Investing in Real Estate in Barbados: A Guide for New Investors - Part 1

Are you considering investing in local real estate as a way to build wealth? To help you understand this investment option, MoneySmart spoke with a real estate broker Cherita O’Dell who shared key insights for new investors.

Why Invest in Real Estate?

“Barbados is privileged in that it has a robust and resilient real estate market driven by its economic stability and the fact that it remains as a top tourist destination. As such, real estate offers a tangible asset that can appreciate over time and generate rental income, offering a reliable way to grow your money.  It can also provide financial security in the future,” O’ Dell says.

What Are the Expected Returns?

O’ Dell says real estate investors can generally expect steady returns, with potential for both capital appreciation (an increase in the value of the property over time)  and rental income. 

“Rental yields can range from five to eight percent annually especially for holiday rentals. Fluctuations can occur based on economic conditions, market demand, property type, and location,” she says. 

“It has some advantages though, like providing a stable, tangible asset that tends to appreciate over time, with the added benefit of generating rental income.  It is less susceptible to market swings, making it a safer, long term investment.  It offers steady growth and can be more predictable,” O’ Dell adds.

Key Considerations Before You Invest

As with any investment, investing in real estate requires careful planning. O’Dell stresses the importance of knowing how much money you qualify to borrow or how much money you have to spend. She advises investors to ensure that they can actually afford the investment and they can still live a comfortable life without feeling overextended.

O’Dell also stresses the importance of knowing your end goal and she identifies some questions real estate investors must ask themselves:

Do you want to earn passive income from your asset or do you want to reside in it, enhance it, and use it for collateral in future investment endeavours?

Do you want to wait a few years until it has appreciated so that you can sell it for a profit or do you want to give your children a headstart in life with a strong inheritance?

Investment Options: What’s Right for You?

There are several ways to invest in real estate, and each option can help you achieve different financial goals. Here are some of the most popular strategies:

• Buy to Rent (Long-Term): Some people buy to rent long term with the aim of the rental income covering the majority of the mortgage.  They have an asset that they can then leverage for future acquisitions, while someone else in essence pays off their primary debt.
• Short-Term Rentals: Some people buy to rent to visitors.  Not only do they enjoy the revenue but they might like the work that goes into creating a memorable experience for a visitor to the island.
• Fixer-Uppers: The purchase of fixer uppers is seen as a welcome project for some.  They can acquire a property at a relatively low price and then transform it into a gem that quickly appreciates in value. They can borrow to accomplish their objectives or go at their pace, out of pocket.
• Property Flipping: Buying, improving, and selling is perhaps the least common option on the island.  Due to continuously rising material costs, there is no guarantee that the profit you make from selling the property will be substantial.  Also, as the sale and legal turnaround time is substantially longer than in other jurisdictions, flipping is not a quick process, so it can seem counterproductive as expenses start to rack up.

What’s the Best Option for New Investors?

If you’re new to real estate investing, O’ Dell says the best option for you depends on how much spending capacity you have and your long-term objectives. 

However, she points out that if you’re able to secure a house with an additional space, you can benefit from residing there while having a tenant contribute to your mortgage payments.

Some individuals also opt to live in a rented home while buying property which they rent out in a combination of short and mid-term rentals.  This is in an effort to keep the property occupied all year round.

Look out for Part 2 of this article in which we delve deeper into the challenges and risks associated with real estate investment in Barbados and how investors can mitigate those risks.

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