The Paulson Plan

Bailout or Rescue Plan?

Position Document: Legacy Resort Consulting

We have been getting a lot of calls from many of our clients over the past couple of weeks asking us how we are feeling about things on Wall Street and Main Street and what our general position on the treasury proposed rescue plan.  Some of the most common questions have been So how did we get here?, What is the plan?  What are the eventual effects of the plan?  And Is this really just a Wall Street bailout in disguise? We have spent a lot of time sharing our professional position on these critical topics and decided it best to share our overall position with everyone via our Blog.

It is to be noted that our position on this topic and time period in general is based on the overall theory, principals and spirit of the rescue plan.  It seems that with every passing day another senator or congress person is trying to attach their personal agenda to a continuously modified plan that is not yet finalized and at the time of this document a final version still has not been released to us for review or for “house” vote. 

So…How Did We Get Here? 

A Brief Synopsis:

By: Legacy Resort Consulting

Do you have a couple of days??...In all seriousness…although we are not economists or Wall Street professionals, we are often in touch with both and follow market trends and situations very closely as they directly affect our lives and the lives of our clients. 

To dive deep into the details of what has occurred over the past few years to get us to this point could and will be a novel someday.  The following is our opinion and our 10,000 foot overview of how we got hear based on our research, analysis and experience. 

Much of what is presently occurring will be traced directly back to a legendary excesses in the US primary residential real estate market, loose regulations and restrictions on lending practices, and organizations that exercised extremely poor judgment and business sense with respect to unsustainable leverage and risk tolerance in securities developed and secured by the originated mortgages in the forms of CDO’s, SIV’s and other investment tools.  For years, these loose mortgages and the investment vehicles created from them were issued and proliferated around the world during a sustained US market primary residential housing boom.  Folks that were unqualified by many standards for credit were receiving loans without documentation of anything and were in some cases buying houses with little to no down payment.  They would get into adjustable rate mortgages with a short term lead years teaser rates that were affordable in the short term but would go up in time via a mortgage recast.  However, these buyers didn’t care because they would either sell “flip” the home for a profit before the rate increased, or would refinance the loan into a lower fixed rate note using the “guaranteed” equity gained over the next couple years as the new down payment.

This method worked well as long as the US primary residential market was growing consistently year after year which it was.  Home ownership was increasing annually, home owners were making money, securitized debt investors were making money, and everyone was happy….until the wheels fell off the wagon and it all turned.  Everyone seemed shocked to discover that no market or asset class goes up in a straight line forever.

 In the end, all markets are based on the theory of supply and demand and eventually will get out of balance and need to correct.  Corrections are normal part of economic cycles and are expected, but in this case things are different because of the proliferated greed, lack of regulation, and intolerable amounts of invested leverage.  These three things combined with some questionable accounting rules such as the “mark to market” rule and others have created a perfect storm of equity and liquidity evaporation bringing the American credit and lending system to a grinding halt. 

Without liquidity, credit, and a market to trade many of the questionable securitized debt vehicles, several well known and respected banks and investment companies were no longer able to sustain their business operations were literally choked out of business.  Reputable, well known firms Freddie and Fannie Mac received the “Anaconda treatment” as well as well known Wall Street names such as Bear Sterns and Lehman Brothers.  The “Anaconda” spread to get some deposit banks also such as IndyMac, Washington Mutual, and Wachovia which were all forced to close their doors and/or open as a merged company fire sold in the middle of the night to the likes of companies like Citibank and JP Morgan with the assistance of the FDIC and other federal agencies to ensure an orderly and successful failure. 

If this was just a US real estate market correction, or a Wall Street problem we might be ok, shrug our shoulders and say boom and bust is the way of capitalism, and only the strong survive.  Failure of some brings opportunity for others and this is how people get ahead.  But this time it is different and bigger because the noxious securitized debt products were acquired as investments by many pension funds, private companies and other entities that touch Main Street firms and “regular” people.  Further, risk in these noxious debt investment products was insured and re-leveraged by many of the largest insurance firms in the country against failure against a cash reserve of about three cents on the dollar in which over exposure has brought some like AIG literally to their short term operational knees. 

