Below is a recent letter I wrote to a prospective buyer client of mine who asked for any advice I had to give on buying real estate for the first time. As I was writing it, I thought it might be useful to others as well and thought I’d share it on the world wide web!
It has some good information for those looking to start out with a small entry level investment in real estate. I should add, that when choosing a lawyer, get recommendations from friends, family, and colleagues, ask around, do some homework on them. Not all lawyers are good at what they do, and you will want to find one with experience, larger companies have more resources to help you, and make sure you feel good about the relationship of working with them. A good Real estate agent can give you a couple of good referrals too as we work with attorneys everyday…
Here is my letter that you are welcome to read:
Hi Laura (name changed),
Sorry about the delay, its been busy the last couple of weeks. Feel free to call or email me anytime,
In purchasing your first real estate investment, do not plan to sell it in less than 5 years. Ideally make it a 10 year investment. The ideal plan is to pay it off as soon as possible, and then you can use it as security for future loans to buy more real estate (ie a house). So you’d pay it off, then you can borrow against it. The banks like that and it sets you up as a good client for credit.
Get the interest rate as low as possible, 7% would be ideal being a first time borrower. People with history can get as low as 6% but they will probably want to offer you an 8% loan to start with. Shop around for the best rate. Get a 15 year mortgage but pay and extra $100 or more into it every month and you’ll pay it off in 8 years or less. When paying more than the standard payment, make sure you specify that the payment is for principal and not interest.
When looking for a property to invest in, look for one that is priced lower than other properties in the neighborhood. Make sure it is elevated and not subject to flooding. Water views are worth money but cost more. Also you’ll want electricity connections at the lot, ideally you want a home to be near it or less than 500 feet away, that will ensure its re-sell-ability in the future and help maintain value. And I wouldn’t invest in something that is too far away from amenities. You can get good prices for more remote areas, but they won’t appreciate in value as quickly.
These properties are higher price than the ones you inquired about but they will likely increase in value more quickly than Bahama Palm Shores. The reason behind that is they are right in Marsh Harbour and closer to jobs, shopping, dining, amenities, airport etc. I would consider spending the extra $10,000 and buy one of these…
But if you are trying to keep your initial investment as affordable as possible, then Bahama Palm has a great beach and is a nice area which will grow slowly and increase in value slowly over time.
This is one of the best options for a lot in Bahama Palm Shores, in my opinion, crown (government) land on the rear boundary, so no neighbors building right up to your back door and ruining your view of the Abaco Parrots and forest vistas. You could also cut a private path to the beach…
Closing costs – keep in mind that you will pay half the stamp tax (you half will be 3% of the price) on top of the purchase price, you will also need to pay some legal fees, most law firms have a minimum fee of $900. So if you bought a Vision Heights lot for $30,000, be aware that you will have to pay another $900 in stamp tax, and $900 in legal fees on top. So the total cost will be $31,800.
If you are getting a mortgage to buy the property, there will be another 1% stamp tax on the mortgage document, if you borrow $27,000 (meaning you have $3,000 to put down as a deposit plus the $1,800 above in cash) there will be $270 in tax for the mortgage document and then another $400 or so for the lawyer to prepare the mortgage document and have that registered and work with the bank on the documents. Lastly, the bank is going to have approximately $260 in fees.
So if you purchase price is $30,000, you will be able to borrow $27,000 from the bank and then be prepared to have $5,730 in cash to close the deal.
I hope all of this is helpful. Let me know if you have any more questions or want to take some time to view the properties.
All the best,
HG Christie Ltd.
Marsh Harbour, Abaco, Bahamas
T: 242 367 5454
F: 242 367 5452