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First Time Buyer Decision
Residential Home vs. Investment Property

 Should our first property be a residential home or an
investment property?

For the umpteenth time this year I received an urgent call, “Cherita, this house has become a noose around my neck. Help me to sell it please.”  I can’t help but to wonder, in the midst of these outcries, if buying a residential house at the first opportunity instead of an investment property has caused many of us to feel trapped by our mortgages.  Should our first property be a residential home or an investment property?

From school days we have been programmed that we should get a good education, get a good job, rent for 2-3yrs, purchase a starter home, have kids, expand the current home or buy a second home.  There’s absolutely nothing wrong with following this timeline. At a young age this model can facilitate living freely, dining out endlessly and traveling without a care in the world. Enjoying substantial discretionary income is awesome but stewarding one’s money with wisdom could still simultaneously facilitate building credit and saving money.

At a younger age, when obligations are not as large, it is the perfect time to cut costs and start building wealth.  By effectively managing your money you can eventually come up with cash towards your down-payment.

There is such a glut of property on the market that it is possible to find a distressed property at significantly less than market value.  “But, what if I want to purchase somewhere to live in addition to having an investment opportunity?” Great question. There are properties which have the advantage of dual features – a main house with additional apartments or there are complexes which offer sizeable units that can suffice for residential use while you earn an income off the others.

The reality is that, as soon as you find a tenant, you can start to profit off of your investment.  You can take the money that you earn, pay off the mortgage, reinvest it into your property, pay off other bills and debts and even save. 

The plus side of the investment property approach first, is that if you purchase right now, you are buying in at the bottom of the market upturn and able to look forward to a future upswing in the value of your investment.  You are able to pay off your property using someone else’s money and eventually create a financial stream that is separate and distinct from your retirement plans and other savings instruments and not subject to the same risk.

Is it therefore the status quo and trying to keep up with the Jones’ that make many of us not even consider investment property as our first option?  So, you may not have your dream house from the onset but the investment approach could perhaps better steer you into taking financial control of your destiny.

So, what is the downside?  Well, for starters, you might not be able to get away with a residential interest rate unless you plan to live in the property initially.  Some banks are stringent that apartment complexes for example should be treated as commercial property, hence higher interest rates and higher monthly payments.  

In addition, being a landlord is not for the feint of heart.  Unless you screen your tenants like a military officer screens his recruits, there is the possibility that you can get a bad card, that tenant that doesn’t pay on time, messing up your cash flow and giving you stress every month as you hunt, chase and reprimand for your late rent.  Also, as regards expenses, tenants can do more damage than you realize and at the end of tenancy you might have to spend a ton just to bring the property back up to scratch. And, of course, they are those unexpected expenses.  

Even though not initially being experts, some people swear that buying an investment property first was the best decision they could have ever made.  They are not only excited about the prospect of adding more real estate to their portfolio but about riding on that passive income in years to come.

 

 

Mrs. Cherita O’dell (BA, MBA)
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

November, 2019

When Dreams Become Nightmares

What no one tells us, is that not every homeowner is blissfully soaring for the rest of his life, and so many of us pursue home ownership with vigorous fervor, unaware of the nightmares that some members of this sought after fraternity experience during the journey.

From the time we were small we have always been programmed that success is about getting good grades when you leave school, securing a good job, building or buying a house, having a family and remaining comfortable for the rest of your life.  Many have aspired to what seems like a simple and effective formula.

So, after we graduate secondary and tertiary level we go out ambitiously determined to make these goals a reality.  We check them off one by one as we climb the ladder of perceived success. Purchasing a home is one major milestone which makes us feel that we’ve arrived, we’ve made it.  As we jump through the hoops of securing a loan, approving plans, setting up insurance, selecting furniture and finalizing décor, we delight ourselves in knowing that we’ve conquered.  We’ve entered the land of the few and the brave – home ownership.

