Who owns vacation rentals in Puerto Rico?
A sign in the Old San Juan neighborhood celebrates the city’s 500 year history.
Note: This is a longer version of the story I wrote for USA Today. I hope you enjoy the bonus interview and information included here. Plus my list of Puerto Rican-owned accommodations are at the bottom of this newsletter!
Jennifer Márquez can spot a home renovation by a United States mainlander right away. The giveaway is the style choices these investors make; the layout and finishes look nothing like the homes she grew up seeing in Puerto Rico.
It’s Márquez’s job to notice the details. Born and raised in Puerto Rico, Márquez is the founder of The Reserve LLC, a hospitality management company that among other things, manages vacation rental properties in Puerto Rico. Her customers are property owners, both U.S. mainlanders and Puerto Ricans.
“Every single home that you see that is going through a renovation, it's getting ready for Airbnb. It's not getting ready to be a [long term] rental home,” she said. “So, you have locals and then you have the international, you know, travelers that saw potential because of the Act 20 and Act 22.”
Act 20 and Act 22 (now collectively known as Act 60) are tax incentives for mostly high-earning U.S. mainlanders to lure them into investing in and taking residency in Puerto Rico. Mainlanders who move existing or create qualifying businesses or investments, including in real estate, can lower their federal income tax rate from up to 37% in the states to zero on income earned in Puerto Rico.
According to public records from theDepartment of Economic Development and Commerce(DEDC), 4,255 people have taken advantage of the tax code incentives since its inception a decade ago,despite protests from Puerto Ricans.
“So you had incentives, you had benefits,” Márquez said. You had discounts, you had tax returns. You had so many benefits. They were only for those that were coming from the states here. Not for locals.”
The DEDC reports from 2015-2019, Act 20 and 22 beneficiaries invested $2.5 billion into Puerto Rico’s economy while directly and indirectly creating 36,200 jobs. It says 68% of beneficiaries bought property in Puerto Rico. That real estate is valued at a little more than $1.3 billion.
According to data from AirDNA, a market research firm that studies local Airbnb markets, Airbnb listings for ‘entire home’ short term rentals in Puerto Rico have increased 27% every year from 2018 to 2022. AirDNA does not track owner information, but Márquez notices a split between Puerto Ricans and outside investors, including those in her own customer base.
“You have a little bit of everything,” she said. “It's kind of like 50/50.”
Xavier Ramírez, General Manager of Combate Beach Resort and president of the Paradores and Small Inns Association of Puerto Rico, is seeing a similar split between Puerto Rican investors and U.S. mainlanders benefiting from Act 60 tax benefits on short term rental ownership.
“We welcome people from outside, non-residents, to come in and participate in our tourism industry. They're more than welcome to do so because we do need investment. We need new inventory because we are competing with other Caribbean islands who have more inventory than us, Ramírez said. “We just want them to be level with it and play fair.”
Ramírez is calling for stronger regulations so these businesses are inspected like other hotels and vacation properties. He wants to make sure these short term rentals, often embedded in communities with long term residents, are being good neighbors.
“These new properties, they're not being registered correctly so they're not paying for municipal taxes and for the service of trash or garbage removal. They're not paying a pittance for a municipal business,” he said.
According to data presented to Puerto Rico’s House of Representatives, in the summer of 2021, there were 25,000 short term rentals operating on the island, but only about 4,000 of those were properly registered and paying room occupancy taxes.
Even some short term rental owners are calling for stronger enforcement. Rene Acosta began operating his short term rental property 15 years ago and co-founded an organization called Viva Puerto Rico Short Term Rental Alliance to advocate on behalf of short term rental owners. He’s also calling for fellow vacation rental owners to come into compliance with regulations Puerto Rico already has in place.
“We just want to make sure that whoever owns the properties or the apartments or the short term rentals, they're doing it the right way, that they are fully legal, so they're paying the room tax that everybody has to pay, that they are dealing with the issues when people come,” he said. “The issues are loudness, garbage, parking – same issues that you have everywhere.”
Both Acosta and Ramírez agree stronger enforcement is necessary, particularly as the short term rental market develops into its latest trend, flipping entire buildings into several short term rental units.
“There's a big problem with gentrification in Old San Juan because non-residents are coming in, due to these tax incentives,” Ramírez said. “They are purchasing entire buildings, which were for long-term rentals, and they’re evacuating the residents and starting a short-term rental business there, which is like a small hotel.”
Gentrification is taking its toll across the island, with rising existing home prices making it tougher for Puerto Rican residents to afford to buy homes, and long term rent prices increasing too.
The media home for sale in San Juan county, the area that surrounds the capital, is listed at almost $260K, more than 79% higher than it was a year ago, according to realtor.com.
According to information compiled by the policy and advocacy organization Center for a New Economy, six percent of Puerto Rico’s housing units are being used in the short term rental market. They’re concerned about an uneven playing field in Puerto Rico due to what they call property hoarding on Airbnb’s platform.
“The top ten Airbnb hosts who reported the highest levels of income have hoarded 611 properties amongst themselves, for a total of nearly $18 million in revenue in the last 12 months, the page reads. “On the other hand, although there are many hosts who have been able to benefit from Airbnb, more than 4,000 hosts, out of a total of 11,500, failed to generate any income.”
All this is happening while Puerto Rico is experiencing its strongest tourism market in the last decade, according to Ramírez. The island rebounded from pandemic shutdowns more quickly than other destinations with its high vaccination rate, 90% among residents. Visa-free travel without mandatory Covid testing requirements for U.S. mainland residents also created strong demand.
Acosta said changes in traveler behavior due to the pandemic created a new customer base for short term rentals globally, especially in Puerto Rico.
“With the Covid pandemic, it just catapulted like crazy. Obviously, the first to close were the hotels, but everybody had their house, everybody had their apartment,” he recalled. “While hotels were closed, a lot of people were more exposed to this different type of accommodation and people loved it.”
Local government is starting to work on tighter regulation. In Dorado, Puerto Rico’s center for luxury travel, the local government recently passed requirements for short term rental business owners to get an additional permit to operate in the area. Puerto Rico’s House of Representatives is conducting hearings in order to create new legislation regarding short term rentals on the island.
For visitors planning trips to Puerto Rico, Ramírez says the best way to ensure your stay is in solidarity with Puerto Rican residents is to make sure your hotel or short term rental property is up to date on inspections and following current regulations. The island's tourism board, Discover Puerto Rico, only recommends properties that are up to date on inspections and following local laws.
For those who want to make sure they’re supporting Puerto Rican-owned businesses, this website lists 12 paradores owned and operated by Puerto Rican families. None of these paradores are located in Puerto Rico’s capital, San Juan. With many reports of U.S. mainlander investors concentrating their vacation rental businesses in San Juan and Dorado, finding Puerto Rican-owned vacation rentals outside of these destinations may be the best way to experience local Puerto Rican hospitality.
In addition to the 12 paradores mentioned above, here's an additional list of vacation rentals I've independently confirmed are Puerto Rican owned:
Martineau Belle Playa beachfront villa in Vieques (owned by Rene Acosta, interviewed for this story)
Combate Beach Resort (owned by Xavier Ramírez, interviewed for this story)
This list is not exhaustive, but it shows there's a wide range of locations and price points for Puerto Rican-owned vacation rentals on the island.