By Joan Feliz Valoys
Special for El Inmobiliario
Punta Cana, with its idyllic beaches and promising short-term rental market, has become a magnet for international investors. Promises of passive income of $1,600 per month and average occupancy rates of 62% paint an attractive picture for those seeking to diversify their income through real estate. However, behind this idyllic image lie key aspects that any investor should consider. The reality is that it's not all rosy, and understanding the risks and challenges can make the difference between success and bitter disappointment.
Averages that don't tell the whole story
While the average income estimates ($120 per day and 62% occupancy) seem attractive, these figures don't apply equally to all properties. Recent studies show that only 25% of the most exclusive properties achieve these income levels, while standard units generate an average of $900 per month—a significant difference from initial expectations.
The average occupancy rate of 62% also means that many properties are vacant for more than a third of the year, leaving owners with fixed costs and insufficient income to cover them. This particularly affects novice investors unfamiliar with the dynamics of the local market.
Seasonality as a decisive factor
Punta Cana's reliance on peak seasons is one of the biggest challenges for investors. Data from the Dominican Republic Hotel and Tourism Association (ASONAHORES) indicates that during the high season (December to April), occupancy rates in tourist accommodations reach 90-95%, but during the low season (May to June and September to November), they drop to 35-40%, drastically impacting rental income.
To mitigate this seasonality, it is estimated that 60% of owners in the area resort to aggressive discounts, but this reduces profit margins and does not always guarantee sustained occupancy.
A saturated and competitive market
With over 6,000 properties listed on platforms like Airbnb and Vrbo, Punta Cana is facing increasing saturation. Furthermore, new real estate developments, which are increasing supply by 15-20% annually, are driving down average nightly rates. For example, properties that previously charged $150 per night are now forced to lower their prices to $100 or less to compete.
Saturation also forces owners to invest in upgrades and additional services, increasing costs and reducing net profits.
Hidden costs you should consider
The allure of passive income often obscures the true costs of maintaining a property in Punta Cana. According to estimates from local property managers:
Maintenance: The tropical climate and salinity result in an average annual repair cost of $2,500-$3,500.
Rental management: Hiring an agency for management costs between 15% and 25% of monthly income, which can significantly reduce profits.
Taxes and regulations: Local taxes and additional fees can add up to between 1% and 3% of the property value annually.
Risks inherent in tourism
The COVID-19 pandemic had a lasting impact on the Punta Cana tourism market. During the months of strictest lockdown, occupancy rates plummeted to 10-15%, causing significant losses for property owners. Furthermore, the region is highly vulnerable to extreme weather events.
The myth of covering a loan with rental income
One of the most common mistakes investors make is assuming that rental income will fully cover mortgage payments. The reality is that in Punta Cana, this is unlikely due to seasonality, hidden costs, and market saturation. For example, an apartment with a $200,000 mortgage and an average interest rate of 6% would require monthly payments of around $1,200, while net rental income, considering an average occupancy rate of 62% and maintenance costs, ranges between $800 and $1,000. This leaves a shortfall that the owner must cover with other resources.
However, profitability improves significantly for investors with more initial capital. Those who buy outright or finance only a small percentage of the property's value face less financial pressure and can reinvest rental income in improvements or portfolio diversification. This strategic approach allows for maximizing profits and minimizing risks, especially in a market as competitive as Punta Cana.
Conclusion: An investment with potential, but not without risks
Investing in Punta Cana can be an attractive opportunity for those willing to research, plan, and take calculated risks. However, it's not all smooth sailing. Challenges such as seasonality, market saturation, hidden costs, and dependence on tourism make this investment less secure than many promoters suggest.
If you're considering investing in this Caribbean paradise, remember that a realistic outlook and sound advice are your best allies. Evaluate the numbers carefully, seek reliable local guidance, and plan strategies to diversify your income. This way, you can make informed decisions and minimize the risk of your investment dream turning into a nightmare.
The author: He is MB, a Digital Marketing specialist, operations manager of the construction company Incaribe, with more than 10 years of experience in the construction and tourism sector.
