The Dominican Republic is a great country to live in and recently it has been gaining popularity among expats and real estate investors, but like anywhere else in the world, it is recommended to do your research before making any important decision, and in this article, we hope to answer any questions that you may have about buying real estate properties on our beloved island.
Table of contents:
- Is it an excellent investment to buy a property in the DR?
- Why should I buy a property in the Dominican Republic?
- How to get a loan from a local bank?
- Should I buy it in my name or with a company?
- What is the process for obtaining Dominican residency?
- What's the best place to buy a property in the Dominican Republic?
- How to choose the right real estate agency?
- How to buy a house in the Dominican Republic?
- What should you check when buying a pre-sale or property under construction?
- The 3 steps to buying a house
- Expenses and taxes
- Download our free Real Estate Buying Guide
Questions to ask before buying in the Dominican Republic
Is it an excellent investment to buy a property in the DR?
Many reasons may prompt the decision to buy a house in the Dominican Republic. The process of acquiring land or building property has been reduced to its simplest form to encourage real estate purchases. But the most crucial reason is undoubtedly the economy. Indeed, the country is economically stable, favoring an atmosphere conducive to business in all sectors, including real estate. Therefore, many ex-pats choose to buy an apartment they use for a few months and rent it out for the rest of the year for profitable returns.
The development of tourism, one of the country's primary currency providers, is not being outdone, and the government is now focusing on high-end tourism. This form of tourism requires private accommodation facilities away from busy hotels. The construction of luxurious homes is an ideal solution for people looking to invest, relax, and enjoy an extra passive income. In the north of the island, in the village of Las Terrenas, many real estate projects are being developed yearly.
Why should I buy a property in the Dominican Republic?
Interests are divided into two parts: personal interests and commercial interests. As for personal interest, the beaches of the Dominican Republic will delight you. For those who can afford it, constructing a luxury home in the Dominican residential neighborhoods guarantees a dream accommodation.
It is also possible to take advantage of renting the property. And this is the second interest because the Dominican real estate sector is evolving; the real estate gains are constantly increasing, so if a property is destined only for a summer residence, the best way to profit is to rent it out. And the Dominican government, aware of the investment that the luxury real estate sector could make, adopts a proactive policy by setting up settlement areas for residential areas.
The high season in the DR is relatively long compared to Spain and other countries where people vacation. You can expect 6 months of high season, during which rental prices rise by 20 to 50%, increasing your potential profit even further.
On top of that of a meager 1% of annual property taxes, expect to pay no taxes on the revenues made from your rentals. Aside from the favorable general conjuncture, you'll need to consider the location of your future property. Some places are seeing more growth than others. For example, Las Terrenas is one of the hottest spots in the DR in terms of real estate investments and development at the moment. The market is fuelled by the local expats who invested and keep investing here and the growing middle class from the big cities, bored of Punta Cana and looking for a piece of paradise at an affordable price.
If you already know that Las Terrenas is your favorite place to purchase, here is a nice article about the benefits of investing in a vacation home in Las Terrenas.
How to get a loan from a local bank?
After years of experience with several lenders, we advise our clients to work with Scotia Bank for two reasons.
Firstly, mortgage loans are quickly available to US, Canadian, English, and Dominican citizens with Scotia Bank, our local financial partner for real estate transactions.
Secondly, they offer the best interest rates of any national bank we've been in touch with.
The first thing to do when looking to buy a property in the DR (with a loan) is to verify if you can apply for a loan. It will make things move faster if you have decided on a specific property and also help your negotiation with the seller. The documents required by Scotia Bank are the following:
- Copy of your passport plus other identification.
- Two final tax returns
- Employment letter, if employed.
- A bank reference from your main bank.
For other foreigners, loans are also available with a few additional documents required. All these documents can be sent via email. Check out this article to learn more about how to get a loan from a Dominican bank as a foreigner.
The bank will usually lend you up to 70% of the property's value, or less if you wish, meaning that a down payment of at least 30% of the property's value will be necessary from your side.
The value of the property taken into account is the lowest amount between either the estimated value or the agreed purchase price of that property. The estimated value is the value given by the "assessor" from the bank, who will estimate the property according to a set of criteria such as lot size, building size, built year, location, number of bedrooms, materials used, etc. By experience, this value is usually close to the selling price, so still expect a 10% variation to be on the safe side.
Once the bank notifies you that you pre-qualify for a mortgage loan or a loan for new construction (this verification takes 1 to 2 weeks), you will be given access to an online form available in English which you must fill in. At this point, there is a 99% chance that you will qualify for the loan.