So….this de-leveraging cycle has created an issue where the financial credit system of the United States of America is at risk.  Without liquid credit markets from and between financial institutions, many companies in various industries around the country on Main Street and Every Street will fail, causing wide spread panic, loss of jobs, retirement funds, and fear not seen since the depression in the 1930’s. 

The main issue and cause for grave concern is not so much the fact that pension and retirement funds are losing money across the world it is more about the lack of confidence and transparency on other financial institutions that have led the short term credit markets to freeze up.  This freezing up gravely affects many companies and various levels of government because they rely on short term debt to fund their daily operations.  Without a short term credit system in good working order companies all over the country and globe are not able to get money to run their business operations and will be choked out of existence.

 The last line of defense in the system is the Federal Reserve.  In the instance of system failure and seizure it is their job and duty to step in and do everything possible to avert a financial “Pearl Harbor” and keep the financial system intact and working.  This is why Treasury Secretary Paulson has come to Washington, DC with a “bailout” or “rescue” plan that needs to be recognized and passed into law.

Why Own Real Estate in Mexico?

Investment Real Estate Location Profile

Mexico is bordered by the United States to the north and Belize and Guatemala to the southeast. Mexico is about one-fifth the size of the United States.  Baja California in the west is an 800-mile peninsula and forms the Gulf of California. In the east are the Gulf of Mexico and the Bay of Campeche, which is formed by Mexico's other peninsula, the Yucatán. The center of Mexico is a great, high plateau, open to the north, with mountain chains on the east and west and with ocean-front lowlands lying outside.The consistent tropical climate, pristine beaches, and historical culture have established many communities within Mexico, such as Puerto Vallarta, Cancun, Baja, and Las Cabos as highly desired vacation destinations.  However, until the late 1990’s real estate in Mexico was only able to be owned by Mexican citizens.  It was unconstitutional for non-Mexican residents to acquire ownership interest in real estate.  Since that time, federal laws have been instituted to allow foreign investment and real estate ownership.  In today’s article we will examine Mexico’s past, present and future and why one should consider it a place to invest their financial resources in real estate.

GEOGRAPHY

Mexico’s thirty-one (31) states and one (1) federal district covers almost 780,000 square miles making it the world’s 8th largest nation.  The country curves from northwest to southeast, and continues northeast to the Yucatan Peninsula.  To the South and West, Mexico is bordered by the Pacific Ocean.  The Sea of Cortez lies between the mainland and Baja California.  The east coast of Mexico is bordered by the Gulf of Mexico from the USA border to the northeastern tip of the Yucatan Peninsula.

ECONOMY

The economy of Mexico is supported by about 108M Mexican residents.  The national currency is the Peso.  End of Year 2007 economic estimates show key metrics demonstrating strength and stability such as real GDP growth rate of 3% on a base of $1.353 Trillion (about 1/4^th of the US), as well as low inflation of 3.8% and very low unemployment of 3.7%Tourism, agriculture, ranching, timber, mining, oil, natural gas, fishing, and manufacturing are Mexico’s primary revenue earners.  Mexico has a free market economy and free trade agreements with most of their main trading partners.The recent administration has expanded and invested in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports to support the present and expected future growth.   

FUTURE OUTLOOK

The Mexican economy has come a long way from the economic instability of the past.  Past economic collapses caused severe problems and economic instability, the last of which occurred in the mid-1990’s.  During this period of political and economic unrest, and for long term stability, Mexico was forced to drastically de-value their currency.  The short term effects of this move were overnight increases in credit interest, as high as 80% and inflation that climbed as high as 50%.  This instant cost of living increase spelled disaster for many businesses and residents.  This issue was quickly brought under control and best practices were put into law to extend the economy to make broader contributions globally, to consistently grow the middle class, and to increase tourism and real estate development.Mexico has a very rosy outlook.  For the first time, in the face of a severe real estate correction in the United States, Mexico boasts a thriving housing sector whose record growth leads Latin America.  Long thrashed by swings in the U.S. economy, this is a significant sign of increased economic independence and stability. 

