Investing in real estate remains one of the most attractive decisions for those seeking to protect their capital and grow it with a long-term vision. However, the current scenario is much more complex than it was a few decades ago. Market globalization, the diversity of projects in different regions, and the amount of information available generate both opportunities and legitimate doubts among investors.
The questions are repeated: how can we know if a project will really deliver the promised returns? How reliable is the information provided by developers? How can we measure the balance between immediate cash flow and future appreciation? What role do taxes, vacancy rates, or specific location play in the final results? These concerns are not minor, as they determine whether capital will multiply or, in the worst case, remain stagnant.
For years, intuition and inherited phrases shaped decisions: “land never loses value,” “rents always cover the investment,” “a property in a tourist area is a guarantee of profits.” However, experience shows that these ideas oversimplify reality. Real estate profitability does not come from perceptions or sales promises, but from accurate calculations, clear metrics, and strategic analysis that differentiates between expectations and proven results.
Today, more than ever, informed investors understand that every decision must be evaluated with the same rigor with which other financial assets are analyzed. It is no longer enough to rely on location or current trends: data on occupancy, capital appreciation projections, market comparisons, and tax scenarios are required. Only then is it possible to identify projects that not only protect capital but also grow it sustainably.
The goal is not to discard intuition, but to complement it with verified information and analytical tools. That is the difference between those who achieve average returns and those who build a diversified, solid portfolio that is shielded from volatility. Security in real estate lies in measuring judiciously, anticipating risks, and understanding that profitability is much more than a number: it is a strategy.
In this context, talking about real estate profitability involves much more than looking at the purchase price or what you expect to receive in rent. The real difference comes from understanding how it is measured, what indicators can be used to evaluate it, and how these calculations can help you develop a solid investment strategy. Before getting into specific formulas and examples, it is worth understanding that profitability is a broad concept that combines immediate income, future appreciation, and the ability to balance risk with opportunity.
Real estate profitability: more than just a number, a strategy
Real estate profitability is the indicator that allows us to assess whether a property truly fulfills the objective of generating economic value. In addition to how much money a property generates, it is important to understand how that value generation compares to the initial investment and the risk assumed. When we talk about profitability, there are two perspectives:
- Immediate profitability: Ingresos derivados de arriendos o rentas cortas (cash flow).
- Long-term profitability: Capital gains from asset appreciation and associated tax benefits.
One project may be very attractive in terms of immediate cash flow, but offer little growth in equity. Another, on the other hand, may not generate quick returns but skyrocket in value within a few years. Strategic investors seek a balance between the two.
Essential formulas you must master
- ROI (Return on Investment)
It measures the relationship between the investment made and the profit obtained.
- Formula:
ROI = (Annual net profit / Total investment) x 100
- Example:
- Investment: USD 200,000
- Gross income: USD 20,000
- Expenses: USD 5,000
- Net income: USD 15,000
- ROI = (15,000 / 200,000) x 100 = 7.5%
- Cap Rate (Capitalization Rate)
Evaluates the performance of a property based on its net income.
- Formula:
Cap Rate = (Net operating income / Property value) x 100
- Example
- Property value: USD 300,000
- Net operating income: USD 24,000
- Cap Rate = (24,000 / 300,000) × 100 = 8%
- Cash-on-Cash Return
Used when financing is involved. It measures the return on capital invested directly, not on the total value of the property.
- Formula:
Cash-on-Cash = (Flujo de caja neto anual / Capital invertido) × 100
- Example:
- Invested capital: USD 100,000
- Annual net cash flow: USD 10,000
- Cash-on-Cash = (10.000 / 100.000) × 100 = 10 %
- IRR (Internal Rate of Return)
Projects the total profitability of a project over time, considering income, expenses, and valuation.
- Plusvalía
This is the increase in the value of the property. An area with growing infrastructure can generate capital gains of 8–12% per year, even if rental income is moderate.
- Be careful with these mistakes!
- Confusing cash flow with profitability
Many believe that as long as a property generates monthly income, it is profitable. But if that income barely covers costs and does not allow for capital gains, the ROI can be negative.
- Ignore vacancy
A 90% annual occupancy rate may sound good, but that 10% vacancy rate can reduce projected profitability by more than one percentage point.
- Overestimating capital gains
Not all areas grow at the same rate. A poor choice of location can significantly reduce the expected return.
- Not taking into account the opportunity cost
The money invested in real estate should be compared with what it could have generated in other financial assets.
Factors affecting profitability
- Strategic location: It is not enough to be in an attractive city; micro-location is key.
- Demand profile: tourists, local residents, digital nomads, companies.
- Tax regulations: Incentives such as the CONFOTUR Law in the Dominican Republic can transform ROI.
- Operating costs: maintenance, administration, insurance.
Infraestructura: aeropuertos, vías, servicios médicos cercanos aumentan el valor percibido.