What no one tells us, is that not every homeowner is blissfully soaring for the rest of his life, and so many of us pursue home ownership with vigorous fervor, unaware of the nightmares that some members of this sought after fraternity experience during the journey.  Should we stop our pursuit, play it safe and enter the land of renting for the rest of our life? No, that’s not the way to approach life. However, the knowledge of the pitfalls of others perhaps can help us to make prudent decisions allowing us to better prepare for any similar demise.

Before the recent recession hit, there were many homeowners who had joint salaries of over $8,000.  They therefore had no qualms about taking out mortgages for $3000-5000/mth. Their jobs were stable, or so they thought, and they existed in a climate where it felt like the natural progression would be via promotion either to a higher position within the same company or relocation to another job.  Never could they have foreseen that one partner might be made redundant and that joint income suddenly cut in half. Worse yet, never could they have imagined that both breadwinners might be laid off at the same time. To add to their distress, when they now turn to sell their beloved home to help make ends meet, what was once valued at $825,000 is struggling to fetch a market value over $600,000.  Although the banks who provided their initial financing try to be understanding of their situation, at the end of the day it is a business arrangement and they need to protect their interest. If you default, at some point in time they’ve got to collect. What a nightmare!

Then there are those who stood at the altar and declared their commitment to love one another until death do us part.  However, while very much still alive and feeling like killing one another, they opt for divorce instead. How often have I sat between 2 former partners, wanting to cut the tension with a knife, as we discuss the best strategies to sell property which they once worked so hard to secure together?  Usually, thanks to court ordered sale, they focus on the speed of pushing the property off, often not realizing close to its market value. They just want to cut their losses, close that chapter of their lives and move on. The pain and emotional scars of being booted out of your matrimonial home can be lasting. 

There are instances in which homeowners have built the biggest houses they could possibly afford because in their eyes it symbolized success.  Now that their children have grown and left the nest, their once desirable haven has transformed into a ball and chain around their ankle. Pool maintenance, garden maintenance, housekeeping services, insurance, land tax, repeat.  They only live in 2 rooms of the house and now despise the very possession they most avidly pursued. They’re ready to downsize and hurt at the thought that a future buyer doesn’t care about the blood, sweat and tears that they poured into the house nor about the sentimental moments that took place there.  A prospective buyer cares about a deal and after your house is now on the market for 3 years, having experienced 5 price reductions, it is depressing to sell it for next to nothing just to be able to downsize. 

Sickness is one of the unforeseen circumstances that has placed many a homeowner in an unfortunate predicament.  With mounting medical bills and urgency being the name of the game, selling one’s house can seem like the quickest option to raise much needed funds.  Illness doesn’t care about your acquisitions and even the most phenomenal property can seem totally insignificant in comparison when all you want is your health restored.

We don’t plan for things to go wrong but this is the reality of home ownership.  Life happens. Making wise decisions like building your savings, minimizing your debt-to-equity ratio and living according to your means are the best approaches to take as you pursue acquiring property and any other assets.  Go after your dreams with optimistic enthusiasm, but awareness of pitfalls and the knowledge of what can go wrong will keep you one step ahead. Home ownership can certainly be for you. Don’t be discouraged, just be informed.  Do not venture into it naïvely and with your eyes wide shut and I’m sure you’ll be one of the majority who definitely enjoys the journey.

 

Mrs. Cherita O’dell (BA, MBA)
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

July, 2019

Ready to Buy? Now What?

Buying property in Barbados is quite easy as, with regards to expenses, it’s the same for both nationals and non-nationals.

It is recommended that prospective buyers meet with their financial institution first to determine what they qualify for before starting their property search.  This helps to expedite the process once a binding agreement is entered into.  The services of a real estate agent approved by the Barbados Estate Agents & Valuers Association (BEAVA) are recommended.  This helps to facilitate the property hunt, and provide access to free advice, as the realtor is paid by the vendor.