Interestingly, the booming Mexico real estate market is now providing an outlet for many that are looking to escape the U.S. downturn.Money and credit liquidity are now more attainable than ever in Mexico due to new laws put in place to encourage domestic and foreign real estate development and mortgage growth.  The increases in domestic savings and wage growth have created the opportunity for many Mexican residences to own their first home.  Supporting the new-found growth, President Felipe Calderon has set a national goal of one million mortgages by the year 2010.  Behind the boom are six years of economic growth and stability -- and a national shortage of six million residences. While interest rates are falling, just six percent of Mexico's 25.7 million homes are financed with mortgages -- compared with about 67 percent in the U.S.

The pent-up mortgage demand in a nation of 108 million people means lenders can be choosy, enforcing strict standards that have held delinquency rates below 4 percent in third quarter-2007, compared to 5.6 percent in the U.S.  The Mexican lending environment is very stable because lenders don’t need to expand portfolios with high risk loans to weak credit applicants to grow business.  There is no Mexican subprime issue because that category of lending just doesn’t exist.  Mark Zaltzman, chief financial officer at Su Casita, one of Mexico's largest mortgage lenders commented, “'Mexico doesn't have a credit issue. We can still choose our borrowers because demand is so great.”''Mexico is in the early stages of expansion,'' recently commented Juan P. De Mollein, managing director for Latin American structured finance at Standard & Poor's. ``There are still plenty of points for evolution because there's still plenty of demand.''Now that the appropriate federal laws are in place to make it possible for foreigners to own real estate in Mexico, according to recent estimates, over six million American and Canadian buyers will migrate to Mexico to purchase real estate over the next decade.  Most of these real estate purchases are projected to be in the most luxury, already famous vacation destinations.  At a very conservative average price of about $300,000 per residence, Mexico is likely to see at least 1.8 Trillion dollars in real estate investment over the next decade.  Prospective buyers name beauty, location, convenience, and affordability as some of the main reasons they are looking to invest their resources in Mexican real estate.  This is the beginning innings of a longer term growth and prosperity trend for Mexico.  The world is taking note and migrating in droves.  Real estate prices in most desired Mexican locales have been on the rise over the past few years, a trend which looks like it will continue given domestic and international demand and growth projections over the next decade.

 Is Mexico the Right Place for Your Second/Investment Home?

Maybe…Depending on Your Goals and Objectives

What Part of Mexico is Right for You?

Contact Us to Help Sort it All Out! 

Why Own Real Estate in Panama?

Investment Real Estate Location Profile

Panama is a small tropical Latin American country bordered on The North by the Caribbean Sea and the Pacific Ocean on the South.  The consistent tropical climate, pristine beaches, lush mountains, and booming economy has gotten the attention of people from around the world.  In today’s article we will examine Panama’s past, present and future and why one should consider it a place to invest their resources in real estate.

HISTORY & GEOGRAPHY

Panama, a smaller Latin American country is home to a population of a bit over three (3) million people.  The climate in Panama consistent and tropical, with average temperatures around eighty (80 F), Panama is well known for is lush mountain ranges, and pristine beaches. About fifty (50%) percent of the population lives in the Colon region of the country local to the famous Panama Canal.  Panama's history has been shaped by its strategic location between the Pacific Ocean and the Caribbean. Early in the 16^th century, native Panamanian tribes quickly disappeared after the Spanish arrived with their weapons. Panama City, on the Pacific coast, thrived as Spain conquered and plundered Peru. Caravans loaded with gold traveled from Panama City to be loaded on ships bound for Spain. However, this wealth attracted pirates and, in the early 1700s, Panama's Caribbean shore was dotted with so many pirate strongholds that shippers chose instead to sail around Cape Horn to Peru. Panama's importance rapidly declined, and Spain did not contest Panama’s inclusion as a province of Colombia when it won independence from Spain in 1821.  Since that time, Panama has spent many decades suffering through various corrupt dictatorships and unscrupulous government regimes, including the most infamous General Manuel Noriega who after losing the election in 1989 attacked the winning candidate on national television and remained in power with income provided by drug trafficking.  The dictator declared war on the USA in 1989 and after a short time with the help of 26,000 soldiers, the USA removed Noriega from office.  He was arrested and convicted of money laundering and is currently serving a forty (40) year prison sentence.In 1994, Ernesto Perez Balldares took office and fulfilled promises to end corruption, improve the economy, and implement nationwide health services.  Panama has never looked back.  Since 2004, the current president is Martin Torrijos, a Texas A&M graduate with a degree in economics.  He has worked diligently to continue to make strides and to grow the upstart free-enterprise democracy of Panama.

