I have so much to write about on Puerto Rico in general and the continuation of our short-term rental adventure. However, to maintain some variety and ensure no single post gets too long, I’ll plan on writing about one post a month on this topic. This week, I’ll share some takeaways from the buying process.

Finding a House

Real estate agents in Puerto Rico don’t post every listing on the MLS as consistently as they do in the rest of the United States. A higher percentage of agents in Puerto Rico are not REALTORs and do not participate in the MLS. For that reason, if you’re looking for a house, you’re going to want to float between at least the following three sites in your search:

• Clasificados Online. This is basically the Craigslist of Puerto Rico. It’s every bit as bad as Craigslist. But there are listings on here that you won’t find anywhere else.

• Zillow. Quite a few listings in Puerto Rico do make their way to Zillow. But it’s definitely far less than 100%. Don’t assume you’ll find everything here.

• Brokerage / Franchise Apps or Websites with a Presence in Orlando(!!). My real estate tech friends may find it interesting that the Puerto Rico Association of REALTORs partners with Stellar MLS as their MLS Provider. The net result is that any brokerage or franchise app or website that allows you to search for listings in the Orlando area will probably work in Puerto Rico since they’re sourced from the same MLS. Here are some apps that work in Puerto Rico that happen to be partnered with the best tech company in real estate: BHHS Florida Network Realty, Engel & Völkers, Mark Spain Real Estate, NextHome, and Realty ONE Group.

If you’re looking to buy a short-term rental, pay extra close attention to which communities and homeowner’s associations allow short-term rentals. I got copies of corresponding homeowners association documents for any homes we were seriously considering. It was often the case that there was a mixture of documents in English and Spanish. When I encountered a Spanish PDF, I used Google Docs to convert the PDF to text and then used Google Translate. It wasn’t perfect, but it worked well enough.

Working with Real Estate Agents

It is standard for a seller’s agent to pay the buyer’s agent commission in the US and Canada. Therefore, agents are amenable to representing buyers without charging a fee directly to the buyer.

However, this is often not the case in Puerto Rico. Many properties in Puerto Rico are listed by sellers’ agents with no offer of compensation to buyers’ agents. This is more aligned with the European / Australian model of real estate. Sellers’ agents in Puerto Rico are used to making all their money by working directly with buyers.

As such, don’t assume you can find an agent as a buyer who will be motivated to show you all the inventory out there.

Contracts and Closing

Most state REALTOR Associations have standard paperwork that REALTORs use to make offers in the US. There is no such thing as a standard purchase offer contract in Puerto Rico. The seller’s agent will propose some paperwork. As the buyer, it is up to you to find an attorney and review the paperwork. And I highly recommend you do so.

Most of these agreements are structured as option agreements. Option money is put up instead of earnest money, usually to the tune of 5%. And perhaps a little unsettling – you wire the money right into the listing broker’s trust account.

Contracts in Puerto Rico can be written in either English or Spanish. Both are official languages. Fortunately, our sellers knew way more English than I did Spanish and were okay with writing all our contracts in English.

In Puerto Rico, the “notary” title designation means something entirely different than it does in the rest of the US. Notaries in Puerto Rico are full-fledged attorneys. And notaries are responsible for pulling together all the paperwork for closings. Although notaries are attorneys, they are supposed to be neutral in the transaction – effectively representing both sides.

It is usual for the seller to pay more of the notary fees as part of the closing costs. In my case, however, I offered to pay a portion of the notary fees in return for being able to pick the notary and guide more of the paperwork process pre-closing.

Most closings don’t involve a closing agent, title company, or title insurance. In my case, I chose to get a title company involved and buy title insurance. It was a significant enough investment that I felt more comfortable getting some more eyes on things and ensuring that the right amounts of money were making it to the right places.

The closing documents are all retained in a bound book by the notary at their office with stamps attached. I’m told this is similar to the Spanish system.

Appraisal and Comparable Sales

We put a clause in the option contract that would allow us to cancel if we received an appraisal meaningfully below the proposed purchase price. I was nervous about overpaying, so I ordered two different appraisals.

Finding comparable sales data takes a lot of work. There’s no equivalent of county record websites where you can see property tax, appraisal, or past transaction information. And don’t expect to find Zestimates or past sales on Zillow.

You can pay for subscriptions to services called TasaMax and PuertoRicoE.com to look up historical sales. Unfortunately, while both have a lot of data, they are still incomplete.

Insurance

Only a handful of major insurance companies offer homeowners insurance in Puerto Rico. Mapfre is the prominent choice many rely on.

Financing

Since Puerto Rico is a US territory, many things about mortgages are similar on the island. For example, conforming mortgages are bought and sold by Fannie and Freddie. Credit reports are pulled from the same bureaus. 30-year mortgages are standard.

With that said, for all the similarities, there are plenty of differences. Most mainland US banks do not lend in Puerto Rico. My favorite mortgage lending site suggested it would lend there when I entered the zip code for the property we were purchasing. It even quoted a rate. But a few steps into the application process, it was apparent that it wasn’t supported. Sites that quote you mortgage rates from various lenders (like Bankrate) don’t have any support for Puerto Rico either.

When you find banks in Puerto Rico that will lend to you, they’ll typically charge 1-1.5% higher rates than whatever is current in the rest of the US.