Local purchasers may find banks offering down-payments of 5-10% with payment periods of 25-30yrs.  There are several banks which cater to non-nationals and may offer international mortgages.  The down-payment might be 20-30% with the payment period sometimes being 15 years or less.  

Purchasers must utilize the services of a local registered attorney to transact the sale, which on average may take 3-5mths once there are no encumbrances.  Property passes by conveyance of title, evidenced by the recording of the deeds and certified survey plans at the registry of title.  Legal fees for the purchaser are legislated in the range of 1-3% on a sliding scale plus 17.5% VAT.  Both the purchaser and vendor are responsible for their own legal fees.

Non-nationals especially should note that funds brought into the island should be registered with the Central Bank as a formality.  Your attorney or banker would coordinate this with the Exchange Control Division.  This ensures that as a foreign investor your funds are protected, therefore if you want to sell in the future, repatriation of these funds should be seamless.

On signing the sale agreement, a 10% deposit is required which the vendor’s attorney holds in escrow.  The balance is then due on the transfer of deeds, and is payable to the vendor’s attorney.

It should be noted that a purchaser does not have to pay Property Transfer Tax, only the vendor.  In addition to legal fees they should budget to pay their proportion of the land tax, property insurance and stamp duty.

Now, armed with this information, getting started should feel a whole lot easier.  Let the hunt begin!

 

 

Mrs. Cherita O’dell (BA, MBA)
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

January, 2019

How Much Should I Spend
to Get My House Ready for Sale

Just like the mad scramble to tidy up your house when you know guests are going to drop in, so should the same attitude apply when you are about to place your house on the market for sale. You should try to present it at its best, spruce up the interior and make the exterior pleasing to the eye.  So, what does this all really mean? How much will it cost you?

Many prospective sellers think it means that you now have to pour tons of money into your house to make it shine, to ensure that it stands out.  In a regular market, it is the enhancement of the bathroom and the kitchen in particular which add value to a property, sometimes by as much as $9000 and $12,000 respectively.  However, we are not currently in a regular market. You may be very disappointed to know that a prospective buyer does not care how much you spent to remodel these rooms. All a buyer in today’s market cares about is “What type of property can I afford based on my bank’s pre-approval?”  They are willing to offend you with an offer which suits their pockets, so now all of your hard work has gone down the drain.  

That callous approach to shortlisting property can get many an owner feeling dejected and disrespected after spending $20,000 to remodel his kitchen and bathrooms then hearing a prospective buyer ask for as much as $20,000 off the sale price.  Hurts, doesn’t it? So, where should you direct your money when you’ve decided you’re going to sell your house?

Since the aim is to sell your house in a timely manner and make a profit, wisdom dictates that you direct your money into the following projects which are of the most common concern:-

  • Cracks

Nothing will scare a buyer away more than major cracks.  You may have lived comfortably with that fork lightning crack on your dining room wall but now that you are trying to sell the house, you need to make it disappear.  Have an engineer investigate and see how that eyesore can be reinforced, filled and beautifully faded into the surrounding wall. Remember, if a coin can fit into that crack you have a major problem.  Fix it and fix it fast!

  • Water Damage

Another deterrent to a prospective buyer is any sign of water damage.  Think about it, when they see a water stain, they dread how long that leakage was ongoing.  Is the water still in the wall? Is the structure eroded? Is the stability of the wall compromised?  Have your contractor ensure that the leak has stopped, identify the nature of the damage and repair, repair, repair.

  • Pest Infestation

A buyer’s eyes are sharp.  Remember, anything that looks like a dirt trail along the wall in a buyer’s eyes means termite infestation.  It doesn’t matter how it got there, a buyer now envisions the walls crumbling down around him in just a matter of days.  Bring in the professionals, get them to do a thorough inspection of the house and spray it down. Kill ‘em, kill ‘em all.

