Funding Your Escape to Paradise

Funding Your Escape to Paradise

Ways to Leverage the Purchase of Real Estate in the Turks & Caicos Islands

Having spent my career buying and selling real estate both in the US and abroad, it surprises me that more North Americans don’t consider making foreign real estate (especially income-earning real estate) a part of their investment portfolio, the way I have for some 2 decades now in the ‘beautiful by nature’ Turks & Caicos islands. (Perhaps North Americans are just less enamored of tropical environments than I am? Though, if so, nobody seems to have told Florida’s huge retiree population).

Clearly, each individual is unique – either in personality or time of life, for example – and will weigh the relevant factors differently. But, for me, the upside of investing in TCI real estate easily outweighs the downsides. I see those upsides as: hedging against volatility in the domestic economy and its financial and currency markets; gaining access to better priced property with bigger returns; and taking advantage of a pro-business, stable, easily accessible, buyer-friendly jurisdiction with sound fundamentals for long-term appreciation. (For much more on this, see here:

https://latitude-22.info/reasons-to-invest-in-a-turks-caicos-islands-villa).

One reason that’s often given for favoring domestic over foreign real estate is the belief that buying real estate abroad can only be done with cold hard cash. Coupled with the view also commonly shared by real estate investors that leverage is paramount in real estate acquisition, this belief – if true – serves as a powerful deterrent. My own experience, however, suggests that both of these beliefs are, if not false, at least only partly true. 

It is certainly true, of course, that few countries have credit markets that are as active and sophisticated as the U.S. (or Canada). However, even the small island nation of Turks & Caicos (population 40,000) does have local sources of finance available. First Caribbean Bank (FCIB), for example, advertises long-term mortgage financing of up to 95% for pre-build projects with interest only payments during the construction period (see here: https://www.cibcfcib.com/personal-banking/mortgages/building-a-home.) Also, the Royal Bank of Canada (RBC) offers 20-year mortgages up to 66.7% of the build cost. In our experience, though, these locally sourced bank mortgages tend to be available only to highly qualified individuals (and the paperwork can also be onerous).

For others, local financing may be obtainable through various private trust lenders on the island – including, for example, private financial service companies such as Meridian Trust and Temple Mortgage (a division of Temple Financial) – which may finance up to 50 or 60% of the purchase price of residential properties. Notably, because these trust lenders focus on asset-based lending, and thus look primarily at the asset for collateral rather than the borrower, this removes much of the paperwork / bureaucratic cost in the transaction, and also adds an additional layer of risk-mitigation in the underlying the transaction (since the local trust is fully invested in appraising the value of the property underwriting their loan.)

Of course, as all of these companies make their loans on a case by case basis, a personal introduction by a local real estate agent, developer or attorney can be quite helpful.

But not only is it, in my own personal experience, false to assume that buying property abroad can only be done with 100% cold hard cash, there are also a number of creative ways to increase the amount of cash you have available for that purchase. Here are some possible suggestions:

1. The first – and probably the easiest – way to leverage a real estate purchase in another country is by borrowing against real estate you own in your home country.

One fairly simple way to raise the cash needed to acquire property abroad is to use the equity in your own home.

At the time of writing, interest rates in the U.S. are at historic lows (see here, for example: https://finance.yahoo.com/news/mortgage-rates-stay-near-record-153300138.html) making it very possible to lock in a 3% rate on a 15- or 30-year mortgage. And even an adjustable-rate mortgage (ARM) can be a good option, as most, if not all, have interest rate caps for your protection. (If you go the ARM route, of course, you need to do your math and plan ahead for the maximum increase at each interest rate change).

There may also be tax benefits in borrowing against real estate you already own, so you should check this with your CPA as it depends on your circumstances.

2. A second, relatively straightforward, avenue is to use your financial asset holdings.

Even when a real estate investment promises better returns than your stock portfolio, you can still use it to finance that real estate purchase without selling your investments (and perhaps creating unwanted tax consequences). This done by taking a margin loan. Taking a loan against your portfolio also helps you stay appropriately diversified.

Further, this process is made even easier by setting up  a cash management account or loan management account as offered – to both US and non-US residents – through a major brokerage such as Merrill Lynch, for example. (If you want more information on this approach, contact us at Latitude 22 and we’ll be happy to refer you to a professional who can fully answer your questions).

3. A third approach is to use your retirement funds. 

While this method is not precisely leverage, it is still a great way to put your retirement assets to work, without tax implications or penalties for withdrawal all while still receiving a tax benefit on the gain or income from the property you purchase. In addition, while it may not be wise to put all your retirement eggs into one real-estate basket, the stock market’s recent volatility is a good reminder that it may not be wise to keep all your retirement eggs in one stock market basket either. 

Vehicles for purchasing real estate with retirement funds include self-directed 401k’s, and self-directed IRA’s (also known as a checkbook IRA). However, my personal favorite is the Enhanced Qualified Retirement Plan® – also known as the eQRP® – as the funds can be combined with debt and still be tax exempt. According to Damion Lupo, founder and creator of the eQRP®, “for the first time in history almost every person is able to tap into their retirement funds to invest in any jurisdiction in the world, oftentimes tax free, finally providing a way to get off the Wall Street stock roller coaster and into real things that make real sense.” (For a deeper understanding of eQRP®, visit Damion at www.eqrp.co.)

In any event, if we have one defining belief at Latitude 22, it’s that owning your own personal slice of paradise should by no means be the sole province of the super-rich. On the contrary, we believe that, with a little thought and planning, doing so can be a realistic, shrewd, and eminently achievable option for many of us regular folks who simply work hard and play by the rules. And while we don’t pretend to be impartial on the subject, we can honestly report that doing so ourselves over the years has been a very positive – and, indeed, life-changing – experience for us. 

Gary Belk, Managing Director, Latitude 22. June 2020.

Latitude 22 is a real estate development company creating boutique villa resorts in the Turks & Caicos Islands. Gary – for all his other sins – is neither a lawyer nor an accountant, and so highly recommends that you first consult with your own advisors, including your own attorney and accountant, about your investment plans before taking any actions referenced above.

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