Is It Possible To Retire In The Dominican Republic on US$2,000 Per Month?

Over the years there have been plethora of articles about retiring abroad on shoe string budget.  Articles with the title come to Panamá, come to Costa Rica, Live in Thailand, and of course retire in the Dominican Republic.  But is it true one can really live well on less in the Dominican Republic (and perhaps some other destinations also?) The honest answer is yes! but it all depends.  It depends upon your lifestyle, it depends upon what is important to you and it also depends what you want to use as a basis for living costs.  In other words, just like many other things in life, the devil is in the details. 

Let us start off with one monthly budget item that certainly has gone up in cost the world over: food. Interestingly enough, the recent devaluation of the US Dollar (read inflation, and I know, I Know – the US Government says inflation is low and not to worry) has pushed up food prices globally, and it has been worse in any country that uses the US Dollar as it’s own national currency (aside from the United States, this means Panama, Ecuador and El Salvador). On average, inflation in countries outside the US that use the US Dollar has been roughly 10 percent, whereas in neighboring nations that have their own currency inflation has been around 5 percent.

With regards to inflation inside the US, the popular financial commentator, Mr. Jim Willie, noted food prices for specific list of various food brands and items back in January of 2013 and checked the prices for those very same items in January 2014. What did he find? Prices had gone up anywhere from 10% to 30% in some cases, for some products.  And despite the rhetoric to the contrary, the United States via it’s own fiscal policies (or fiscal mismanagement, if you prefer) has in fact been exporting inflation to the rest of the world.  

So, with that said, you will find various supermarket prices in the Dominican Republic higher in September 2014 than they were say in September 2012.  And of course, as has always been the case, imported items will cost more than the prices in the native country of manufacture (regardless if from the US or Europe).  Stated more plainly and more directly, Heinz Ketchup, French's Mustard and Green Giant canned peas will cost more in a Dominican Republic supermarket than it will at a supermarket inside the US. So, if those items are must have on your monthly shopping list, then be prepared.  However, there is some good news and this is where the Dominican Republic offers a dramatic benefit over other Caribbean destinations such as The Bahamas, St. Martin, St. Kitts, Barbados and any other island nation that has very limited home based agriculture or food industries. 

The Dominican Republic is actually situated on the second largest island in the Caribbean, by square mileage, and it has a very diversified and developed agricultural industry.  In fact, the country produces enough food to feed it's own population and it exports excess production of rice, chicken, eggs and so on.  And because it is a self sufficient nation in regards to food, and because wages are of course a fraction of what they are in the US or Europe, prices for locally grown produce (or food products, like pasta, ketchup, cooking oil, or even laundry detergent of which there are local brands) is going to cost much less than their imported counterparts.  As an example, yellow bananas can be purchase for about the equivalent of 12 cents US, avocados for about the equivalent of 25 cents US each, etc.  As the old saying goes, man (or woman) cannot live on avocados or bananas alone, but this just gives you a basic idea of how locally grown produce will save you money.  And the same is going to be true for beef, pork, and chicken. 

Santo Domingo Real Estate - A Less Expensive Option

In contrast, urban areas such as Santo Domingo (the capital city and largest populated city with about 4 Million inhabitants) and Santiago (the second largest city) are going to offer a wide variety of shopping, medical care facilities, bi-lingual or English only private schools, and a number of other amenities as well.  With larger variety of buying options comes competition and lower prices.  As such, whether trying to find a good private bi-lingual school or the best price for tomatoes, cities such as Santo Domingo will offer a wide variety to choose from.

In terms of real estate options in Santo Domingo, again a wide variety also exists to fit any budget and we can say your will get more square footage for your money with a condo apartment in Santo Domingo than you will looking at something similar in a tourist area.  As an example, you can expect to pay about US$120,000 for a 1-bedroom 1,000 (or more) square foot apartment in a higher end more upscale area in Santo Domingo (with secure parking, 24 hour security, gym facilities for tenants, etc.).  For a 2 or 3-bedroom 1,500 to 2,000 square foot (or more) apartment in a more upscale building, you can expect to pay anywhere from about US$165,000 up to maybe US$230,000 all depending upon size, location and so on.  And if your budget is more modest, there are new apartments and single family homes to be found in the US$80,000 to US$120,000 range.  Likewise, you can find very nice single family homes similar to what you might find in a Florida private residential development for roughly US$250,000 to US$350,000 and condo penthouses of 3,000 square feet (or more) for perhaps US$300,000.  There is not enough space to highlight everything, but the point is when clients ask: Is there any affordable real estate in the Caribbean – our answer is YES, in The Dominican Republic.

Getting back to the investment point of view, we think it important to consider real estate as one asset class to consider, albeit one that is NOT correlated to the US or European stock markets, currencies, etc. in order for it to make sense.  In other words, the idea is to own an asset class that is somewhat isolated from the current and future problems that might exist in other markets, and one not dependent upon the future movements of the currencies or economy in such other countries as well.

