By Hugo Espinal
Special for El Inmobiliario
Hi Hugo, my niece tells me she's bought several properties, and as you know, I also live in the United States. We Dominicans living abroad have had bad experiences buying real estate through unreliable developers, and I understand there will always be a few bad apples in the various sectors of our beautiful country. So, how can I protect myself from falling into a similar trap?
The concern expressed by this client is entirely valid, especially in light of high-profile cases from 2023.
My answer for Ms. Esther Pérez, let's call her that, is simple but not easy. Nothing in life offers 100% security, except death and taxes, but we always look for ways to mitigate potential scams with different tools
- Always work with an experienced advisor who is knowledgeable about the developers operating in the market, in conjunction with a recognized company in the sector that has clear knowledge of processes such as due diligence.
- Ask if the project to be developed has any type of real estate investment and development trust, and if so, find out or inquire about the acting trustee.
- And finally, ask the real estate advisor about previous projects delivered by the developer.
If you ask me, the most valuable asset being traded in 2024 is trust, and real estate transactions are no exception. That's why, as I mentioned before, 100% security doesn't exist, but we should always strive for that level of security in various ways.
To better understand point 2, regarding the trust, which is one of the mechanisms that most helps us approach the famous 100% security; and which is not a total guarantee either, since even the Bank of England went bankrupt in 1992 thanks to a move by George Soros, I will proceed to explain a little more.
There are several types of trusts, but the one I recommend is the Real Estate Trust, as it provides greater security when investing in a project, since the developer cannot access the buyers' money until they meet three conditions or break-even points, which can be summarized as follows:
- Technical break-even point: This is when the project manages to obtain all the necessary permits to be able to start the construction of the project.
- Legal break-even point: This is reached when the property where the project will be developed is transferred to the trust.
- Economic break-even point: This condition aims to ensure the project is financially viable and is achieved when the number of units sold, along with the investment of own funds by the builder or investor and, if necessary (which is usually the case), financing from financial institutions (known as interim construction loans) for the work, are sufficient to deliver the project to its buyers.
Another reassuring factor that the trust provides to the buyer is the guarantee that their money will be used for the construction of the project and will not be diverted to the purchase of another plot of land for another project, for the purchase of vehicles, travel, or other purposes unrelated to construction.
In that regard, we suggest you consult with your real estate advisor to see if the project is within a trust and, if so, to ask whether or not it meets the conditions outlined above.
Security and trust are what a buyer should look for; by contacting the right real estate advisor, they will get closer and closer to a real estate project that will be successfully completed.
The author is: Senior Advisor at Plusval Dominicana.
