With the threat looming of another possible rate hike, Canadian investors are at a crossroads. They’re faced with a difficult question: What is the best way to maximize the return on investment? Real estate investors may be asking themselves: If I cash in my investments by selling my property, will it be at a loss? Is that even an option given where the investment project is at? If I don’t take it out now, am I risking an even greater loss down the road? Is this the normal ebb and flow of the market and thus should stay the course? Is there a better option out there?
To that last question, the answer may very well be ‘yes’. Before you cash in all your proverbial real estate chips, we’d like to remind you of the wise sentiment of not just one great man from history but two; “Buy land. They’re not making it anymore.” We’re also dedicating this article to the purchase of vacation property as an investment. Some may say it’s like killing two birds with one stone.
If the mere mention of investing in vacation properties makes you think of a cringy salesperson trying to sell you swamp water in Florida, or the like, you’re not alone and we hear you. But stick with us as we head to the Caribbean. We’re going to focus on Turks and Caicos Island, sometimes referred to as TCI. You’d be well within your right to ask why Turks and Caicos? We’ve decided to pick a single point of reference and what better place is there to put a pin on the map than the world-renowned luxury resorts, turquoise water, and white sandy beaches of this sunny archipelago in the Atlantic Ocean?
Before we jump into that, we need to briefly examine a few key terms:
A Lifestyle Investment is a property whereby the purchaser’s goal is not merely a monetary return on investment. The value-add is in its ability to offer a solution to a lifestyle-related concern such as (a) wanting to escape the cold snowy winters of Edmonton or St. John’s, as examples, or (b) a consistent standard of living on vacation. In this example, a family or person may come back to the same place repeatedly because they’ve come to expect a high level of care of luxury at the property and thus return year after year. In inflationary times such as now, it can give a great deal of peace of mind to have an investment with a history weathering the storms of inflationary times well by holding its value. This, when paired with removing the financial burden of paying for family vacations when it's time to get away is a clever way to enjoy the sun without adding debt or sacrificing luxury.
The other type of investment examines the dollars and cents of it all. It is measured purely on how it returns on the initial investment. If lifestyle investment is the measure of an intangible value of resort unit ownership, this is the antithesis of that. Of course, there is the hybrid model as well, in which the lifestyle box and the rate of return box are checked simultaneously (although not always in equal measure). There, I’m glad that we got those sorted!
Photo credits: www.MyParadisePhoto.com
As you likely know, the anchor industry in Turks and Caicos- world-renowned for its luxury resorts, turquoise water, and white sandy beaches- is tourism. While all of that makes sense, here are some factoids about TCI that may be news to you: (a) it’s a British-dependent territory (b) there’s very low unemployment (c) It has a consistently positive net migration (d) there are approximately 350 days of sunshine each year.
You may be asking, okay, but why should I care?
The reason why this is important from an investor’s perspective is its judicial infrastructure. Being a British-dependent territory means that its legal system draws upon British Common Law, as does Canada. Having such deep-seated colonial roots may be problematic from a socio-anthropological perspective. In this case, it means that the legal system, although we hope that you don’t have to use it, should be as easy to navigate as the one used by Canadians when on their home turf.
An investor may be interested in the low unemployment rate of an island such as Turks and Caicos through an economic stability lens. However, when we dig into that a little bit further, we learn that in order to fulfill the demands of the over 1.3 million visitors annually fueling its robust tourism industry, TCI often brings in people from neighbouring island communities.
According to macrotrends.net, in 2015 this paradise island oasis attributed 34.4% of its population to migrant workers. Here’s the gem: all the folks need to be housed. Most of these workers need longer-term, but temporary lodging. It’s for this reason that they’re likely not looking to purchase but rent a dwelling.
We turned to Kokomo Botanical Resort owner and fellow Canuck, J. Kelly Sullivan for the benefit of his wisdom. Mr. Sullivan has been in Turks and Caicos since 1993 and brings a good deal of experience in purchasing both rental units for workers and vacation spots for future fam jams. He shared his ‘boots-on-the-ground’ perspective, “There’s a chronic shortage of inventory for affordable rental housing. People are living and working here. It may be the biggest demand on beautiful TCI and there’s not a lot of people catering to it.” This is often achieved through an apartment-style unit on or near a resort.
In addition to being the proprietor of Kokomo Botanical Resort, Mr. Sullivan has been a residential landlord for as long as he’s been a resident of TCI. He has experience with the hybrid model by tapping into both revenue streams. When asked about the differences between being a resort owner or a residential rental owner in Turks and Caicos, “[an investor] doesn’t collect as much revenue as they do on the resort side, but don’t have anywhere near the overhead and there’s no rent control!”, exclaims Mr. Sullivan.
turksandcaicostourism.com proudly boasts that of the 365 days in a calendar year, the island has a whopping 350 days of sunshine. While you may be celebrating all the vitamin D, that much sunshine also means a wonderfully-long tourism season. This not only boosts the gross domestic product (otherwise known as GDP) but also likely allows enough time for the property to gain some serious rental revenue. For those folks who are purchasing for lifestyle reasons, there’s plenty of time to enjoy the property with friends and family (and get some of that vitamin D for yourself). These savvy folks enjoy stress-free, turnkey, hassle-free vacations in their residential resort island unit. This home away from home generates revenue whenever you are not on vacation; often as a minimum, offsets the cost of ownership, but also has tremendously more earning potential. For the dual-motivated investor with the hybrid model, the return on investment and the extra rays may as well be check marks for each box.
If you and your family are debating whether to move your hard-earned money out of the Great White North, there are many reasons why the south may be the right direction for you. Consider a place where you don’t have to choose between the return on investment and vitamin D. Fun in the sun and income-earning property resonates for you, Mr. Sullivan strongly encourages our readers to follow in his footsteps by investing in both types of real estate and enjoying the best of both worlds.
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