ECONOMICS

Blessed with unique circumstances due to a favorable location, Panama is more diverse than many economies.  Panama is a free-enterprise democracy with significant resources and is booming.  The country is making global strides in agriculture, financial services, tourism, and international transport via the Panama Canal.  A combination of surging world trade volumes and a boom in port development, infrastructure and commercial and real estate is bringing Chinese-style growth to the country and inviting comparisons with international business centers such as Dubai and India.

·         In 2006, the Panama economy grew about eight percent (8%). 

·         In 2007, the Panama economy expanded by at least nine percent (9%) and possibly over ten (10%). (Financial Times, 2007) 

This is a very rapid rate of growth, among the fastest in the world, and is produced over a broad portfolio of stable businesses.  The growth suggests that Panama has corrected their past inadequacies and has “arrived,” and is making a difference.  Panama is taking advantage of its geographic location and benefiting heavily from the growth of trade between Asian manufacturing centers the North American and European markets.  Since Panama took full control of its canal from the USA at the end of 1999, overall traffic has expanded by more than 33% and, the number of containers used to package electronics, textiles and other factory products transported across Panama has increased 300%. Due to this explosive growth and more expected in coming years, the Panama government is pushing ahead with ambitious plans to double the waterway’s capacity.  The expanded Panama Canal will be big enough to accommodate the largest maritime vessels increasing growth even more.President Martín Torrijos, a graduate of Texas A&M University with an economics degree has stabilized public finances and is supporting infrastructure upgrades to ensure the country is able to accommodate the influx of people globally coming for opportunity, tourism, as well as second homes and primary real estate residences.  Panama has also become the hub for banking in Latin America.  USA banks such as Citigroup and HSBC among others have a significant presence in Panama City.  Growth in this arena is also expected in coming years.  

FUTURE OUTLOOK

Panama is a country that welcomes emigrants from The Americas and Europe.  Approximately 80% of Panamanians are from at least partial European decent, and they realize their growth is global and needs influxes of financing from other places to be sustained.  Panama no longer has a military.  The USA ensures the national safety of Panama.  With the increases in the broader economy, the Panamanian middle class is expanding and enjoying a better, more stable quality of life.  Literacy is high….over 91% can read and write.The official currency of Panama is the US Dollar.  This is convenient for those migrating from the US as there are no concerns about exchange rates and their effects.  Also, although the USD is the main currency, Panama is constitutionally forbidden to introduce additional dollars into their financial system.  This is a refreshing change from other less stable economies that literally just print money when needed causing instability and irrational swings in inflation.  Federal laws are in place to protect both the buyer and seller in real estate transactions and property is owned by acquiring title on a fee simple basis much the same way as in the USA.  In fact, many real estate transactions, and mortgages on property in Panama are carried forward and secured by US title companies and banks.Further, Panama has a really beneficial tax structure in place to encourage non-citizens to consider investing their resources in Panamanian real estate.  For example, Panama does not charge taxes on any income gained outside of Panama. The future is bright for Panama and for those choosing to buy the “right” Panamanian real estate.  Panama has a stable, free-enterprise democracy, an economy that is establishing long term growth trends, and a strengthening middle class.  This is the beginning innings of a longer term growth and prosperity trend for Panama.  The world is taking note and migrating in droves.  Real estate prices have been on a significant rise throughout Panama over the past few years.  However, real estate is starting at a very low base and still sells at a large discount to many surrounding markets. 

Is Panama the Right Place for Your Second Home?

Maybe…Depending on Your Goals and Objectives

Contact Us to Help Sort it All Out!

