I apologize this doesn’t have anything to do with Homes in York PA for Sale but today I’m hunting real estate investments in a completely different environment – Negril Jamaica.
Hunting Real Estate Investments in Negril, Jamaica
Yup…as I write this I’m sitting on my porch in hotel Kuyaba in Negril Jamaica. My wife Denise and I come here every year for her birthday – April 1st. It’s become a tradition we love with all our heart. 5 years in a row and we’re still loving every minute of it.
The 1st couple years it was just the 2 of us but over the last 3 years, we’ve shared this little part of paradise with some close friends. They seem to have fallen in love with it just as much as we have.
Today however, we’re doing something unique. Denise and I are going to take a stroll down the beach to look at some real estate properties for sale. Investing here may seem a little strange for a small town real estate investor like myself but like all real estate investments, it just comes down to the numbers.
How Do the Numbers in Jamaica Stack Up?
I haven’t yet examined all the numbers but from my preliminary investigation, the economies of buying real estate here definitely make sense.
There are properties here you can buy on the beach anywhere from $75,000 to about $500,000. My personal sweet spot will probably be in the $100,000 range. The reason for this is very simple.
The more affordable the up-front purchase price, the easier it will be for me to cover any expenses of buying the property through monthly rent payments. Unlike in America however, the real estate investment properties here rent more on a sporadic basis then continuous all along.
The rental properties here rent on a daily to weekly basis or if you’re lucky, monthly. It all depends on how strong the tourist season is.
Are Mortgages Freely Available in Jamaica Too?
As for mortgages, the Jamaican economy is pretty competitive and mortgages are freely available to even foreigners. There are some special requirements for sure which I haven’t delved into completely yet but plan to very soon.
My hope is to learn about mortgage programs similar to those in America. For example, in America it’s fairly common for a real estate investor to have a conversation with a commercial banker who can approve a mortgage for them as long as the property being lent money on has a positive cash flow.
Typically they are looking for a 1.25 Debt Coverage Ratio (DCR). This Ratio may be very alien to you but it is very easy to understand in actuality.
What is Debt Coverage Ratio – DCR?
Let’s imagine you buy a real estate investment for $100,000. You go to your local real estate investment commercial lender and ask them for a loan to buy the property. When all said and done, your mortgage payment with the bank will be $700 but on top of that you need to add any other expenses for the property.
These other expenses will most probably be real estate taxes, property insurance, property management costs, perhaps some utilities and some maintenance/repair costs. To make our numbers easy to compute, let’s assume all these other expenses add up to $300 monthly.
Add that to our original $700 mortgage payment and we have a total monthly expense for this property of $1,000.
That’s the magic number our commercial lender pays most attention to. They want to make sure you or the real estate property you’re buying can cover that expense. Typically if you’re buying a normal residential loan, they’re going to make sure you personally can afford that payment.
However, if you’re dealing with a commercial real estate lender, they’re going to pay more attention to your real estate investment’s ability to cover that monthly expense through the rental payments you can receive.
When Will Your Commercial Lender Approve
Your Real Estate Investment Loan?
Ideally they want the rental payments to be more than 1.25 Xs your monthly expense.
So for our example, this means they would want rental payments on this building to be at least $1,250 or more. The higher that rental payment, the easier it’ll be to get approved for that loan.
Personally I wouldn’t be too excited to have a property that only has a DCR of 1.25. I want something higher to have that extra comfort level. Ideally I would look for something like 1.5.
Paying attention to DCR is not only an important factor for your commercial banker but it’s also a number I pay very close attention to myself. The higher my DCR the better the investment property I have found.
As such, my mission today is to go look at some possible real estate investments with my wife in the hopes of finding some great rental property returns. Wish me luck Mon! I hope we find our next real estate investment here in Paradise!