Investing in Real Estate
This is the first article in a series on investing in real estate in Jamaica. This article will provide an overview of available investment opportunities, while subsequent articles will go into detail for each of the opportunities. There are several types of real estate investments available in Jamaica. When considering to invest in real estate, the first step is to determine the amount of time you want to dedicate and your level of involvement. The investment can either be passive or active. Passive real estate investments include managed rental properties, real estate investment trusts (REITs), and residential lots. While active real estate investments include villas, rental apartments, Airbnb properties, property flips, and land subdivisions. As with other types of investments, the more active you are is the more return you can expect. In this article I am going to discuss the benefits and drawbacks associated with rental properties, property flipping and land subdivisions.
Locally, the most common type of rentals are long term, short term, and Airbnb rentals. Long term rentals are traditional rentals where a landlord offers a property on lease for a year, renewable at the end of the period. The tenant would be responsible for minor repairs, the landlord for everything else. This is a good way to own an asset that appreciates in value, where the mortgage payments are offset by the rental payments. This option is a long run investment, look to keep these properties for 10 years or more.
When deciding on a tenant, ensure that you conduct background checks and employment checks. Get referrals from past landlords, check character references and payslips. You stand to lose your return on investment if you have a tenant that isn’t paying rent, and sometimes it is difficult to remove delinquent tenants from your property.
Short term rentals on the other hand can be daily, weekly or monthly. These rentals will offer more return overall if the property is consistently booked. The drawbacks however are that background checks aren’t that comprehensive, the tenant might damage your property and any issues with the property such as plumbing, electrical etc. have to be dealt with immediately. It would suit you to have a property manager.
Airbnb is gaining in popularity as the rental option of choice. When you list your property on the platform, Airbnb handles all the booking and payments. You will be required to handle everything on the ground such as greeting the guests, checking them in and cleaning up. If the unit gets consistent bookings, you stand to earn much more than if it is used as a long-term rental. Being a short-term rental, you will face the same issues as above, all issues have to be dealt with speedily. A bad review will deter prospective customers from booking your unit.
This investment strategy is where the buyer purchases properties below market value, carries out renovations and minor alterations and sells for a profit. Usually older homes and foreclosures are the properties of choice used in property flipping, as these can be acquired relatively cheaply. If the property is purchased on mortgage, it suits you to renovate and place the property back on the market quickly. This investment type is for the experienced investor, you should do your market research before purchasing properties and get to know the neighbourhoods, the demand for housing and the pricing for comparable properties. You would also have to hire a qualified contractor to carry out the renovations. More experienced ‘flippers’ do the renovations themselves. In every project you will need to budget for unexpected costs such as construction delays, delays in delivery of materials, contractor disputes, and holding costs when you are unable to sell the property as quickly as you had hoped. These costs can quickly add up potentially turning your flip into a flop.
Land Subdivision is the process of dividing a parcel of land into two or more lots for sale and obtaining individual titles for each lot. You must obtain approval from the relevant parish council before the land can be subdivided. Land subdivisions offer a great return on investment. Depending on the situation and the local market conditions, you often can increase the total value of a parcel of land by subdividing it into smaller lots, that are then sold to one or more buyers. It is important to know the neighbourhoods and be able to identify desirable plots for sale. Consult with a commissioned land surveyor to help with the application process, do your research to see what the likely costs will be. It is imperative that you are familiar with the subdivision process, it can be lengthy and cumbersome, you will need access to funds to cover additional costs as they arise.
When investing in real estate it is best to have a long term approach. Real estate offers great potential for significant returns, and is a great way to build wealth. As with any investment, there are potential risks involved, you have to determine your risk appetite and invest accordingly. Real estate can be a valuable source of cash flow when managed wisely, you will need varying amounts of time, capital, and knowledge to get on your way.
The next article in the series will be on land subdivisions for investment.