You can book this wonderful rental now! This is the rebranded summerhouse Paradis. It’s a villa that can host up to 8 guests, located in Aruba. I think this rental project is slowly turning out to be successful, but it wasn’t easy. I went into this project knowing full well there would be trouble, and boy, there was trouble. I’ll list the issues and lessons learned from doing this for future me. I may wish to do this again; it was a fun ride. If you’re interested in doing something similar, I think this blog post is useful.
The prices for real estate were really good in Aruba compared to the Netherlands at the time of buying; I got about double of what I could expect in the Netherlands. Since my parents already have an investment property in Aruba, it seemed relatively easy to set up, not to say it was easy. Another reason for doing this was the low interest rates, which looked like attractive leverage. Furthermore, I already had experience with running an Airbnb in my own home, so I felt somewhat confident I could make this work. Because my own house is not in a touristic area at all, but Aruba is. I’d be lying if I said this only done for financial reasons. Ego played a large part in deciding to do this as well. For one, not being completely dependent on a single source of income allows me to take more professional risks and become more productive as a result. The other reason is bragging rights, not that I wish to brag, but the only way to be humble is to have something to brag about and not do that. This is so hard.1 😬
I considered many other properties before settling on this one; at first, I wanted to build a new place. This made sense to me since labor costs are low in Aruba. However, my father strongly urged against that, citing many experiences of even the smallest jobs going wrong. You have to watch contractors like a hawk if you want to do this. I experienced such issues as well with some contractors while doing the pool house. For example, the fuse switch in the pool house couldn’t switch off because the plastic door was jammed too close to the switches, giving no space to move. If you’re considering building on Aruba, keep in mind you have to be there, or have someone trustworthy there, and watch the contractors.
The amount of corruption or incompetence2 on Aruba is rather staggering. For example, the notary Johnson and Johnson, took ages to close when I was buying the place. The closing date was at the end of July; I assumed it would be done before that time, but we closed in October. I was familiar with Aruba’s culture of taking things slowly, but I didn’t expect things to take this long! What I could have done differently in this case is contact the notary more often for progress updates. I think they just forgot about this deal or something. I was even told this was exceptionally slow. Because the closing took so long, I essentially missed out on opportunity costs. I could have opened the Airbnb two months earlier, in March instead of May, which means I missed all that income.
Another example of incompetence I’m currently facing is with the power company Elmar, and Mr. Green solar services. The solar panels were installed on 15 August, and I was promised they could at least be turned on from that point, subtracting power generation from my usage. It’s now January, and this still hasn’t happened. Even after that, the excess is still given away to Elmar for free, after some “mythical” inspection which has to take at least 6 months. This delay is costing me the full power bill, which is 250 euros a month. I have no idea why it takes this long; it’s not a big island! Having learned from my Johnson experience, I’m contacting Mr. Green weekly.
What also caught me off guard was the fluctuation in exchange rates, which caused a lot of stress. The euro fell sharply against the dollar while I was waiting for the deal to close, but the listing price was denominated in dollars, and I had euros saved up! This made the property effectively 10% more expensive. Considering the price was 180,000 dollars, this cost me 18,000. I must admit, I shed a tear over this. In the future, I should put the closing money in an account of the same currency as soon as I sign.
However, what I’m really happy with is not going into hyper debt. My father, who financed half of this investment property3 with a mortgage-like loan, recommended I look at more expensive properties. So, I was looking at properties around 400k at first, however, I decided to go with a cheaper option instead, at 180k, even though the lender would have agreed to the more expensive option. I’m really happy I did this because during the renovation, I decided that a pool would drastically increase the appeal, allowing me to charge much more rent 4, but this would require another 30k investment. This was still possible because the monthly payments weren’t as high yet. The biggest advantage of these more expensive properties was their proximity to the beach. However, I think this is somewhat overvalued, because public transit is poor in Aruba, so unless you’re right on the beach, tourists are going to have to rent a car anyway. In this regard, my more budget-friendly stay offers a lot of value to tourists.
