Most people that buy villas in the Turks & Caicos do so simply because they want to stay in their own place whenever they visit. That’s certainly the reason we bought our villas in TCI some 20 years ago.
But many of those villa buyers – either right from the outset or later – also take advantage of TCI’s immense popularity by renting their villa to other vacationers during the times they can’t be there themselves. (Again, this is something we did too, very successfully, for many years.) Generally speaking, though, buyers with that perspective view their villa’s income-generating potential as more of an added bonus than a determining factor in their decision to buy. Their view (which, again, matches the one we had when we bought our own TCI properties) is that if their property generates net income that’s great, but if it doesn’t then they’ll just stop doing it. It’s a ‘nothing ventured nothing gained’, ‘no harm, no foul,’ kind of outlook.
Given this, villa developers have tended to undersell the potential economic (rather than lifestyle) benefits of buying a TCI villa. However, a closer examination of those economic benefits shows that buying one of our Latitude 22 TCI villas can be a smart financial investment in its own right – whether or not the buyer personally visits and/or occupies it. The following discussion, we hope, should therefore be of interest to financial investors with an interest in diversifying their asset holdings beyond both the stock market and our national borders. It should also be of interest to potential villa buyers whose primary intent may not be to use their villa as an income generator but for whom the option of doing so adds a level of encouragement in their decision to purchase their very own ‘slice of paradise.’
Cutting to the chase, we arrived – in the course of researching and writing this article – at the following conclusions:
It’s generally a good idea to diversify your asset holdings with real estate.
In the right circumstances, it’s a good idea to buy real estate property abroad.
The Turks & Caicos is an excellent choice for buying real estate property abroad.
Latitude 22 villas are arguably the best value-for-money property purchase in the TCI.
(Before we continue, let us clearly state what really should be pretty obvious: First, we’re not financial advisors (let alone your financial advisors) so these are solely our own private opinions sincerely arrived at based on our personal experience; second, just like everyone else, we have our own personal biases: for the tangible over the intangible, for tropical islands over alpine retreats, and for our villa designs and choices over others; and third, as the famous saying goes: “all predictions are hard – especially ones about the future.”)
1. Why is it a good idea to diversify your asset holdings with real estate property?
Investment advisors often recommend diversifying financial assets, such as stocks and bonds, into hard assets such as real estate, in order to hedge against financial market volatility.
In addition, investing in real estate rental property tends to provide a more regular, predictable, income flow (via rent payments) than dividends do, as a complement to long-term gains achieved through asset appreciation.
Further, it’s also widely acknowledged that, among real estate rental property, vacation rental property, if wisely selected, tends to generate a substantial premium over regular residential or commercial real estate investments, as well as providing numerous other benefits. Investments in vacation rental property may also offer substantial flexibility to investors in terms of investment size, necessary holding period, and exit strategy.
Lastly, of course, real estate investments can often be financed, creating greater leverage and returns.
2. Why (and when) is it a good idea to buy real estate property abroad rather than solely in the US?
There are a number of good reasons to consider acquiring foreign rather than domestic real estate assets – especially in terms of vacation rental property – for your portfolio.
First, foreign real estate investments serve as a hedge not only against stock market volatility but also against domestic real estate market volatility, and indeed against national economic and currency volatility more generally.
Second, various powerful trends – such as advances in communications connectivity, the advent of longer vacations and ‘family sabbaticals,’ baby boomer retirement patterns, and the move toward remote working (amplified, of course, by the recent Covid pandemic) – all suggest a growing preference for foreign destinations over domestic ones in both the short and long term.
Third, foreign real estate properties – especially those in vacation destinations such as the Caribbean – often present greater value for money than domestic ones. This is because foreign markets typically have less multi-level regulatory burdens inflating the cost of acquisition and restricting options for making profitable improvements, and less demand brought about by government and private-sector financing options. (Liquid investors are especially likely to find and secure value-priced real estate properties abroad).