Of the various non-traditional lenders who focus on lending to LLCs for short-term rental properties, I couldn’t find one that would lend in Puerto Rico.

In Summary

Be prepared to take ample time for your search and for closing. Never assume that just because you know a thing or two about real estate, you’re also prepared for all the nuances you’ll encounter in Puerto Rico. I didn’t know what I was getting into, but I’m still grateful we moved forward!

Special thanks to Diane Cohn for her article 14 Things We Learned Buying a Home in Puerto Rico written in November 2014. If you’re considering buying in Puerto Rico, it’s still a must-have resource. Little has changed since the article was written.

This Week’s Quick Hits

• Many of you have asked if we have posted the rental on Airbnb. We do now – check it out here. I’m a little self-conscious about posting it publicly. It’s a nice place – significantly nicer than our place in Minnesota. The nightly rate is high. We are offering a family and friends discount on a limited basis. Email me if you’re curious.

• Thanks to all who read last week’s post on How I Write Each Week and gave me feedback on what topics you want to hear more on. More to come on the feedback I received and one of the requested posts next week.

Photo by Zixi Zhou on Unsplash

We had been considering buying a short-term rental property primarily for investment income. But we also only wanted to buy somewhere we would want to vacation. And although we had been thinking about the broad topic for a solid year, pulling the trigger on buying in Puerto Rico was sudden.

Our family visited Puerto Rico for spring break in March of this year for the first time. When we landed, I told a friend on the phone, “maybe we will look at some properties while we are down here.” A week later, I was making a verbal offer by phone from the airport on the way home. Buying a property certainly wasn’t on the agenda for the trip.

So, why did we choose Puerto Rico over other places for buying an investment property?

We may have arrived at a different “best place to buy” if it wasn’t also a priority for us to visit there ourselves at least a few times a year. Given that constraint, we only wanted to entertain places that were either less than a 3-hour drive or that we could get to with a direct flight from Minneapolis.

The most exciting place to us in driving distance is the Minnesota north shore, near Lake Superior. While it doesn’t do anything to help us get to a warmer climate a few times a year, fall is pretty fantastic up there. Kate and I love to see the leaves turning colors and listen to the waves crashing. However, there are currently too many short-term rental restrictions in cities like Duluth and Two Harbors and surrounding counties. We wanted a vacation property that could drive income, not just serve as a nice vacation spot.

Driving locations presumably off the list, for now, we were down to where can we get on a direct flight. I’ve spent excessive time studying Delta direct flights from Minneapolis on FlightConnections.

Minnesota winters are bitterly cold, so if we are going to do this, we better choose somewhere with consistently warmer weather. And I had already crossed most warmer climate states off my mental list of places to buy in. California is too expensive. Hawaii is too far. Arizona has no shoreline. Florida is too, umm, Florida.

With direct flight and warm weather in mind and many states off the list, the options are narrowed down to places like Mexico, Costa Rica, Belize, Jamaica, the Dominican Republic, and Puerto Rico.

Amid COVID, we had a couple Caribbean and Central America trips canceled. One was canceled out of an abundance of caution, and the other was canceled due to travel restrictions.

Concerned about a repeat, we chose Puerto Rico for our 2022 spring break partly because it’s a U.S. territory. We were confident that there wouldn’t be any travel restrictions preventing us from traveling to or especially from Puerto Rico. I like that U.S. federal laws apply in Puerto Rico, and no passports are needed to travel there.

While there is some comfort in Puerto Rico being part of the U.S., it wasn’t just about that. I like that it has a distinctly unique culture that pushes my family and me to expand our horizons when we’re there. While many who live on the island are bilingual, Spanish is the dominant language.

Since buying, I’ve tried a couple times to order from a restaurant in Spanish. I keep failing when I get asked nearly any follow-up question, but I will keep trying and pushing myself to learn. My son and I are both challenging each other on Duolingo to learn Spanish. I also may soon get the opportunity to learn Spanish at work.

Of course, culture expands far beyond just what language is primarily spoken. I consider each trip a learning opportunity. My family and I still have a lot to learn.

Five months post-closing, I ask myself at least a few times a month, “what did I get myself into?” We are too early in this journey to determine if this was a fantastic or a poor decision – especially financially. We probably overpaid for the house. I underestimated how different managing and acquiring real estate in the rest of the U.S. was compared to Puerto Rico. I didn’t anticipate several significant expenses we’d have in getting the property ready for rent. And I don’t have the data yet to know if our cap rate will be closer to the 10-12% I initially projected or if I was way off.

But we spent a week as a family there in October when things started to get colder in Minnesota, and we had a blast. I have under 5 years with my oldest before he is out and off on his own. I knew I might lose money on this endeavor, but I considered it a justifiable risk. I’ve got time to make more money. I can’t make more time for more great memories with my kids.

In the coming months, I’ll periodically write on some follow-up topics of learnings on this journey. Feel free to message me if there are topics about Puerto Rico or short-term rentals that you want to know more about!

Special thanks to my friends who helped me think through the pros and cons before buying. One of the biggest takeaways from those conversations was that no decision is permanent – even if it feels big. And there’s no better way to learn than by doing.

Photo by Ana Toledo on Unsplash