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A drone shot of the Bessa Project in St Mary, Jamaica. (Photo courtesy of KLE Group)

Profiting from real estate in the Caribbean

A drone shot of the Bessa Project in St Mary, Jamaica. (Photo courtesy of KLE Group)

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, therefore, 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 investments are done 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. To be a successful real estate investor there are certain things that you should know.

Location, location, location!

Before investing in real estate, look at the area’s potential for development. An appealing location can impact how much profit you make, the quality of your renters, and your vacancy rate.

Consider the amenities in the neighbourhood, the schools, the job market, access to public transportation, shopping centres, restaurants, etc. You can also find out about plans to build new amenities in the area, which can boost its future property value.

Mall Plaza sits on 2.5 acres of prime property in Half-Way-Tree, a central business district in the Kingston Metropolitan Area in Jamaica. Consider the amenities in the neighbourhood — the schools, the job market, access to public transportation, shopping centres, restaurants, etc. (File photo)

For example, the Jamaican Government recently started building a new highway between May Pen and Mandeville that will make the commute between Kingston and Mandeville much faster and will likely send property values rising on that corridor.

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, second vice-president of the Realtors Association of Jamaica, Roger Allen told Taking Stock with Kalilah Reynolds 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, $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.

Construction is also expected to begin on the Montego Bay bypass next year, which will likely affect property values in those communities. On the north coast, new hotels will 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 investments like painting and renovating. How much more will you be able to charge for rent after the walls have a fresh coat of paint? 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 rentals. A property that is rented anywhere between one evening up to one month is considered a short-term rental. Some advantages 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 have been reduced as a result of the novel coronavirus pandemic.

AirBnb Inc signage is displayed on a smartphone in an arranged photograph taken in the Brooklyn borough of New York, USA, on Friday, April 17, 2020. Airbnb rentals can bring in more income within a week than some long-term rentals may bring in for the entire month.
(Photo: Gabby Jones/Bloomberg)

Long-term rentals refer to leases for one month or longer. These can provide consistent cash flow since a longer-term tenant pays rent on a weekly or monthly basis. However, it is likely to provide less profits than short-term rentals.

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

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.