After handover, when doing some renovations, many people will recommend extending the scope of a project significantly. This can come from friends and family. I had discussions about adding more walls for additional bedrooms, or installing doors, or various other changes, but most of these wouldn’t be very profitable. However, they would extend the timeline, so I refused most of these requests. The first guest recommended me to put a fence between the pool and the patio, to ensure the kids could play safely outside. This was a minor change overall, and could happen with other guests staying there. This change solved a real issue that this guest, and by extension other guests, were concerned about. None of my family or friends had suggested such a change, as nobody had stayed at the place with kids. I kept focus on solving all these problems guests highlighted in reviews, when they were reasonable, such as “we miss wine glasses”, “we need trash cans in the bathrooms”, “we don’t have oven-ready pots and pans, but there is an oven”. Some requests were impractical, like “move the pool behind the house”, and I ignored those. Addressing these issues usually cost less than 100 euros, and even the fence was done for less than 1000 euros. Compared to the amount I spent on the pool and the house itself, this was minor and a fixed costs. However, after addressing these issues after the first few visits, the complaints stopped and people began giving me consistent 5-star reviews, even though the price had increased significantly in December. I learned that the difference between a good stay and a great stay lies in many small details, which are hard to anticipate. Guests will share their problems if you ask. Recommendations from family and friends during renovations need to be carefully evaluated, as they’re not always beneficial.
I learned that people who are good at one job may underperform if you let them do a slightly different job. For example, the guy who built the wall (Cesar) and the tiling around the pool did some great jobs, but then I let him install a shower, and he inadvertently installed the faucet upside down. It’s still in this awkward position. Aruban contractors often will say they can do something, even though it may be their first time doing such a job. One has to be careful about this. I like this particular contractor, however, because he can’t speak English and I find the non-verbal communication rather amusing. So, I’d hire him again, but not for showers!
Knowing skilled people is something that is difficult for newcomers in Aruba. I got incredibly lucky in that regard, considering my parents had already sifted through so many contractors for their Casa Aruba rental property. For example, I was able to hire a local carpenter to redo the entire kitchen for a third of the price I would have had to pay if I had used a European kitchen supplier. The kitchen looks better, too! The entire house now has this scaffolding wood style, giving it a robust and cozy ambiance.
I was also blessed with the support of my parents. Besides financing, they supported me with the paintwork, and there was a lot of it. Without their help, I probably would have spent another 8k on that and ended up with a worse result.
I’m not sure if it was financially worth it. Intuitively, I think it was, but I still need to run the numbers more thoroughly once the first year is finished. My preliminary observations suggest I need to make more than 1500 euros a month to turn a profit, and more than 3000 euros a month to cover mortgage payments as well. I have a strict payback schedule, because I didn’t like the high interest rate from the private market, but this will be completed in 6 years. It’s difficult to measure if it’s “worth it,” because the first few months of this project were naturally the worst I could have had. I had no reviews so I had to compensate by lowering the price. Furthermore, things like solar panels and my custom rental booking site are still not operational5. The solar panels should reduce the electric bill from roughly 250 euros to close to 0, and the rental booking website eliminates the need for Airbnb, which takes 17% cut of bookings.
Ironically, despite all the setbacks, I may do this again. Seeing the house come to life, reading all the reviews from people, and experiencing their appreciation is fantastic. However, I’d like to confirm first if it’s financially worth it. After it has been open for a year, I plan to create an private overview of this investment, detailing how much it brought in and how much I spent on it. Furthermore, I currently simply do not have the cash to set up another one. I feel I’m quite good at this. However, if you happen to run a rental and have ideas for improvement, please let me know in the comments!
Of course, I did tell people about the BnB I bought. One could even say this post is a giant brag, but hey, I’m not forcing you to read this, my dear reader. ↩
He got a 5% interest rate while other mortages were going around for 1.5%. So it’s not like I got a handout. ↩
Say 50% more. ↩