When Hurricane Maria’s 155-mph winds pummeled the island of Puerto Rico in September 2017, the damage was catastrophic.
But even before the island was ravaged by the worst ever natural disaster to occur on U.S. soil, Puerto Rico had already been combating financial crisis after years of economic decay and grappling with more than $70 billion in debt.
On the surface, things looked bad for Puerto Rico.
But Rich Holman, Founder/Director of Institutional and Residential Sales at Far International, sees beyond the billions of dollars in damages, the electricity blackouts, and the thousands of locals fleeing the island. He sees Puerto Rico as a new phoenix rising.
“What happens to a country when disaster strikes?” he asks.
“If you study hurricanes around the world, the countries or the islands rebuild better than ever.”
Flimsy buildings have folded under the hurricane, leaving room for stronger, superior homes with beefed up building codes. In the wake of Hurricane Maria, the country is faced with an unparalleled opportunity to rebuild its infrastructure strategically and expertly.
Holman likens Puerto Rico to Medellin, Colombia, a city once plagued by a reputation for drugs and crime. Now, the former murder capital of the world is admired as one of Latin America’s most progressive cities with coveted real estate and a blossoming tourist industry.
Could Puerto Rico be set for a Medellin-style renaissance?
Here are five reasons why Puerto Rico is the perfect place to invest right now:
U.S. territory benefits.
As a U.S. territory, Puerto Rico enjoys unique benefits not shared by its fellow Caribbean islands.
Though U.S. recovery efforts after Hurricane Maria were slower and stingier than the response to hurricanes in Florida and Texas, Puerto Rico has access to relatively extensive American disaster resources.
Because Puerto Rico is a territory, the U.S. has vested interest in helping the island recover. Power and water systems, bridges, and roads will be constructed to U.S. standards.
Puerto Rico has been part of the U.S. for more than 100 years, and the government has the same responsibility to the country as any other U.S. state.
U.S. citizens can travel to and from Puerto Rico without a visa or even a passport. In terms of travel freedom, Americans can visit Puerto Rico as easily as they could Idaho. And because Puerto Rico uses the U.S. dollar, there is minimal currency risk.
In 2012, Puerto Rico introduced a series of tax loopholes to lure investors and businesses. These tax incentivesmake living and working in Puerto Rico an enticing prospect for businesses and investors. We’ve summarized the key incentives below:
Act 20. Also known as The Export Services Act, this provides tax incentives to certain companies that move to Puerto Rico and export their services.
Under Act 20, qualified businesses are taxed a flat 4%, as opposed to the 39% and soon-to-be 20% rate businesses based in the U.S. are taxed. At the same time, eligible companies enjoy 100% exemption on property taxes, in addition to tax exemption on dividends, interest, and capital gains.
To qualify, business owners and investors need only reside on the island for a minimum of 183 days per year.
Act 22. Also called the Individual Investors Act, this awards individuals who gain Puerto Rican residency a personal tax rate of 0%. Under Act 22, individuals enjoy 100% tax exemption on Puerto Rico-sourced dividends, interest, and certain capital gains.
To qualify, investors must become Puerto Rican residents.
Opportunity Zone Investing.
An Opportunity Zone is an economically-distressed community that has been nominated for the designation by the state governor and certified by the Secretary of the U.S. Treasury.
The goal is to incentivize much-needed investments into housing, small businesses, and infrastructure in economically-depressed areas.
The creation of Opportunity Zones allows U.S. investors to defer all 2018 capital gains for 8 years if the profits are reinvested and held in an Opportunity Zone, decrease the amount of such capital gains taxes by 10% and 15% if held for five or seven years, respectively, and also provides a full exemption from capital gains tax on all future capital gains on the invested funds if an investment is held for 10 years, starting in 2018.
The IRS recently announced some changes to the Opportunity Zone regulations. As a result, almost the entire territory of Puerto Rico is now designated as an Opportunity Zone.
Read our exclusive article on how to take advantage of opportunity zone investing in Puerto Rico or read our detailed FAQ on the new IRS opportunity zone regulations.
Real estate prices.
“The nicest parts of Puerto Rico are even less expensive than the nicest parts of Medellin,” notes Holman.
And the real estate prices are much lower than other Caribbean islands too.
In Puerto Rico, you’ll find stunning beachfront properties for 50 – 75% less than Miami, and stately colonial homes for 50% less than Cartagena’s Old City in Colombia.
Experts predict ROI for rental real estate to exceed 10 percent with lower acquisition costs and a sound vacation rental market. Predicted total returns for real estate investment range from 15 to 20 percent.
Airbnb Market competition.
Hotel prices in Puerto Rico remain relatively expensive and Airbnb style rentals are scarce.
For investors, this represents a major untapped market. Investors in vacation rental properties can leverage high returns with limited competition in a market where a substantial increase in tourism funding will rejuvenate an undervalued destination.
Climate and natural beauty.
Puerto Rico boasts one of the most changeless climates in the world, with tropical temperatures averaging a balmy 80 to 85 degrees all-year-round.
Then, of course, you’ve got the beaches. The tiny island of Puerto Rico is rimmed by more than 270 miles of glittering coastline with white sands, surf-worthy waves, and colorful coral reefs.
Risks of Investing in Puerto Rico.
Of course, there are risks involved with investing in Puerto Rico.
- The power grid was destroyed and took over 9 months to repair. A power-out in 2018 exposed the fragile system once again.
- Hundreds of thousands of locals have left Puerto Rico, perhaps never to return.
- The Federal Emergency Management Agency (FEMA) has been overworked responding to disasters in Puerto Rico, Texas, Florida, and California, meaning the road to recovery for Puerto Rico has been agonizingly slow for the locals. Will the island be more prepared for another disaster in the future?
Strategic investors willing to embrace these risks have a once-in-a-lifetime investment opportunity and the chance to help build a stronger, more innovative, and prosperous island.
One such intrepid investor, Holman, still firmly believes in Puerto Rico.
“We want to be a part of that recovery process, where our investors can help themselves and help the island”.
If you’re interested in investing in Puerto Rico, join us at our next Investors Conference in San Juan, Puerto Rico on April 23 – 25, 2019.