Guaranteed Rental Return On The World’s #1 Island Destination
Capital appreciation is beginning to make a comeback in the world of real estate investing, but only in particular markets. Even places where values fell 50% or more (think Spain and Ireland) probably won’t see decent appreciation for a few more years.
Collecting a cash flow from your real estate investment, therefore, remains the smartest objective. In the United States, you can buy with little or no money down and let the rent pay off the mortgage. Meantime, you’re building equity and, longer term, depending on the market, positioned for some capital appreciation.
Outside the United States, however, it’s not easy to get a mortgage for an investment property purchase, so when an opportunity to do that presents itself, I like to bring it to the forefront.
One such opportunity is currently available in Belize, on the Caribbean island of Ambergris Caye. The condo-hotel development Grand Baymen is offering financing for what it’s terming “guaranteed leaseback” units. Here’s how this works:
You put 20% down, and the balance is financed over three years (starting after the construction has been completed) using a 30-year amortization. The three-year term coincides with the three-year guaranteed leaseback period. During these three years, you’re guaranteed a monthly payment of US$1,250. That is enough to cover your mortgage payments, HOA fees, insurance, and property taxes, leaving you with US$268 per month in net positive cash flow.
Based on an initial cash investment of US$32,980, you’re looking at an annual cash-on-cash return of 9.75%. Throw in some modest equity build-up from capital appreciation and the mortgage pay-down, and your return moves in to double-digit territory.
After the three years, the developer has arranged for easy refinancing through a local bank.
How can the developer make this offer? Typically, I’m skeptical of “guaranteed leaseback” opportunities. Often, these translate to the developer hiking up the price so he can use your money to pay out your guaranteed cash flow during the leaseback period.
In this case, the developer also owns a beach resort on Ambergris where they need more rooms. They have designed and designated several buildings in this Grand Baymen development to help address this under-supply. Each of these units will be individually owned but will be put into the hotel’s room base.
With the resort helping to fill the rooms, the developer feels confident enough in the cash flow he’ll be able to generate that he’s comfortable guaranteeing investors what amounts to a better than 9.75% gross yield on the price of the unit (including the US$8,000 furniture package that you must purchase).
The developer sold out the first (16-unit) building of the Grand Baymen project in eight weeks and has recently launched the second building (also 16 units). The first building is well under construction and scheduled to be completed by the end of this year. The second building is more than 50% sold. Construction is planned to begin by Jan. 1, 2014.
The clubhouse and pool have been built, and a restaurant and bar are operating on site. Within a few minutes’ walk are several more restaurants, bars, and a grocery store.
While you may want to use your unit occasionally for vacation, this is primarily an investment purchase with the objective of generating an annual yield through rental cash flow. Again, the first three years are guaranteed. After that, your return will fluctuate based on occupancy and room rates. Nightly rates today run in the range of US$125 to US$200 a night, depending on the season. Annual occupancy at the resort right now is in the range of 60% to 65%.
Using an average daily room rate (ADR) of US$150 and a 50% occupancy rate, the projected net yield starting in year four is about 4.8%. That’s about half the return you’ll see during the leaseback period, but it’s also a conservative projection considering that current occupancy is closer to 65%. In addition, the ADR should increase over the three-year term of the leaseback, as the resort will be fully built out in that time.
TripAdvisor ranked Ambergris Caye the world’s #1 island destination for 2013. Tourists are coming in growing numbers, and the rental demand is increasing. These brand-new, affordable, one-bedroom suites are coming to market at just the right time.
One more note: This is a turn-key investment. The Grand Baymen maintenance team will take care of your unit completely, and, again, all expenses will be covered for you during the leaseback period.
Finally, the developer is offering a US$5,000 discount on these Building 2 units for Live and Invest Overseas readers only. That means the list price of US$129,900 becomes US$124,900 for you.
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