Real Estate

Caribbean real estate

Most US real estate investors start off investing in their home market. It’s familiar, and the US is certainly big enough to afford a good choice of different local markets and property types. But some investors prefer to look a bit further afield, and the Caribbean is a popular choice.

Many Americans are tempted to purchase residential property on a Caribbean island. That enables them to use it for a few weeks a year, and rent it out the rest of the time. The property management sector in the Caribbean is well developed, which helps the absentee investor. It’s also possible to buy properties on resorts, which benefit from the resort’s own services and marketing. Tourist demand is a constant – the attractions of sun, sea and sand never fade!

Hefty fees can spoil your island paradise

But there are some important reasons why the Caribbean isn’t necessarily heaven on earth for the property investor. For instance, resorts charge hefty annual fees – if you don’t have a high occupancy rate, they will push your returns way down. You also need to pick your destination carefully. Mustique and the Bahamas have done well over the past five years, but Barbados has been much weaker in terms of prices. In Belize, prices have actually dropped for the past couple of years. You also need to think about extreme weather. Make sure any building is hurricane proof.

Easy to buy – harder to sell

It can also be difficult to sell. It’s easy to buy; the Caribbean is full of promoters, with approaches from super-smooth to the hard sell. The resale market is trickier, and you may be competing with a glut of newly developed properties.

We’re also suspicious of any real estate investment that’s made primarily because the investor likes the property, rather than on hard numbers. If you put $550,000 into a “dream property” and lose 10%, that’s $55,000. You could have quite a few Caribbean holidays for that price, and invest your money somewhere with a better return.

Other investments have better returns

You can also find investments that are more liquid and more transparent than Caribbean rentals. It’s difficult even to find a price index for some Caribbean markets, and next to impossible to find solid information on yields. On the other hand, you can easily track a REIT’s share price for the past decade. Its assets will be shown in its SEC filings and you can easily calculate the yield and price to book.

If you really want to invest in Caribbean tourism, you might do better by looking for a commercial real estate investment on a crowdfunding site. You could invest in a resort or hotel, which will be professionally managed. There’ll be plenty of due diligence information available. But the investment may be tied up for five to seven years.

Or you could park your money in REITs. Unlike both direct investment and most crowdfunded investments, REITs are highly liquid. You’ll be able to sell the shares whenever you like.

Imagine that $550,000 put into REITs – at the average 3.5% yield it would give you $19,250 a year in dividends. You can have quite a lot of pina colada for that!