Puerto Rico? ›Moving to Puerto Rico to avoid taxes is just one of countless good reasons to be here. Besides an overall cost of living that is lower than on the mainland, you can enjoy picture-perfect beaches and nature trails, tasty Caribbean treats, convenient shopping, and so much more.
Is it cheaper to live in Puerto Rico than the United States? ›Remember this rule of thumb: depending on where you settle on this U.S. territory, you will likely save somewhere between 5% and 70% off the cost of living found in a typical city in the United States. Puerto Rico's smaller cities tend to have an especially low cost of living.
What is a good income in Puerto Rico? ›Median Household Income: $21,967. Average Household Income: $34,931. Per Capita Income: $14,047. 1.1% of Households in Puerto Rico are High Income Households that make over $200,000 a year.
Is it cheaper to go to Hawaii or Puerto Rico? ›Even though Puerto Rico is a Caribbean island, it is very affordable. As the cost of the average 7-day Puerto Rico vacation ranges from around $1,000 to $2,500+ USD per person making a Puerto Rico holiday far more affordable than a Hawaiian getaway.
Where is the most expensive place to live in Puerto Rico? ›This $45 Million Home At Dorado Beach Is Puerto Rico's Most Expensive Listing. Senior Contributor. I cover home design and luxury real estate.
What is the Act 60 short term capital gains in Puerto Rico? ›One of the greatest of many Puerto Rico tax benefits is the Act 60 Investor Resident Individual Tax Incentive (formerly Act 22), which allows you to pay 0% federal or Puerto Rico capital gains tax on all capital gains incurred during the time that you qualify as a bona fide Puerto Rico resident living in Puerto Rico.
Is Puerto Rico tax friendly for retirees? ›
Income derived in Puerto Rico is exempt from extra US federal tax since Puerto Rico is legally a part of the US. This fact, along with their favorable tax policies and regulations, results in significant tax savings for many. Act 22 is particularly alluring to potential retirees.
Do retirees pay taxes in Puerto Rico? ›Taxes in Puerto Rico
Retiring in Puerto Rico becomes an even more attractive option when you consider the generous tax policy known as the Individual Investors Act. Under this act, residents of Puerto Rico are exempt from paying island or federal income taxes on dividends, interest and capital gains.
You must become a resident of Puerto Rico, and you must reside there for at least 183 days a year, or meet one of several other tests that are less clear cut.
What is the Act 20 in Puerto Rico? ›Puerto Rico's Act 20, also known as the Export Services Act of 2012, offers tax incentives for Puerto Rican companies to export services to other jurisdictions.
What is the Act 20 and 22 in Puerto Rico? ›As has been widely reported, Puerto Rico's Act #20 and Act #22 provides incentives for high net worth U.S. citizens to move to Puerto Rico and potentially reduce their 39.6% federal income tax (plus any applicable state tax) to a 0% – 4% Puerto Rico income tax rate.
Does Puerto Rico get Medicare? ›More than 65% of individuals living in Puerto Rico receive health care through Medicaid and Medicare, but federal funding for these programs in US territories has restrictions not present in the US mainland.
Why is Puerto Rico a tax haven? ›Much of this is due to Act 60, a piece of legislation passed to boost economic development on the island. Puerto Rico residents generally do not pay federal income taxes, but they do pay taxes to the Puerto Rico government. And Puerto Rico keeps those taxes low for certain businesses and individuals.
What is a bona fide resident of Puerto Rico? ›Bona Fide Residents of Puerto Rico: Generally, you are a bona fide resident of Puerto Rico if during the tax year, you: Meet the presence test • Do not have a tax home outside Puerto Rico, and • Do not have a closer connection to the United States or to a foreign country than to Puerto Rico.
Is Puerto Rico a good tax haven? ›Located in the Caribbean Sea, the U.S. territory of Puerto Rico is a spectacular tax haven for businesses and individuals. Much of this is due to Act 60, a piece of legislation passed to boost economic development on the island.
Is there a tax advantage to moving to Puerto Rico? ›U.S. citizens who become bona fide residents of Puerto Rico can maintain their U.S. citizenship, avoid U.S. federal income tax on capital gains, including U.S.-source capital gains, and avoid paying any income tax on interest and dividends from Puerto Rican sources.
What are real estate taxes like in Puerto Rico? ›
The maximum tax rate is 9.83% and varies depending on the municipality in which the taxable property is located. Taxable property normally includes cash on hand, inventories, materials and supplies, furniture and fixtures, and machinery and equipment used in the trade or business.
Does Puerto Rico tax Social Security benefits? ›Social security contributions
Puerto Rico is covered under the US social security system; consequently, Puerto Rico employers and employees are subject to the US Social Security and Medicare taxes requirements. See the Other taxes section in the United States Individual tax summary for more information.
Achieving economic stability is typically the main reason that many Puerto Ricans migrate to the U.S. mainland. At the same time, thousands return to Puerto Rico annually, describing their homecoming as "a dream come true."
What is the Act 60 capital gains in Puerto Rico? ›What does this mean? It means that under Puerto Rico Incentives Code 60, if an individual is granted Puerto Rico tax exemption under the act, long term gains as a result of investments made after becoming a resident will be exempt from tax in Puerto Rico.
What are the benefits of Act 60? ›Individuals who qualify for Act 60 also enjoy significant tax breaks, including a 100% tax exemption from Puerto Rico income taxes on: Dividends. Interest. Short-term and long-term capital gains.