Let’s clear up at least one misconception about real estate and investment. Buying a house to live in, building that retirement dream home or vacation villa on the north coast does not necessarily qualify as a profitable real estate investment. Just because you invest in real estate, does not guarantee you will make a profit on your money. Real estate offers lucrative income earning and investment opportunities if approached in the correct manner, but many consumers do not reap these benefits. If you desire profitable real estate investment then aim for at least two of the following benefits: a return on your investment in the form of an income stream, positive cash flow from your capital, a margin of profit between the purchase and selling price of the property and an appreciation in the value of your property.
In order to achieve these goals from real estate activities, there are specific strategies that you need to employ.
My recent series of articles about how and where to buy properties below market value explained that a visit to real estate auctions, or a search for abandoned properties are sources of great real estate deals. These properties are in abundance all over Jamaica. Wholesaling is the term used when you search for properties below market value, bring them under contract and assign them to a third party, such as a developer, builder or contractor. Your investment is in the legwork and a bit of capital. You make your money from the fee you charge the third party. There are always buyers looking for great deals, so once you get the knack for finding the properties you can earn a stream of income from this activity. You do not have to be a real estate agent to do this because you are purchasing the property in your name.
Becoming a Realtor
Good realtors receive commission cheques of a million dollars and more on a regular basis throughout the year for selling and listing properties. Of course some commissions are smaller than a million dollars and there are expenses such as broker’s fees and advertising which you have to cover. As a Realtor you can earn a decent income and have the freedom of working your own hours. You need to be licensed as an agent and adhere to strict codes of conduct. If you are considering this route to earning an income from real estate, your investment lies in the training and preparation that is entailed. Furthermore you will need to put aside funds to live on for the first six to nine months if you decide to engage in it full time. . It takes that long to get your first pay cheque.
You earn a commission when a sale is made, whether you are the listing or selling agent. Best of all you are privy to a huge database of properties for sale. Building good relationships with potential clients is the key to success in this field. Once you are established in the field you learn how to successfully ride the waves of uncertainty of slow or “overheated” markets.
In both urban and rural Jamaica, the trend is toward building houses on smaller lots. Many development schemes are utilizing lot sizes no bigger than 4000 square feet for single storey homes and even less for town houses. The process of subdividing is taking an existing property and cutting it up into smaller parcels with each having its own registered title. You can then choose to either sell the smaller portion as a vacant lot or build on it. Either way you will realize a good profit. You will need a real estate developer’s license if you are cutting up the land in six or more parcels but no license is needed if you divide properties into two or three pieces.
One of my clients bought a quarter acre lot in a gated community and divided it into two and sold one half for the same price as what she paid for the quarter acre. Another client sub-divided a one eighth acre into three town house lots and sold each parcel for more than the price of the original one eighth acre. The initial investment is in the ownership of the land and the costs associated with the process. First, check if the restrictive covenants on the certificate of title allow you to subdivide. If they do, you can consider this option as another profitable real estate investment option.
In Part Two we will look at making a profit from Flipping, Land Development and Property Management.