Any preference for domestic over foreign real estate investment is due, therefore, not so much as to preferable conditions in the domestic real estate market but, rather, due to unfamiliarity with, or concerns about, non-price issues in foreign asset markets; issues such as: government (in)stability and/or attitudes towards (and laws related to) foreign property ownership, local tax and currency control policies, remote property management challenges, language barriers, and general cultural issues. But while these issues are by no means unimportant, it makes sense to evaluate them on a case-by-case/territory-by-territory basis – especially in light of the potential advantages that foreign real estate investments may provide.
3. Why is the Turks & Caicos a great choice for holding foreign real estate as an investment?
First of all, TCI scores highly on all of the non-price issues noted above that may concern investors contemplating investment abroad.
For example, stability: as a British Overseas Territory, TCI has a stable democratic government, with a UK-appointed Governor for oversight, and a strong and effective judiciary based on English Common Law. With Government support for investors at all levels, including the provision of investment incentives in priority sectors, and a well-established Financial Services Commission that is compliant with IMF, OECD and FATF standards, TCI enjoys one of the fastest growth rates in the Caribbean, an annual budget surplus, and a Standard & Poors credit rating of BBB+.
Foreign property ownership: TCI has fee simple property ownership guaranteed by the British Crown and equally applicable to all buyers – whether foreign or domestic. Moreover, foreign buyers can qualify for either Temporary or Permanent Residency based on their property purchase.
Local tax & currency control policies: TCI has a strong, pro-business orientation that is reflected in its tax & currency policy. Thus, there are no direct taxes in the TCI – including no property, income, capital gains or estate taxes – and no currency exchange controls. With no need for title insurance, no recurring property taxes, and affordable property insurance, the cost of property ownership in TCI is low. (Indeed, the only tax related to real estate is a ‘stamp duty’ levied one-time on the initial purchase of real estate which, for pre-construction purchases such as Latitude 22 villa purchases, is levied only on the value of the land purchased and not on the value of the villa itself – resulting in substantial savings).
Secondly, given its modest size (resident population of under 40,000) relative to its annual overnight visitor volume – just under 500,000 in 2019 – the Turks & Caicos can reasonably be described as not just a popular destination but perhaps the single most desirable vacation destination in the entire Caribbean region. Moreover, this popularity is based on sound fundamental factors – climate, beaches, culture & location – that cannot easily be duplicated elsewhere, if at all.
In terms of climate, for example, TCI not only has the obvious benefits of a year-round tropical Caribbean climate, but does so without the intense humidity (and bug problems) typically found in other tropical destinations. In short, TCI’s climate is about as perfect as it gets.
In addition, TCI’s powder-soft coral sand beaches, and 80 degree Fahrenheit waters, have long been recognized (by Conde Nast and many others) as among the world’s best. (At the recent 27th Annual World Travel Awards, for example, TCI captured the prestigious award for The Caribbean’s Leading Beach Destination for the 5th year running, and for The Caribbean’s Most Romantic Destination for the 2nd year in a row.)
As for culture, TCI has a laid-back, relaxed, easy-going vibe, with locals generally warm and welcoming and appreciative of those who choose to visit. The government’s longstanding strategy to keep cruise ships at Grand Turk Island – a half hour flight from TCI’s overnight vacation destinations on Providenciales, low population density (about 1/8 that of the Cayman’s, for example), high quality restaurants, relatively high GDP (growing at about 5.4% annually), low crime rate, and well-stocked high-end supermarkets, all contribute to making TCI a comfortable haven for the kind of affluent visitor demographic most in demand by tourist destinations. Moreover, as a British Overseas Territory where you drive on the left, with lots of proud cultural diversity, and many different languages spoken, TCI is sufficiently different to North America to provide that essential vacation feeling of having ‘escaped’, yet is also sufficiently familiar (they speak English and use the US dollar as currency, for example) so as to be stress-free.