  • Clutter

Get rid of it!  If a buyer can’t visualize themselves living in your house, the deal is over.  De-clutter the stuff in your domain, the junk that’s been sitting in corridors, the excess containers sitting on your kitchen counters and the clothes lying on the furniture that you keep promising to throw away.  Use this time to purge. You will be surprised at the number of large garbage bags of stuff you’ll discard. You didn’t know you were a hoarder at heart, did you? A de-cluttered house actually looks more spacious and helps the buyer focus on the property’s focal points as opposed to your ridiculous living conditions.

  • Curb Appeal

The first impression of your house will dictate the buyer’s emotions from the beginning to the end of the viewing.  If the entrance and environs of the house are attractive on arrival, the buyer will be open-minded, regardless of what he sees on the inside.  However, if your curb appeal is as attractive as the entrance to the public dump, you’re in trouble. He’s already turned off and his zeal for the house will surely fade thereafter.

 

So, be reminded, don’t go and overspend when it’s time to sell.  Put your money where it matters the most – in the areas that will detract a buyer from seeing the true value of your prized possession.  They will want to configure the house to their own taste anyway, so let them. Who’s to say that they will love and cherish your new blue & white Mediterranean style bathroom?  Present a canvas that they will be proud to call their own and take pride in transforming into a home sweet home.

 

Mrs. Cherita O’dell (BA, MBA)
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

November, 2018

How Landlords Protect
Themselves from Bad Tenants

In recent times the level of tenant delinquency has increased phenomenally due to heightened economic challenges and downright “don’t carish” behavior.  In an attempt to best protect landlords, agents often conduct their best due diligence by requesting professional references, a previous landlord’s reference and trusting their gut.

Always be weary of tenants who want to move in urgently, within a day or two.  Many of them are running from a tough situation, including being kicked out for non-payment, so get to the bottom of their back story before you quickly embrace them.  Pay attention if coming up with the security deposit and first month’s rent is seeming like a stretch. If the start of the rental is such a financial strain, how much easier is it going to be for the tenant to come up with the rent every month?

Once you have identified a prospective tenant put everything in black & white.  Have a solid lease agreement outlining: 1. The lease agreement beginning and end dates. 2. Rent and other monies due such as security deposit, pet damage deposit, etc. 3.  Any utilities included, gardening maintenance, etc. 4. The usage of the property, residential, commercial, etc. 5. The obligations of the Landlord. 5. The obligations of the Tenant. 6. Rights of entry: You have a right to inspect your property while respecting the Tenant’s privacy.  7. The landlord’s rights if the Tenant doesn’t follow the agreement. 8. Proper notice on either side to vacate the property. 9. Notice of daily fees for late rent. 10. Renewal terms.

If ever you make updated adjustments to the terms of your arrangement, do not be satisfied with a verbal agreement.  Many landlords want to be easygoing and shake hands to seal a deal. Remember, if issues arise and there’s nothing in writing, it will be very difficult to enforce your rights and win a case in court.

Ensure that the tenant signs the Rental Agreement prior to his signing off.  Just in case the landlord has second thoughts about entering an arrangement with the tenant, even though initially agreeing to, he is free to change his mind without being legally bound.  The landlord should ensure that utility transfer authorization letters are given to the tenant only when the rental agreement is signed by both parties and rental deposit received. A request should be made for a copy of the electricity transfer receipt to ensure that it has indeed been switched over to the tenant in a timely fashion.

The landlord owes it to the tenant to ensure that the property is prepared for the start of the tenancy.  It should be handed over in good condition, the premises should be secure with proper locks and lighting. The grounds should be clean and all of the property’s fixtures should be in working order.  An inventory should be taken of any appliances or furniture and notes made on the unit’s condition in the instance that there are aspects of wear and tear prior to the tenant moving in. Landlords need to be reminded that tenants are paying them a portion of their hard earned money every month and they owe it to them to deliver a sound property in exchange.

