Condo ownership/ investment

[Michael Scollon]

Good afternoon, the wife and I are interested in possibly purchasing a condo and renting it out. The potential extra income and having a retirement home in place for the future has been a dream of ours since our honeymoon 14 years ago. We are in the infant stages of making this become a reality. I was hoping some of you could share some helpful information such as , ideal locations, property management, rental expectations, realtors. Anything would help. Thanks.

[schexc]

1. Determine your budget. This will help you decide on location. Like most locations, property closer to the beach is more expensive.
2. Find a reliable builder.
3. Pick a location you will be happy with, as hopefully, you will be spending most of the time there, as tenants come and go.
4. Find a respectable real estate agent.
5. Do not depend on rental income to cover all your expenses. The rental market is ever changing, this year is a good example of that. Going in with that in mind, will bring a bonus when rental activity is high, and no disappointments when low.
6. Have all your finances in order. There are set criteria for required documentation from the Aruba's government. They will want you to be able to show a distinct paper trail.
7. Find a referred management company. They can make or break you.
8. Be patient. Everything takes a little longer on the island.
9. Sit back and enjoy your investment.

Don't be afraid to ask questions. There are a number of forum members that own property on the island. Best of luck!

[robin]

Everything that schexe is true! We have owned a condo at Oceania for about 3 1/2 years. We spent one vacation driving all over the island to narrow our search area. We had price range and started looking at realtor sites online. We looked at houses and condos online. I wanted a condo, hubby wasn't sure. We spoke to a friend of a friend who grew up on the island and quickly narrowed to condos, but we still were not sure if we wanted to spend more and be close to the beach or less and not be as close to the beach. We were not even looking at Oceania because of the price, but due to a series of events ended up purchasing a 2 bedroom condo there at the very top of our budget. A few things to keep in mind:

1) besides the purchase price there are other fees-Notary, taxes, fees that can up to 6-8% of the purchase price.
2) property sales are handled differently than in the US
3) don't count on rental income-this year is a prime example. We bought for ourselves and rent because we want the condo being used when we are not there. We weren't planning on rented, but there were rentals on the books when we made our purchase and the extra income is nice.
4) don't be afraid to look at properties that are beyond your budget-ours was way above the top of budget, but ended up getting it within our budget
5) ask as many questions as possible

If you need anything, just ask. Our realtor was/is Prestige. We have been really happy with them.

[Michael Scollon]

In a non covid year how many week would you think your condo was rented?

[Aruba4ever]

If it was me I would expect no more than 30 percent rental and even that seems high right now.

In a non covid year how many week would you think your condo was rented?

[annf]

We own a free standing home (about 12 years, no regrets) . We do not rent out. Condos here made us nervous (not the protections you have in USA), though I know Robin and others are happy. Pre covid rental market was saturated. Building is still going on so I would be very hesitant to count rental income into your decision. Do a very complete search of the builder and the management company. Also check (and this may not be easy) on the percentage of owners who pay their monthly condo fee. Monetary restrictions in some foreign countries do not allow their citizens to move money out of their countries so therefore lapses in monthly condo payments. And while you didn't mention it, you will have to finance on your own. Local banks do not as a rule lend to outsiders and if they did you wouldn't want to pay the interest rate! Lots of research to be done when buying anywhere but more so when buying outside your own country. Good luck and happy to try an answer any questions!

[robin]

We are there during the high season. We usually go around Jan. 5 and return the end of March, so we are there during prime rental season(about 13 weeks). We usually have between 15 and 20 weeks rented. It varies from year to year. We don't expect any this year(our older son and his gf arrived there yesterday and will be there until they come here for Thanksgiving-working and going to grad school remotely). Schexe has a higher rental rate than we do. We have a two bedroom and he has a one. It varies on what people need or want and how your rooms are furnished. What I mean is, our condo currently has a king and two fulls. That works fine for families with kids, but not great for two couples. We plan on redoing all the furniture in the condo and changing it to two queens so it will be better for two couples, yet still good for families(we also have a sleep sofa). We are limited to 6 quests per condo documents. You also have to realize that with rentals there will be some breakage of glasses, towels disappear and people are not as careful with the place like you would be. Every year I go down, I have to touch up paint from what looks like suitcases hitting the walls, replace towels, and some bedding(I don't buy the good stuff for renters). However, where schexe owns, it is considered a condo/hotel(?) and they take care of the towels and linens for the quests.

Other things to consider is electric and water are very expensive. Our condo living room and master bedroom each has one wall that is all glass(doors) that face the beach so it gets full sun and even with the light blocking curtains, and concrete construction, it still heats up and the AC runs. Some condo complexes are gated and some are not. Also, the layout of one let's say 3 bedroom unit in a complex may differ from another three bedroom.

There is a lot of building going on in Aruba, which will add rooms to the inventory on the island. I don't know if Covid will slow it down or not-I sure hope so. However, because of Covid, there may be a lot of people who want to sell.

Annf mentioned owners who pay their monthly fees. Oceania is very strict on that. If you miss a payment, they remind you. If you miss another payment, they shut off your water. At Oceania, all the utilities are billed to Oceania-electric, water, cable, internet and phone. When we get our August bill, it will have Septembers condo fees and June's utilities. The only thing not included is the property tax.

Since Prestige manages our condo, they collect all rental income, lodging taxes, etc. From what they collect, they pay our monthly bill at Oceania, lodging taxes, and with our permission also pay our property taxes. This allows us not to have a bank account on the island. Because we are there during the high season, we do have to wire them money about once a year. This year was a lot more than usual as was the year we had to replace the AC unit, which they handled for us. We bring cash or take out of the ATM to pay for our condo and car insurance, vehicle registration, tags, inspection.

[schexc]

There are so many variables, and like Robin said, when do you plan on using the condo for yourself.

Most realtors will express a 50% vacancy, during the course of the year. The majority of your rental activity will be in high season, which typically falls close to Christmas, into mid-April. If you're taking advantage of your unit and using it during high season, your rental activity will be less and your net for the year. Rental rates are considerably less during low season, so factor that in. Some properties, like ours, also offer long term rentals, which again, is significantly less than vacation rental rates.

The absolute is to look at your net income for the year against your "all in" purchase price, including furnishings, closing fees and transfer tax. We closed in mid-year 2017, in a new development. The property soft opened in July of that year. We did return a net profit for the year, mainly do to long term rentals from the hospital. In 2018, we returned roughly 6.5% net. 2019 was not a banner year, returning 3%. 2020 will be even less and we all know why.

The upside is that we were offered 45% more for our unit then we had invested in it in the Fall of 2019. We were't considering it, but that gives you an idea of possible appreciation. Like Robin said, there continues to be a lot of new construction on the island, which will have an effect on the rental market.

You can get financing on the island. I believe they will finance 50% of the purchase price. Last I heard the rate was close to 8%. Someone please correct me if I'm wrong.

All good questions...

[Michael Scollon]

Thank you all, keep the good info coming. Time to make the wife crazy. We'll scheduled to be down there in march, first round is on me.