The Palmyra – Montego Bay’s Award Winning Project  

Massive expansion of hotel rooms has peaked the interest of real estate developers. 2004 saw the purchase of land for the island’s first beachfront luxury project by the international Resort Properties Group from Europe. The Palmyra Resort & Spa condo-hotel will offer 630 condominiums and villas once completed, and the real estate development has added a new dimension to their luxury offering by bringing globally renowned spa company E’SPA to the island. Jamaica offers one of the last hidden gems in the Caribbean for shrewd real estate investors, who can purchase a Jamaican island home with ocean view on what has been nicknamed the ‘GOLD COAST’ for prices starting as low as US$400,000. Foreign ownership of land in Jamaica is unrestricted and financing is now available through First Caribbean Bank, making the real estate offering even more tempting.  Casino Legislation has been rumored to be under review, an issue of great interest to the island’s tourist industry. Casino’s would allow Jamaica to compete with other Caribbean islands that feature gaming as one of their main attractions, and add yet another facet to the destination’s offer. Currently, limited gambling with slot machines is legal. It is expected that smaller, service related companies will follow the larger companies into Jamaica to create more jobs, a phenomenon that recently has been experienced in the Dominican Republic and Mexico. 

Sir Kenneth Miller, President and Founder of the UN National Committee for Habitat, a non-profit Non Government Organization associated with the United Nations, has extensive experience in collaborations between the private sector and the UN for the building of housing and creation of sustainable communities across the world. In his role as executive director and liaison between the UN National Committee for Habitat and the United Nations Center for Human Settlements, the real estate expert managed the development of private sector efforts for various international projects. “Jamaica is a prime example of successful collaboration between the government and the private sector in the creation of sustainable, economic growth,” said Miller.“The modernization and re-development of MBJ Sangster International Airport and the Northcoast Highway project, connecting the resort towns of Negril, Montego Bay and Ocho Rios, both projects with major private sector participation, have spurred unprecedented levels of foreign direct investment. Indicators suggest that Jamaica may move ahead of the other Caribbean nations in the next decade.” Miller points to the fact that in contrast to the rest of Latin America, Jamaica has managed to attract foreign investments to support a rapid expansion and transformation of its infrastructure. 

Ranked a remarkable number 17th by the World Investment Report, Jamaica has attracted in excess of US$3bn in private, foreign investment in the last 3 years alone, and change is taking place in almost every industry corner, including real estate, tourism, banking, telecom, energy and transportation. In addition to a string of hotel projects, notable projects under development along the northern GOLD COAST include the 25.000 seat Trelawny Multi-purpose Stadium under construction, a new Convention Centre in Rose Hall and the new Shoppes at Rose Hall offering high end duty free shopping and entertainment. Said Miller; “All these projects bring added value to the area and will influence real estate prices in a positive direction.” The island-wide improvements have not escaped the attention of foreign real estate investors, who are realizing that Jamaica has a lot going for it and are snatching up property at a heightened pace. Importantly, services such as financing and mortgage brokering are available for the first time competitively, putting the purchase of a second home within reach for many. Said Miller; “Jamaica compares favorably with all the Caribbean islands, due to its unique culture, creative and friendly people, ideal weather, wonderful beaches and spectacular mountains and an abundant water supply. Jamaica provides an opportunity for property buyers to have it all.”  

According to the New York Times, the construction of the new and luxurious Palmyra Resort & Spa has played a major role in establishing Jamaica as a serious contender on the Caribbean property scene. Superior in quality to the vast majority of other developments in the region, The Palmyra offers a safe haven for families and their investments with a luxury real estate offering not previously seen on the island. Said Sir Miller; “From a local real estate perspective, there is no question that the Palmyra Resort & Spa has jump-started the property industry and put the island on the map as a desirable second home destination. The construction of such a luxurious real estate development has huge significance for the island as a whole, and is widely thought to lead to unprecedented growth in the sector.” Pointing to the Palmyra’s magnificent destination spa by global spa specialist ESPA and the resort village’s numerous 5-star amenities; Miller said that the community promises to be the most sophisticated and complete beachfront resort in the region, exceeding the likes of Sandy Lane in Barbados, Atlantis on Paradise Island and Palmas del Mar in Puerto Rico.

