To Buy or Not To Buy

Many people are asking if this is a good time to invest in Real Estate seeing that Trinidad and Tobago are in a recession. Before answering that question, it would be wise to look at some of the advantages of investing in Real Estate while bearing in mind that investments in Real Estate are generally regarded as long-term.

As pointed out in the Association of Real Estate Agents (AREA) Principles of Real Estate classes held each year at Roytec, there are several advantages in such an investment. Amongst them are:

  • There is relatively a fixed supply of land available and in addition, with a growing population, demand is likely to increase over time.
  • Real Estate is varied and therefore, an investor has many choices, e.g. Land, Residence, Apartment Building, Offices, etc.
  • Over the years, Real Estate investments have provided a hedge against inflation.
  • Assuming a mortgage is obtained, there is a “forced” savings in the mortgage payment and therefore, a build-up in equity (i.e. the difference between the value of the property and the mortgage) all other things being equal.
  • Many people have become very rich by using leverage to enhance the return on their real estate investments, although it can be dangerous at times.

With this in mind, the present situation locally could present some opportunities to make such an investment. Some of these are:

  • Due to the slow-down in the economy, it might be possible to negotiate with developers and contractors. You can ask for extras and upgrades or request a reduction in price.
  • Even if you are not buying a new home, you can still negotiate. If a home has been on the market for quite some time, the seller may now be willing to accept a much lower price due to the current recession. Take your time in selecting the property you like best and then be prepared to negotiate. It is also a good idea to get a professional valuation before signing an agreement to purchase as you may be paying too much.
  • Even banks may be willing to negotiate slightly with their terms. Call different banks and get their terms before selecting one. Negotiate for

1. Interest rates, (the higher the rate, the higher the  installment you pay).

2. Term (length) of loan, (the shorter the term, the higher the installment, although you will pay less over the life of the loan).

3. Loan-to-value ratio (the higher the ratio, the more you can borrow – all other things being equal).

4. Management fees (sometimes called negotiation fees). See if any of the banks will offer you any concessions and under what conditions.

As in all investments, caution is strongly recommended.  Real Estate investing requires a relatively large sum and one has to remember the closing costs. In addition, economists are forecasting that there may be job cuts throughout Trinidad & Tobago. If you think there is any chance that your job might be in danger, it would be unwise to now go into a long-term debt like a mortgage loan.

It is also important for everyone, especially in today’s fragile economy, to have a nest egg to fall back on. Experts recommend that you have 3-6 months of expenses put aside for emergencies. If the cost of investing in real estate will wipe out all your rainy-day funds, you may want to save more before investing.

As you can see from above, while there are many reasons not to buy now, there are also several advantages why buying now might make sense. Although historical data does not predict what will happen in the future, it may assist in making a decision. Over the last 20 years, the yield on residential real estate has been in excess of 10% p.a. – despite the downturn in 2008. In other words, a property purchased in 1996 for $200,000 would now sell for more than $1,300,000.

Finally, when purchasing a home, it is important to remember that while it can be a very good investment, there are other factors involved such as quality of life, pride of ownership, etc. In the final analysis, the decision is yours and you have to carefully consider your personal circumstances before making a decision.

Source: http://gafarrell.com/to-buy-or-not-to-buy/

 





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