Not to go off on a tangent, but there is one interesting phenomena taking place regarding new construction in Santo Domingo.  Which is to explain that 20 years it was almost impossible to find a new condominium apartment building with one bedroom units (builders just did not build them).  And previously the norm in The Dominican Republic was that young people graduated university but lived at home with parents until such time they did get married and could afford a 2 or 3 bedroom rental (with the long term view of owning rather than renting).  Today, what we are seeing is a larger number of new higher end buildings going up with one bedroom units and this tells me something.  It says to me that the younger single people are more likely to be able to afford and buy (or rent) a new one bedroom unit today, which means to me more affluence in the economy than what existed say 25 years ago.  In the United States today, just as a contrast, younger people are graduating university and cannot even find a job, and or regardless if they do, they are living with the parents. This represents a notable change from what was considered the norm 25 years ago. In brief, what is going on is that the United States is moving backwards economically speaking and the Dominican Republic is moving forward.  It is a small thing and something not obvious from the government statistics, but very telling none the less.

In summary, we still think buying real estate in a location such as Santo Domingo is a good idea because:

1. Real Estate costs are lower than many other jurisdictions in the Caribbean and thus more room for appreciation.

2. The Dominican Republic has an economy still growing and can be less dependent upon the United States or Europe, especially if it continues to develop it's cross border trader with countries such as Brazil and India.

3. A Real Estate purchase in The Dominican Republic can also act as a conduit towards the faster tract Investor Residency Process (allowing for citizenship application after 6 months).

4. Real Estate is a non financial asset and therefore not reportable under the current initiatives being pushed by the US (FATCA) and some European nations as well (GATCA).  In other words, if you wish to invest US$200,000 or more, real estate in the right market is a sound idea.

IS A CURRENCY CRISIS COMING?

During the past few months we have had more than just a handful of clients asking us about this so-called currency reset that has been discussed in various forums recently.  And of course we have received a large number of phone calls from people asking about banking in other jurisdictions (away from their home country), how to secure their 401K or pension funds from possible government asset grabs, and related kinds of concerns.  But before anyone jumps to the conclusion that all this is simple conspiracy quackery, former US Congressman Ron Paul recently participated in a few public interviews this year (2015) whereby he discussed his belief that a currency crisis is coming to the United States.  While there have been a large number of things posted on so-called conspiracy sites, we have to believe that when someone such as Dr. Ron Paul basically says that something wicked this way comes, you have to sit up and take notice.  After all, they said that Ross Perot was off his mind when he warned about what would happen to US manufacturing and the resultant loss of American jobs if NAFTA and other similar trade agreements were put into place, and to be honest, the man was eventually vindicated (although even he did not fathom the loss of manufacturing not to Mexico alone, but of course to China).  Now the new item on the agenda is the TPP or Trans Pacific Partnership Agreement that has not even been fully made public due to the so-called sensitive nature of it (interpret this as the general public is too dumb to know what is says, and it's none of their business anyway, or so would seem to be the US Government's attitude about it).  

In fact, a few people that actually did read it claim if the American people knew what was in the document, there would be open revolt in the morning.  So, the point is, in a so-called free democratic open society, if the learned and esteemed politicians are willing to conduct themselves in such a manner regarding a free trade agreement – what else are they prepared and willing to do regarding other issues?  Never the less and getting back to the fate of the US Dollar, such a crisis would basically result in the rejection of the US Dollar both for trade internationally and a store of value for central bank reserves world-wide as well.  So, you can call it by whatever moniker or term you may wish, but the idea that there will be some kind of future crisis effecting or involving the US Dollar is not so far-fetched.  Something has to give and changes are certainly in motion with respect to the pecking order of nations (in terms of economic power) and subsequent issues pertaining to trade settlement as well (and thus what currencies will become important, and what currencies will fall by the wayside).

What is the basis for this assumption and predictions about the long term future of the US Dollar (and other currencies as well)?  Some people will refer back to August 1971 as the starting point when then former US President Nixon took the US Dollar off the gold standard and closed off the gold convertibility of the US Dollar to foreign central banks.  And it certainly is true that date might be considered to be the start of the backing of the US Dollar by oil, or better said an agreement that was constructed so that ALL oil sales would be conducted in US Dollars, thus creating a demand for that currency for commodity trade settlement.  Such an agreement meant that all foreign governments (and any private businesses involved in oil or petroleum transactions) needed to keep a reserve of US Dollars to purchase oil.  This of course created a demand for US Dollars that very much so gave support and value for the USD use in global commerce (remember basic supply and demand economics, and currencies can be considered a commodity as well subject to supply and demand functions).  In essence the free floating currency (and variable exchange rate) system we have today was born out this, but it has left the door wide open to abuse by politicians and financial participants (Central Banks) that decided to print money with reckless abandon when they so desired to do so.

Conservative columnist David J. Frum summed up the inherent problems with a free floating (and untethered to gold or silver) currency unit this way:  The modern currency float has its problems. There is no magical monetary cure, monetary policy is a policy area almost uniquely crowded with trade-offs and lesser evils.  If you want a classical gold standard, you get chronic deflation punctuated by depressions, as the U.S. did between 1873 and 1934.  If you want a regime of managed currencies tethered to gold, you get regulations and controls, as the U.S. got from 1934 through 1971.  If you let the currency float, you get chronic inflation punctuated by bubbles, the American lot since 1971.  System 1 is incompatible with democracy, because voters won’t accept the pain inherent in a gold standard.  System 2 is incompatible with the free market economics I favor.