And in terms of location: TCI’s international airport (PLS) not only has daily non-stop flights from more than a dozen North American cities (including New York, Chicago, Boston, Washington DC, Miami, Philadelphia, Charlotte, Dallas, Atlanta, Toronto and Montreal) but is also located right in the heart of the island such that once you’re wheels down, you can be sipping a cold drink on the beach or by the pool within 30 minutes or less. The same is even more true for Provo’s beautiful private jet terminal, Provo Air Center (www.provoaircenter.com).
Given all of the above, it’s not surprising that TCI’s overnight visitor total has been growing by around 10% annually since 2013 – nor is it an accident that TCI currently enjoys some of the highest villa occupancy and rental rates in the entire Caribbean region.
Moreover, this trend is unlikely to slow down in the foreseeable future. For one thing, TCI’s supply of rentable villas simply cannot grow fast enough to keep up with the demand. New building is constrained by the limited supply of available contractors (a category of work that is restricted by government regulation) and also by the low-density requirements of the country’s Planning Ordinance. Unless and until the laws of supply & demand get repealed, therefore, the most likely outcome is that occupancy and rates will continue to harden, and that property values themselves will continue their steadily historical increase.
4. Why are our Latitude 22 villas the best value for money in TCI?
It would be absurd for us to claim that Latitude 22 villas are “the best” in TCI. Obviously, we don’t pretend to compete with villas like the one recently sold for $30million by actor Bruce Willis, for example. However, we do sincerely believe our villas are currently the best value for money in TCI.
Why? Because, at around $1.2-1.3m, our villas are designed to recoup their entire purchase value in about 7 years – while doubling the value of the (by then unencumbered) asset. And this projection includes delegating 100% of the management and rental work to a third party (and having access to the villa for personal use for some 40% of the year).
How good is this prediction? Well, notwithstanding the admonition about all predictions noted above, it is backed by numbers provided to us by the folks at TKCA – the Island’s leading independent property management and rental services company. They estimate, based on their substantial experience with other TCI villa developments, that the villas we’re building at Karaya Blue, for example, will generate annual gross revenues in excess of US$220K, with an occupancy of 60% and average nightly rates of US$1,000.
We achieve this by pursuing a simple yet sound strategy: 1. Incorporating all the features of the TCI villa vacation experience that have proven to be immensely popular, and 2. Supplementing that villa experience with additional features that vacationers increasingly care about. Many of these supplemental features are described in detail elsewhere on our website (latitude-22.info/karaya-blue and latitude-22.info/faq. However, a couple are worth emphasizing:
First, design. While all our villas are located within easy walking distance of one of TCI’s world-class beaches (and come with high-tech Moke or Polaris Gem electric vehicles to use if you prefer), they are designed so beautifully that the beach – beautiful as it certainly is – will be a wonderful aspect of your visit to TCI rather than the be-all & end-all. Simply stated, our villas feature architecture, interior design, aesthetic beauty and true functionality such that they will be a place that is hard to leave and a joy to return to once the day’s kiteboarding and snorkeling adventures are complete.
Second, sustainability. Everything about our villas – from their solar energy systems to their carefully sourced furnishings, manifests a genuine and serious commitment of the principle of sustainable island development.
And third, us. Everything we do, everything we design, and everything we build is a reflection of our personal integrity, reliability, humanity, values, and, above-all, trustworthiness.
Many years ago, one of the founding members of the Visa Corporation told me, with a knowing chuckle, that “Here at Visa, we make money no matter what happens to the economy.” By which he meant that when the economy improved, people tended to charge more on their Visa cards because they felt like it, and when the economy went soft they tended to charge more on their cards because they needed to. A little cynical? Perhaps, but then the truth is the truth. And – in similar fashion – there’s a lot to be said for the proposition that when the economy is thriving, people seek to reward themselves with vacations in luxury tropical villas, and when the economy is soft people seek to de-stress by … taking vacations in luxury tropical villas too.
But maybe the final thought here is this: if the absolute worst came to the worst: the world’s economy collapsed, and all of your investments became worthless overnight, would you rather be holding (a) a piece of paper manifesting your 1% share in a now-utterly valueless company? or (b) the keys to your very own luxury villa in a tropical island nicknamed “Beautiful by Nature”?