Once the terms are satisfactory for both parties, you'll have to be in the Dominican Republic to sign the actual contract in person. You might be able to discuss with the bank sending someone with a power of attorney to sign in your name.
Most national banks have higher interest rates than in our home country. It is usually around 10% and sometimes even greater.
If you decide to build a house with a local constructor, you can take 2 separate loans: one to buy the land itself and one to build your house. Before or after having reserved the lot you set your eyes on (with usually 10% of the selling price), you'll need to secure financing if needed.
Once the total value of the land is paid at the signature of the Act of Sale, the title of ownership is transferred to you. Then, when you decide to start the construction, the bank will loan you the money in installments as the construction progresses.
At each step of the construction (generally 3 or 4 phases divided into payments of 20 to 30%), the bank will send an expert "assessor" to assess that the money loaned did go into the construction and not the pocket of the constructor. Only when all the boxes are checked, the bank will send you the next installment, which you will send to the constructor, thus retaining control over the process and your money.
The interest to be paid will be calculated only on the amount loaned, and at the end of the construction, the loan will switch to a classic mortgage loan.
Finally, owner financing is an excellent alternative for those who don't want to pay high-interest rates or navigate the complexities of the local financial system. When requesting information about a listing for sale in Las Terrenas, don't hesitate to ask if owner financing is available.
Should I buy it in my name or with a company?
Under the company name
First, you need to consider the initial extra fees related to the constitution of the company itself. Eventually, extra corporate taxes if the company makes benefits (27%).
Commercial Real Estate: Buy and Sell (with profit): It is the most advantageous solution as you will pay fewer taxes because the company can deduct all expenses such as construction, maintenance, accounting, and insurance before profits.
Protection: The property is more protected if you have financial or legal issues because nobody can claim the property under the company name because it is owned by the company and not you directly.
Real Estate Developer: For example, if you buy a piece of land, divide it, and sell lots afterward, you will benefit more if the land is owned under a company name because you will have to handle different contracts, risks, and responsibilities with the future buyers.
Avoid future conflicts with your partner: In the event of divorce, the property remains under the company name and is separated from the marriage contract.
Under the individual name:
Properties which are in the name of an individual are subject to the "IPI," an annual property tax of 1% of the value of the property estimated by the government. 1% is to be paid on the excess amount over US$147,000.
There is an exception for undeveloped lots or farms outside city limits, as well as properties whose owner is 65 or older, has owned it for more than 15 years, and has no other property. Also, you don't have to deal with the company's legal requirements and documents.
What is the process for obtaining Dominican residency?
If an individual wants to obtain Dominican residency, he or she needs to apply for a residence visa at a Dominican consulate in his or her country of origin. The applicant also needs to present a birth certificate, bank references, a marriage certificate, and a police report. All of the mentioned documents must be apostilled.
After all the documents are approved, the consulate will put a stamp of the Residence Visa on the passport of the applicant. The Residence Visa is valid for one year. Keep in mind that the time to process the visa can take anywhere from a couple of days to a month. It all depends on the consulate. As soon as the applicant obtains the Residence Visa in their passport, the consulate will immediately return all of the mentioned documents. The next step for the applicant is to take all these documents and papers to an attorney in the Dominican Republic.
The applicant will have to head out to Santo Domingo for a brief medical exam and then go once again so he or she can pick up the residency card. Since the residency card is valid for a year, the applicant needs to renew the residency every year for the next 5 years. All applicants should be aware of the fact that the cost of a professional attorney who will handle the first residency process will be around $1,200. Luckily, renewals cost less.
What's the best place to buy a property in the Dominican Republic?
The answer to that question will vary depending on the purpose of your future investment and your lifestyle.
If it's for rental purposes, you'll get money back on your investment as well as enjoy your property a few weeks per year. The rental rates you can get with a beachfront unit in the up-and-coming beach town of Las Terrenas are excellent. Moreover, the local real estate market is developing towards projects such as condominiums with rental pools and hotel-like services so that the owners don't have to worry about anything. Other beach towns like Las Galeras, Sosua, and Cabarete also offer good returns, but their markets are less developed. Here is a list of good turnkey investment properties in Las Terrenas.
In Santo Domingo, the overall minimum investment requirement is lower because the supply is more extensive and you cannot buy a condo or villa right in front of the beach, but if you manage to get your hands on a nice piece of property, you will be able to rent it to regular tourists, but also business travelers.
For living, if you are a businessman, then Santo Domingo or Punta Cana. If you are looking for a more relaxed way of life with less noise and contamination, then Las Terrenas, Cabarete, or Las Galeras are good options for you. Cap Cana is for people with a large budget and who prefer the most exclusive places in the Dominican Republic.