During the term of the tenancy, a landlord should not be dismissive of even minor infractions such as late payment by a few days.  Issue a pleasant reminder that rent is due in a timely fashion. It sets the tone of the landlord-tenant relationship. If you are too casual in your approach as a landlord, your good nature will be taken advantage of.

So, landlords remember, communicate clearly, put everything in writing, do not postpone taking action and keep records.  It is a professional arrangement. However, don’t be cold. The reality is that sometimes a tenant may fall into hard times.  The landlord should be kind and empathetic but remember not to let the tenant’s personal issues affect the business relationship too much.

Sadly, in spite of even the best efforts, bad tenants are a reality.  Be prepared.

 

Mrs. Cherita O’dell (BA, MBA)
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

April, 2018

Should I Buy For Love or Money?

“Oh, I so love this house! Sugar plum, it has a valley view, the air sweet up here, and the master bedroom is massive.”  “But, honey, it’s at the top of our budget. Things might get tight.” “Don’t worry babes, we’ll be fine. Happy wife, happy life, remember? This is the one.”

This is a common scenario at the climax of many house shopping missions.  The buyers fall in love with the house of their dreams. It checks all the boxes – the water pressure is great, it already has security enclosures and there’s AC in the master bedroom.  The black granite countertop contrasts beautifully with the stainless steel appliances and, the double vessel sinks in the bathroom are divine. It’s only 2 miles from work and a stone’s throw from the kid’s schools.  Perfect!

A house should be your home, your retreat.  It should be the place you want to run to after a tough day at work, your entertainment zone during the holidays and the place where you make memories to last a lifetime.  Therefore, finding a house that makes your heart flutter should be the primary goal, shouldn’t it?

On many occasions I have seen clients select properties which eventually become a noose around their neck.  You see, it initially starts off as their dream house, the one that they’re excited to landscape and furnish with the trendiest décor.  Soon, the payments start to feel burdensome. Meeting the financial needs of the household becomes more strained as there just never seems to be enough disposable income.  Where did it all go wrong?

But, they are those who establish early that the love bug won’t be their demise.  So, what do they do instead? They are Scrooge-like in their budgeting. As much as they are passionate about that house on the hilltop in St. Joseph, sitting on 4 acres, catching the best breeze and enjoying the most scenic view, they opt to go way below budget.  They believe they have chosen wisely by picking their 4th choice, their hot house which is an hour from work, with no room for expansion and no front lawn.  All of their financial obligations will be met, their bills paid on time and enough left over to enjoy a monthly family dinner on the town. But, their house simply serves as a shelter, a place for storage and to rest their heads.  The house brings no extra joy, it’s simply a means to an end. Where’s the love?

Just because a lender says that you can afford a mortgage, it doesn’t mean you should pursue it. It may get you the dream house, yes, but what about the quality of life thereafter? Consider your monthly salary.  After taxes are deducted, after you pay your health & life insurance, car insurance and mortgage payment, what’s left?  Now, let’s take that balance and try to buy groceries, pay the internet bill, gas up the car and buy daily lunch. Are you covered?

The reality is that you want to be comfortable taking care of all of your household necessities and financial obligations.  Additionally, you ambitiously want to meet various financial goals such as saving for retirement, your children’s university fund, house repairs and vacations.  And, in the instance of any eventualities, you strive to put aside at least 6 months’ expenses for an emergency fund.

So, what do you do?  I recommend establishing what you qualify to borrow first and assessing the terms of the monthly repayment.  Alright, now be true to yourself as to what you can comfortably afford. Settle that monthly figure in your head and go back to your lender and tell them you want a mortgage that can accommodate that.
Now, put on your blinkers, stay in your lane and hunt within your budget.  Trust me, there are houses with your preferred characteristics in that pool.  Don’t rush it! Stay focused. You can close on your dream house and not be “house poor.” For love or money?  Why choose when you can have the best of both worlds?

 

Mrs. Cherita O’dell
Real Estate Broker of sister agencies Million Dollar Homes & Barbados Real Estate 246

 

October, 2017