Real estate ROI: calculating real returns in the Caribbean

How to calculate real ROI on Caribbean real estate investment

Many investors make the mistake of calculating profitability by simply dividing rental income by purchase price. Reality is more complex. Here we teach you how to do it correctly.

The basic ROI formula

ROI = (Annual net income / Total investment) × 100

Seems simple, but the devil is in the details.

Step 1: Calculate true total investment

It's not just the purchase price. It includes:

| Item | Example (USD 200,000) | |------|----------------------| | Purchase price | 200,000 | | Transfer (3%) | 6,000 (0 with CONFOTUR) | | Attorney (1.5%) | 3,000 | | Stamps and registration | 1,000 | | Furnishing | 8,000-15,000 | | Improvements | 2,000-5,000 | | Total without CONFOTUR | ~222,000 | | Total with CONFOTUR | ~216,000 |

Step 2: Calculate gross annual income

Based on realistic rental rates and occupancy:

Gross income = Average rate × Occupied nights

Example: 2-bed apartment in Bavaro

• Average rate: USD 140/night
• Annual occupancy: 70% (256 nights)
• Gross income: USD 35,840

Step 3: Subtract all operating expenses

| Expense | Annual amount | % of gross | |---------|--------------|------------| | Property management (20%) | 7,168 | 20% | | Cleaning and laundry | 3,000 | 8% | | Maintenance | 1,500 | 4% | | HOA / condo fee | 3,600 | 10% | | Utilities (water, electricity, internet) | 2,400 | 7% | | Property insurance | 800 | 2% | | Marketing/photos | 500 | 1% | | Amenities/supplies | 600 | 2% | | Repair reserve | 1,000 | 3% | | Total expenses | ~20,568 | ~57% |

Step 4: Calculate net income

Net income = 35,840 - 20,568 = USD 15,272

Step 5: Calculate ROI

ROI = 15,272 / 222,000 × 100 = 6.9% (without CONFOTUR)
ROI = 15,272 / 216,000 × 100 = 7.1% (with CONFOTUR)

But wait: appreciation is missing

Rental ROI is only part of the picture. Property appreciation is equally important:

Total ROI = Rental ROI + Annual appreciation
Total ROI = 7% + 10% = 17%

This 17% is the real return for a Bavaro investor.

Cash-on-cash return (with financing)

If you finance 60% of the purchase:

| Item | Amount | |------|--------| | Own capital (40%) | 88,800 | | Loan (60%) | 133,200 | | Interest rate | 8% annually | | Annual loan payment | 12,000 | | Net income after debt | 3,272 | | Cash-on-cash return | 3.7% | | + Appreciation on total | ~20,000 | | Real return on capital | ~26% |

Leverage amplifies both gains and risks.

Key metrics for comparing investments

| Metric | Formula | Use | |--------|---------|-----| | Cap Rate | Net income / Purchase price | Compare properties | | ROI | Net income / Total investment | Real return | | Cash-on-cash | Post-debt flow / Own capital | With financing | | GRM | Price / Gross annual income | Quick valuation |

Common calculation mistakes

1. Ignoring operating expenses — they're 40-60% of gross income
2. Overestimating occupancy — use 65-75%, not 90%
3. Not including closing costs in total investment
4. Forgetting furnishing — USD 8,000-15,000 that many forget
5. Comparing gross returns — always use net

Caribbean ROI benchmarks

| Destination | Net rental ROI | Appreciation | Total ROI | |-------------|---------------|-------------|-----------| | Punta Cana | 7-10% | 8-12% | 15-22% | | Cancun | 5-8% | 5-8% | 10-16% | | Miami | 3-5% | 4-7% | 7-12% | | Barbados | 3-5% | 2-5% | 5-10% | | Bahamas | 4-6% | 3-5% | 7-11% |

Conclusion

Real ROI in Punta Cana, properly calculated, remains one of the highest in the Caribbean. The key is doing the numbers honestly, including all costs. A total annual return of 15-20% is achievable and sustainable.