More about where to live in the Dominican Republic.
How to choose the right real estate agency?
The truth is that everyone, from a cab driver to a guy who works in a beachfront bar, will try to present himself/herself as the right person for the job who can help you purchase a property in the Dominican Republic. Therefore, it is very important to choose a professional real estate agent when buying a property here.
This professional real-estate agency needs to have experience in carrying out real-estate businesses. They also need to have a proper office and several employees with professional skills that include getting a better price and clearing transactions with no headaches involved. A good real estate agent needs to have multilingual employees who can speak both Spanish and English. This is very important, as the cooperation between the parties needs to be fluent, and knowing both languages means having access to a wider range of properties on the market.
Even franchise agencies with a good reputation may not be the best option when purchasing a property abroad. Most of these agencies just care about profit and have agents who don't have local connections. It's always a better option to choose a local professional agency with local ties to ensure that the purchase runs smoothly.
Discover our team of real estate agents ready to help you.
How to buy a house in the Dominican Republic?
In the Dominican Republic, foreigners can easily acquire real estate. The future owners have the choice to buy this property in their name or on behalf of their company domiciled in the Dominican Republic. Whether for individual use during the holidays, as a secondary home, or for lucrative use, the purchase of a house in the Dominican Republic requires a minimum of knowledge. To learn about the buying process in more detail, feel free to check out our free Real Estate Buying Guide.
Before any action is taken, a local lawyer must be employed to dig up the most information about the property to be purchased, such as verifying the accuracy of the deeds or whether the property is clear of all sorts of property burdens. Knowledge of the procedures and services involved, such as tax administration, is a sine qua non. The reliability of the purchase will depend on the seriousness of the lawyer. After more than 20 years of experience, our agency provides clients with a reliable law firm to conclude a deal without bad surprises.
If the house to be bought does not present any problems, the purchase can be concluded. Although simplified, procedures require the production of reliable documents. The conditions for granting are already the same for both premises, and for foreigners, the purchaser must simply carry a passport to establish their identity. After agreeing on the price of the property, a compromise sale is signed between the two parties with a down payment of around 10% of the total amount.
Then, the transaction will take place in the presence of a local notary chosen by the purchaser. So far, the purchaser must always rely on his lawyer, who will help him in drawing up the sales contract.
Generally, the funds required to acquire the property are deposited by the buyer by bank transfer or by check to the notary's trust account. The funds are then forwarded to the seller once the title to the property is allocated. After the remittance of the funds, the title is transferred into the name of the buyer or the company and then registered in the Dominican title register.
The registration of the transfer of real property with the registration of the securities requires the payment of the following taxes and charges: * 3% of the sale price; 1% of the sale value of the property; (constitution and cancellation of a mortgage, modification of title, duplicate). The new law on the real estate register guarantees a transparent system for the purchase, sale, and registration of real estate in the Dominican Republic. Payment of these fees can be made by bank transfer or by certified check.
What should you check when buying a pre-sale or property under construction?
- Translate the Promise of Sale agreement.
Before signing the Promise of Sale agreement, you or your representative should have the document translated into English or your native language. Please do not take your real estate agent or salesperson's word that everything is OK with the agreement. Most Promises of Sale agreements are drafted to protect the construction company or developer instead of the purchaser. For example, please verify if the Promise of Sale agreement has the following clauses:
a) Does it state when the construction will be finished?
b) Does it indicate that if the property is not finished by that date, the developer will pay interest on the amount already paid for every month the construction is delayed?
c) Is the lot where the property is going to be built currently owned by the developer or is it in the process of being transferred to the developer?
d) Has the developer obtained all of the necessary permits and licenses?
e) Does it state that if the property built is a few square meters smaller than what you were sold, you will be reimbursed or given credit for the difference in size?
2. If in doubt, hire a reputable real estate attorney.
An attorney (preferably fluent in English or your native language) should be able to review the agreement and answer the questions posed above. If there is a clause in the contract that you do not agree with, then it should be corrected until both parties are satisfied.
3. Please confirm if the property reservation payment is refundable.
Oftentimes, the amount paid to reserve a unit is not refundable. Before paying the reservation amount, please perform all the needed due diligence. Do not let the salesperson rush you by claiming that there are many people interested in the same unit or that you will lose it if you do not act quickly.
4. If buying a home or condo for investment purposes, ask for the projected ROI.
Try to find out the occupancy rate of already built units or properties nearby. Do not believe (without proof) claims of a high ROI. Ask for proof of the occupancy rates during different seasons of the year (high, low, medium). Run the numbers yourself to see if the projected ROI is reachable with the occupancy rates you have investigated. Make sure you add other fees like furnishings, administration fees, HOA fees, electricity, internet, taxes, and other incidental expenses to your calculations to formulate a more realistic projection of your potential return.
