Puerto Rico has long been an attractive destination for real estate investors, offering beautiful beaches, a tropical climate, and significant tax incentives. With the enactment of Act 22 in 2012, investment in Puerto Rican real estate has accelerated rapidly. Act 22 grants a 0% tax rate on passive income and 4% on active income for individuals who become residents of Puerto Rico. This has made the island very appealing for high net worth individuals looking to lower their tax burden. When combined with Act 20, which provides generous tax exemptions for export services businesses, Puerto Rico provides a compelling case for investors seeking both lifestyle and financial benefits. Here are some key strategies and opportunities for investing in real estate in Puerto Rico.
Focus on luxury properties and resort communities to cater to new residents
With the influx of wealthy individuals relocating to Puerto Rico under Acts 20/22, there is strong demand for high-end, luxury real estate. Oceanfront condos, resort communities, and upscale homes with amenities are likely to appreciate well in value. Areas like Dorado, Rincón, and Palmas del Mar are already established as luxury enclaves. However, opportunities exist to develop new upscale communities as more high net worth individuals pursue residency. Catering to this demographic can be lucrative for luxury developers and investors.
Look for value-add opportunities in San Juan metro
The San Juan metropolitan area offers opportunities for investors to purchase undervalued properties and add value through renovation and redevelopment. Older properties in need of updates, in prime metro locations like Santurce and Hato Rey, can be transformed into modern rentals or condos. With an influx of new residents and businesses focused on the metro region, prices in San Juan are likely to rise. Investors who get in early can benefit from capital appreciation.
Focus on vacation rental properties
Tourism remains a major industry in Puerto Rico, despite economic challenges. There continues to be strong demand for short-term vacation rentals, particularly near beaches and other tourist destinations. Condado, Isla Verde, Vieques, Culebra, and other coastal areas are prime spots for vacation rentals. Investors can generate solid cash flow from these types of properties while also benefitting from asset price growth.
Consider distressed properties but be wary of risks
Puerto Rico’s real estate market was hit hard by the financial crisis, the debt crisis, Hurricane Maria, and the pandemic. As a result, distressed properties can sometimes be found at steep discounts. However, buyers need to carefully assess risks, such as damage from weather events. Working with an experienced local real estate professional is highly advised when looking at distressed opportunities.
Focus on long-term fundamentals despite uncertainty
Despite Puerto Rico’s economic struggles, the fundamentals support continued real estate investment. Price levels remain far below other Caribbean luxury destinations. Meanwhile, Acts 20/22 are attracting new capital, businesses, and residents. Infrastructure is being rebuilt after Hurricane Maria. While the path forward is uncertain, patience and a long-term view can be rewarded for real estate investors.
Puerto Rico offers tremendous lifestyle benefits and attractive incentives for investors. With proper strategy focused on demand drivers, real estate investors can generate strong returns while enjoying an island paradise.