According to Miller, buyers increasingly look for properties that can guarantee a luxurious, ‘no-hassle’ lifestyle. “Today’s buyers are knowledgeable and smart. They seek something better than what has been available until now, and demand a break from the ordinary ‘cookie cutter’ resorts. They want the best experience they can have, with all the latest comforts, in a convenient and safe atmosphere. The Palmyra Resort & Spa fulfils that dream.” Miller confidence in the development is due to the development company’s track record in creating quality property, such as the luxurious Castello del Nero Hotel & Spa in Tuscany, a member of luxury travel chain ‘The Leading Hotels of the World’, combined with the Palmyra’s prime location makes the development an attractive investment. “The fact that The Palmyra is located directly on the Caribbean Sea within the confines of Rose Hall, surrounded by almost a billion dollars in infrastructure, makes it the smart buy in the Caribbean region.” said the real estate guru. “With Rose Hall’s many luxury hotels, three magnificent golf courses, shopping & entertainment village and superior infrastructure, the gated community of the Palmyra will offer buyers the best of both worlds; a good investment and a great lifestyle,” concluded Miller. 

For more detail please see our full detailed review at:  http://www.legacyresortconsulting.com/viewResort.aspx?ResortName=The%20Palmyra&ResortId=988ee2cd-c4b9-43de-9170-3269a1f49438  

Wondering whether The Palmyra is your perfect piece of real estate?  

Contact Us….we can answer this and all your investment real estate questions!

Jamaica Real Estate 

PROTECTING YOUR PIECE of PARADISE 

The real estate market in Jamaica is undergoing an amazing transformation.  Given its beautiful beaches, proximity, and charming culture, the world’s best developers have desired for years to make Montego Bay, Jamaica one of the world’s great destinations.  Finally, with the approval and assistance of the Jamaican government, the renaissance of The Gold Coast of Montego Bay is now well underway and is becoming home to some of the finest Caribbean real estate.  Savvy investment real estate folks have taken notice and are interested in getting involved in the early innings of the renaissance.  One question we always seem to receive about Jamaica is in regards to the laws and regulations that are   in place to ensure their real estate investment is secure.  The concern is understood and for many in which this will represent their first non-home country purchase, the question is fair and reasonable.  Fortunately, there are federal laws in place that protect both the real estate buyer and the seller in the short and long term that secure title and occupancy much like a purchase in the United States.   

According to Attorney Mark Golding, there is no reason to be concerned about investing in real estate in Jamaica. “Foreigners have been buying real estate on the island for decades. U.S. investing in real estate here has been well served by our well established and investor-friendly real estate laws.” Golding recommends contacting a local attorney for any particular queries. “A local attorney will be able to provide you with all the local knowledge you need,” commented Golding. 

The Title Guaranty is a novel product in Caribbean countries, including Jamaica. However, Caribbean real estate buyers now have the option of choosing a private indemnity backed by Stewart Title Guaranty of Houston, USA. With an impressive track record in both the United States and the Caribbean, Stewart Title’s company mission is to enhance the real estate transaction process for all parties involved. Since 1893, the company has been a leader and pioneer in providing buyers, sellers, lenders, attorneys and developers with cutting edge title and real estate transaction services, including primary US-based escrow accounts. The Stewart Title Eastern Caribbean division offers the same industry trusted title guaranty and escrow services to the Caribbean market. For individual real estate purchasers of Jamaican property, the company’s involvement ensures that the transaction will be managed with the protection and professionalism of a United States closing. “We are proud to offer added, customized protection to Caribbean real estate buyers.” said Ms. Faye Finisterre, Managing Director for Stewart Title Eastern Caribbean. According to Finisterre, a growing number of buyers are becoming more comfortable purchasing real estate in the region “The Caribbean is one of the hottest places to invest in a vacation homes. We help increase the comfort level for buyers.” 

“When purchasing a property, one of the most important issues to address for both a buyer and seller is how, and under what conditions, the funds will be safely transferred. In an international transaction this issue is even more important and often complicated, as both the purchaser and seller may not be familiar or comfortable having funds deposited in an unfamiliar jurisdiction or with an unfamiliar attorney or bank,” continued Finisterre. Stewart Title’s management of escrow accounts provides buyers with an impartial and invaluable third party service, including individual escrow accounts to avoid mishandling of money, time management to keep each transaction on schedule and fraud prevention. In the Caribbean and Central America alone, Stewart Title has assisted in more than 15,000 international transactions and guaranteed the title to more than US$3 billion of property value. Stated Finisterre; “We recognize that purchasing a luxury vacation property in paradise should be paradise. Hence we provide a smooth and professional real estate transaction, leaving the new owners to enjoy their property!” In Jamaica, Stewart Title is the appointed escrow and title agent for The Palmyra Resort & Spa at Rose Hall, the new luxury condo-hotel adjacent to the Ritz-Carlton in Rose Hall. Said Finisterre; “We are pleased to continue Stewart Title’s tradition, trust and service by providing full service real estate solutions for one of the Caribbean’s most luxurious and exciting new developments. We look forward to facilitating smooth, comfortable transactions for their buyers.” 

