Profiting from Real Estate in the Carribean 

By Janel Rodriguez

As a Caribbean citizen, you live in one of the most attractive real estate markets in the world!  Celebrities spend top dollar just to visit, but we get to live where they vacation. You have the opportunity to invest in and profit from real estate. 

 

Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. If invested strategically, real estate can provide a lucrative cash flow. Since real estate appreciates rapidly in the Caribbean, properties are particularly robust for investments, and your property can become a source of income or capital growth. 

 

Whether for vacation, short term, or long term, people are always looking for a place to stay, build, or operate businesses.  By purchasing real estate you can profit, and the investment can even pay for itself, but not all ventures into real estate are profitable. To be a successful real estate investor, there are certain things that you should know. 

 

Have a clear goal

 

First, it’s important that you have a clear goal of what benefit you are aiming for with your investment property. Are you looking for a reliable income stream or do you want to turn a quick profit by buying and selling property? Or is it that you simply want the value of the house that you buy to live in, to go up?  It’s also important to know what type of property you want to invest in. Do you want short term rentals, long term rentals, property to flip, to hold for the long term, or to subdivide? 

 

Location, location, location!

 

A smart investment is a property that appreciates in value. Before investing in real estate, research the area, and look at it’s potential for development. What will the property be worth if  you choose to sell it down the road? Look at the appeal of the specific location of the property. Everyone goes on about “location, location, location” because it really is important. An appealing location is key to getting a great return on your investment. It can impact how much profit you make, the quality of your renters, and your vacancy rate. 

 

Consider the amenities in the neighborhood, the schools, the job market, access to public transportation, shopping centers, restaurants etc. Find out what attracts the renters or tenants that you are trying to attract. You can go as far as finding out about plans to build new amenities in the area, which can boost its future property values. 

 

For example, in Jamaica, the government has just started building a new highway between Maypen and Mandeville, which will make the commute between Kingston and Mandeville much faster, and while likely send property values in Mandeville up.  Similarly, a new road is being built to St. Thomas, which is already driving an increase in property values in the so-called “forgotten parish”.  

 

In October 2020, 2nd Vice President of the Realtors Association of Jamaica, Roger Allen, told Kalilah Reynolds on Taking Stock that land prices in St. Thomas are rising fast!

 

“The more favourable [land] that is roadside, you’re talking right along the highway corridor there, you’re easily looking at, depending where, J$45-$60 million (US$300,000 – $400,000) per acre.  These lands less than a year ago… they were somewhere in the region of $15-$25 million (US$100,000 – $167,000), and I’m talking 6-9 months ago,” noted Allen.

 

There’s also the Montego Bay bypass, which will affect property values in those communities.  On the North Coast, if there are new hotels going up, that is likely to affect property values nearby, as hotel workers look for housing.

 

Flipping

 

Another thing to consider is forced appreciation, also referred to as flipping. This means increasing the value of the property through direct efforts and investments into the property like painting and renovating. This way you can actively build up real estate to be worth much more than you invested. Consider the appreciation potential that you can get from doing a few cosmetic updates on the place. How much more will you be able to charge for rent after the walls have a new coat of paint, compared to what it would be worth as-is? You stand to save money on your initial investment if you’re willing to put a little work into the property after you buy it.  The property can attract monthly rentals significantly larger than what you spend on its purchase, or you could look to sell immediately at a profit.  

 

Short term vs. long term rentals

 

Another option is to invest in short term or long term rentals. A property that is rented anywhere between one evening up to one month is often considered a short term rental.  These include Air BnBs, or other bed and breakfast options. Some advantages of these are flexibility (since you get to choose when guests stay at your property), less wear and tear since guests don’t stay long, and overall higher rates of rental income than long term rentals. Some AirBnBs, for example, can bring in more income within a week than some long term rentals may bring in for the entire month. 

 

However, short term rentals inherently require more involvement in terms of property management, and the short term rental market has not been at its best since it relies heavily on travel and tourism which has been reduced as a result of the COVID-19 pandemic. 

 

Long term rentals, on the other hand, typically refer to those which are leased for one month or longer. These can provide consistent cash flow when compared to the fluctuations of a short term rental since a longer-term tenant pays a consistent rent on a weekly or monthly basis.  However, it is likely to provide less profits than short term rentals. Both short term and long term rentals can provide cash flow that can possibly pay for the cost of your investment and provide a source of passive income.

 

Subdivision land development

 

You also have the option of subdivision land development.  Have you ever seen parcels of empty land transformed into housing schemes or apartment blocks? Some housing schemes such as Caribbean Estate, Oaklands, and Coral  Gardens are products of such land transformation. Subdividing involves taking an existing property and separating it into smaller portions, with each portion having its own registered title.   Some parcels are sold as raw land, others are sold with houses, apartments or offices built on them. You can then either sell the smaller portion as a vacant lot or you can build a house or apartments on  it. 

 

In Jamaica, it’s very common for houses to be built on smaller lots.  This applies to both rural and urban areas.  Many development schemes are using lot sizes around 4000 square feet for homes and townhouses.  You can subdivide land into up to five pieces before needing a real estate developer license, or you can register with the Real Estate Board and receive certification as a developer. But first you should check your restrictive covenants to see if you are allowed to subdivide the land. The restrictive covenant is an agreement between the Vendor and Purchaser where the purchaser makes an agreement with the vendor of land that he will not do certain things in respect of the land. If you are allowed to subdivide, it can be a profitable real estate option.

 

Before you purchase your property, make a financial strategy. Include what you plan to spend on mortgage payments, down payment, and any renovations. If you plan to rent the property, decide on a practical renting price. Buying property does not guarantee profit.  It is important that you factor operating costs and property taxes, as well as the average vacancy rate. 

 

From renting to flipping to land development, real estate offers diverse avenues to profit from your investment, and is an option that should be explored when building your investment portfolio.