Market comparison: Dominican Republic and Sabana de Bogotá
When it comes to investing in real estate, each market offers particular advantages that cater to different investor profiles. The Dominican Republic represents an opportunity for vacation profitability in dollars, backed by expanding tourism and tax benefits that strengthen returns. For its part, the Sabana de Bogotá is positioned as a stable market in pesos, with sustained residential growth and diversified projects that guarantee long-term appreciation.
- Dominican Republic
- Record tourism: 8 million visitors annually by 2025, driving demand for tourist accommodation.
- CONFOTUR ActTax benefits such as a 15-year IPI exemption and a 3% transfer exemption.
- Tourism profitability: Between 6% and 10% net annual return, with projected capital gains of 8% to 12%.
- Bogotá savanna
- Sustained residential growth: The proximity to the capital keeps demand for housing high.
- Annual valuation: between 7% and 10% on average, with proven stability.
- Diversification: residential, commercial, and tourism projects that strengthen the investment portfolio.
These two markets do not compete with each other; they complement each other. While the Dominican Republic offers vacation income in dollars and unique tax advantages, the Sabana de Bogotá ensures stable and continuous appreciation over time. For investors seeking a balance between security and growth, combining both scenarios can be the most solid strategy for asset diversification.
This is how your investment could look
Each real estate market offers different dynamics that are reflected in its figures. Analyzing case studies allows us to understand how results change depending on the type of project, location, and projected capital gains.
- Case A: Tourist villa in Cap Cana
- Investment: USD 350.000
- Annual gross income: USD 40.000
- Expenses: USD 12.000
- Net ROI: 8 %
- Projected capital gains: 10 % anual
- Case B: Apartment in Cota
- Investment: USD 220.000
- Monthly rent: USD 1.100
- Net ROI: 5 %
- Capital gains: 7–9% annually
The results show that each market has its own dynamics. In tourist destinations such as Cap Cana, profitability is usually driven by dollar revenues and capital gains accelerated by high tourist demand, while in Sabana de Bogotá, on the other hand, the appeal lies in the stability of residential demand and sustained appreciation in Colombian pesos. The choice depends on the type of return you want to prioritize, whether it is cash flow in hard currency or solid asset growth in the local currency.
Real estate profitability and dollarization of assets
Investing in the Dominican Republic allows you to diversify your capital in dollars, which protects against the volatility of local currencies. For Colombian investors, this means shielding part of their portfolio from inflation and devaluation.
- Trends that will shape profitability over the next 5 years
- Digital nomads: increased demand for short-term rentals.
- Medical tourism: boom in the Dominican Republic as a health destination.
- Construcción sostenible: eco-efficient projects with greater added value.
- Urban sprawl: the Bogotá savanna as the main focus of residential development.
But how is profitability calculated? We'll tell you here.
Profitability is built by combining different variables that allow us to understand the true potential of an investment. By analyzing each step in detail, investors gain a complete picture of the returns they can expect.
- Annual gross income
The calculation begins by adding up all the income that the property generates in a year. In other words, if, hypothetically, you own an apartment that is rented for $1,200 per month, it produces $14,400 per year.
- Maintenance and administration expenses
This includes administration costs, taxes, insurance, and maintenance. This allows you to accurately determine your net cash flow. For example, if your expenses are $3,000, your net income will be $11,400.
- Projected vacancy
A margin of time is considered in which the property could be unoccupied, in order to obtain a realistic calculation. This means that if you have, for example, a 5% vacancy rate, the net income is adjusted to $10,830.
- Tax benefits
Some markets offer incentives that increase profitability. In the Dominican Republic, the CONFOTUR Law grants tax exemptions that optimize return on investment.
- Estimated annual capital gains
In addition to cash flow, it is essential to project the growth in property value. Developing areas can generate annual appreciation of 7–12%.
- Comparación con otros activos
El análisis se completa comparando los resultados con lo que producirían inversiones en otros sectores, confirmando así la competitividad de la opción inmobiliaria.
Real estate profitability is a measurable result that comes from clear formulas, verified data, and a strategic vision. Those who evaluate ROI, Cap Rate, Cash-on-Cash, IRR, and capital gains not only understand how their capital multiplies, but also project sustainable decisions that are shielded from volatility. Both the Dominican Republic and the Sabana de Bogotá are valid paths for those seeking to consolidate a solid and diversified portfolio.
At Axia Inversiones, we transform this process into a reliable and transparent experience. Each project we present has undergone a rigorous selection process focused on its growth potential and financial soundness. This means our clients can invest with peace of mind, knowing they are accessing properties with high potential in markets with proven growth prospects.
Investing with Axia means more than just acquiring a property: it means accessing a portfolio designed to generate confidence, sustainable results, and a wealth strategy that transcends the short term. Here, every decision becomes a firm step toward growth and financial security.
