The mission of Happy Living Punta Cana is to educate everyone I can on the process of purchasing an investment property in Punta Cana. I want to gather all of my knowledge and learnings throughout my process of purchasing a pre-construction condo in Punta Cana and share with the world so that we are all informed. I realized that throughout this process I have learned so much about how to buy pre-construction property that is not the same as purchasing a conventional already built home. I have had experience purchasing real estate in the past, but purchasing pre-construction real estate is a different ball game. Here is what I learned from my experience:
The set up of pre-construction is as follows: You pay for a % of the property upfront (could be anywhere from 30-50% of the property cost in my experience). This amount is due in installments throughout the course of the construction of the property. Once the property is finalized, the other amount left is due to the developer. Once the construction is completed, you can get normal financing like a mortgage for the remaining balance.
My Experience: For the purchase of my property the set up was as follows:
$5k Separation - this is a typical ‘Separation’ amount which you pay once you are ready to go through with the process (but before you get into the contract stage). This indicates to the developer that you are serious about the purchase and they reserve the apartment for you (so they cannot sell it to anyone else).
10% Down Payment - Once the first separation is done, I was asked to provide a 10% deposit to continue the process.
Payment Schedule Negotiation - I had a payment process negotiated with the developer. I specifically chose to have quarterly payments because that made it easier (and cheaper) to make international transfers from my bank account.
Pre-construction property has multiple stages/phases. Basically there are a couple of different rounds of the construction process. When you learn about a project and it has not broken ground yet, it is usually the most cost-effective time to invest, but it is also usually the riskiest. So many things can happen between the time that a project breaks ground and completion. We give some examples of this below.
Developers sometimes use the money they collect from the apartment purchase to actually build the building. Although this is not always the case, some developers actually use the money that they gather from the unit purchases to actually build the property. Different countries have different laws for developers so this very well may vary depending on where you are purchasing your property. I know for me, I was told many times by many realtors that this was the case. What this could mean for an investor is that if the developer does not have enough units sold, the project may take a bit longer since they need that cash flow from people paying off their units in order to keep the construction going, hire crew, purchase materials, etc.
Projects usually take longer than what is predicted, especially if you get into the investment in the first phase/stage.
Natural disasters could slow down the project - things like hurricanes, earthquakes, etc.
Supply chain issues with construction materials (as we saw during the pandemic) can occur. Additionally, construction requirements and laws may lead to additional delays.
My Experience: From my personal experience, my project was supposed to be completed in December 2022 and it is now pushed back until Sept/Oct 2023. This is a full additional year of construction time which means it's a full year before being able to make any profit off of the property. I have been investing since October 2020 so I am coming up to my 3rd year of investment without seeing any returns. This is important to know and understand before getting into this business. My delay was due to a law in the Dominican Republic called Confotour where an investor would not have to pay property taxes on the property for the first 15 years of ownership. Although inconvenient due to the delay, it is a great advantage to invest in a property that has this benefit.
There could be a clause that could alter the final price of the property. Make sure you read the fine print before signing.
My Experience: The amount of the property was set in the beginning in my contract so the amount needed during the construction period was set but I have heard of cases where the developer has the right to increase the price of the property up to 15% during the time of construction if the cost of materials goes up (or for other reasons). Please watch out for this and make sure you read your contract in full before signing anything!
Although not everyone's experience is the same, I wanted to share some key learnings that I had while purchasing my first pre-construction property to make sure you are well-informed if you are interested in making an investment. For the full step by step story of my journey, check out my blog series here where I detail the story of how Happy Living Punta Cana came to be!