The 3 steps to buying a house
Make a formal offer
The procedure for purchasing a property in the Dominican Republic is similar to that in Canada, Europe, and the US. Once a buyer decides which property he or she likes, all that needs to be done is to have a formal offer written together with a deposit of 1% of the total amount. The seller is presented with the offer and, if he decides to accept the proposal, the deposit of 1% becomes a part of the final payment. If the offer is not accepted by the seller, the earnest deposit will be returned to the actual buyer.
Sign a promise of sale
The next step is signing a Promise of Sale, which is a legally binding document that needs to be signed in front of a notary public. Both parties will sign this document as soon as the buyer's attorney completes the required due diligence.
All the terms of the transaction are established in the Promise of Sale and the document will include the full names of both parties; references that establish the identities of both the buyer and the seller (such as valid passports and driver's licenses); a default clause; legal description of the property; the date on which the property is delivered; payment terms; purchase price; the exact date of the closing; and most importantly, the requirement of the seller party to sign the Deed of Sale once the final payment has been made.
The required deposit is usually around 10% and is placed in the escrow account. This way, the property is reserved for you and it's taken off the market, so you don't have to worry that someone else will purchase the property.
Sign the deed of sale
When the transaction is fully paid, both parties can finalize the Deed of Sale, which is also a legally binding document that needs to be endorsed by a notary public. The Deed of Sale allows the transfer of the agreed property from the seller to the buyer and makes the whole process quite simple and less expensive simply because the Promise of Sale step is not needed anymore.
Expect to have closings within 30-60 days, but it all depends on the agreement between the buyer and the seller. All funds from the buyer need to be in escrow 3 days before the closing. The buyer and the seller will sign all the necessary documents on the closing date.
Your lawyer will record the sale with the Register of Titles. Expect to find the property in your name in a month.
Expenses and taxes
Taxes must be paid before filing the purchase at the title registry office. Taxes and expenses on the conveyance of real estate are approximately 3.5% of the government-appreciated value of the property, as follows:
3% Transfer Tax (Law No. 288-04). The fee for transferring ownership is based on the greater of the estimated value or the purchase price, meaning that the taxes are paid based on the market value of the property as determined by the tax authorities, not on the price of purchase stated in the deed of sale.
Buyers wishing to lessen the impact of transfer taxes have the option of using a loophole in the law which allows the contribution of a kind of property into corporations without paying transfer taxes. Cooperation from the seller is essential for this.
From 0.5% to 1.5% in notary fees, depending on the estimated value of the house and the complexity (length) of the transactions.
Also, did you know that it is possible to invest in tax-free real estate with Confotur Law.
Annual property taxes
Properties held in the name of an individual are subject to an annual property tax ("IPI") of 1% of government-appraised value over RD$7,138,000 pesos (147,000 USD), except for unbuilt lots or farms outside city limits and properties whose owner is 65 years old or older, who has registered it in his or her name for more than 15 years and has no other property.
If the property is held by a corporation, no property tax is due. Instead, the corporation must pay a 1% tax on corporate assets. However, any income tax paid by the corporation will constitute a credit toward the tax on assets, so if corporate income taxes paid are equal to or higher than the taxes on assets due, the corporation will have no obligation to pay taxes on its assets.
You can check the amount and other useful information at Impuestos Internos.
The costs and revenues of owning a property
In the case of a 4-bedroom villa for rent with a capacity of 8 guests in the beach town of Las Terrenas, all prices are in USD and are approximations based on a survey of local realtors and our professional experience.
Avg. rental prices: 287 / Night x 180 nights (avg. 50% occupancy for villas in Las Terrenas)
= 51,000 Gross Revenues
- Management fees of 15 to 20% (here 20%)
- Other Expenses (utilities, cleaning, garden, pool, Internet) = 500/month =6,000
- Building insurance = 1,000
- General maintenance (fixtures, replacements, etc.) = 2,500/year
- Yearly taxes = 3,000
= 28,300 Net Profits
The price range for 4-BR villas in Las Terrenas varies, but you can look at villas for sale below 500,000.
Las Terrenas Real Estate Discovery Tour
We invite you to come and explore our little paradisiac town as part of our Las Terrenas Real Estate Discovery Tour is our VIP Pack or the perfect toolbox for the people who are serious about their plan to invest or live in Las Terrenas. It includes every paid resource and service our agency offers and will definitively help you save time and money by knowing if this is the right place for you.
Rate this page
Click on star to rate it
Average rating 0/5. Vote count 0