Currently, Stewart Title provides real estate transaction services throughout 8,000 policy-issuing offices in the United States and in more than 30 markets worldwide. The service provider, headquartered in Houston, Texas, was included in the Forbes Platinum List for Best Big Companies in America in 2003, and ranked one of the fastest growing companies in America by Fortune in 2004 based on its financial strength and excellent reputation.

With the laws in place to ensure a secure the rights of the real esate owner, it has made sense for many to become part of the Montego Bay, Jamaica Gold Coast Renaissance. 

 Does it make sense for You to get Involved? 

That really all depends...

Why Own Real Estate in Jamaica?

Investment Real Estate Location Profile

Jamaica, an island of beautiful white sand beaches, crystal clear waters and lush mountains has long captured the imagination of Americans and others, however the nation’s past reputation for petty crime and entrenched poverty have often left tourists wary of traveling there.  In today’s article we will examine Jamaica’s past, present and future.

HISTORY & GEOGRAPHY

(146) miles in length and (50) miles wide, Jamaica is situated south of Cuba and west of Hispaniola in the Caribbean Sea.  The climate in Jamaica is tropical, with hot and humid weather, although higher inland regions have a more temperate climate. The island of Jamaica is home to the Blue Mountains inland, and is surrounded by a narrow coastal plain. Most major towns and cities are located on the coast. Chief towns and cities include the capital Kingston, Portmore, Spanish Town, Mandeville, Ocho Rios, Port Antonio, and Montego Bay.Discovered by Christopher Columbus in 1494, Jamaica is the third largest island in the Caribbean, and the most populous English-speaking Island in that region.  From its discovery till 1655 Jamaica was a Spanish territory until it was seized by the British.  Independence came slowly to the Jamaican people, finally achieving sovereign status in 1962.

ECONOMICS

More diversified than most Caribbean economies, Jamaica has significant resources.  The country is involved in agriculture, mining, financial services and tourism.  Unfortunately Jamaica experienced a bout of hyperinflation in the 1980’s.  Inflation peaked at 80% in 1991, but recent economic reforms have led to a dramatic reduction in inflation.  Additionally, significant investments in infrastructure bode well for Jamaica’s economic future.  Sir Kenneth Miller, President and Founder of the UN National Committee for Habitat recently commented, “The modernization and re-development of MBJ Sangster International Airport and the North-coast Highway project, connecting the resort towns of Negril, Montego Bay and Ocho Rios, both projects with major private sector participation, have spurred unprecedented levels of foreign direct investment. Indicators suggest that Jamaica may move ahead of many other Caribbean nations in coming years.”  Ranked remarkable number 17th by the World Investment Report, Jamaica has attracted in excess of US$3bn in private, foreign investment in the last three years alone, and change is taking place in almost every industry corner, including real estate, tourism, banking, telecom, energy and transportation. In addition to some ultra-luxury real estate projects, notable projects under development along the northern GOLD COAST include the 25,000 seat Trelawny Multi-purpose Stadium under construction, a new Convention Centre in Rose Hall and the new Shoppes at Rose Hall offering high end duty free shopping and entertainment.

CRIME

Plagued by a history of poverty, Jamaica is finally becoming very successful in some locations at reducing crime as they were in reducing inflation.  In the exclusive areas, tourists and real estate owners are very safe.  With the billions of dollars in consistent infrastructure investment and more on the horizon, most areas, especially along the Gold Coast of Montego Bay, have become a prime location for privacy, beauty and privilege.

THE FUTURE

Jamaica has significantly improved their economic foundation, which is leading to a higher standard of living and much increased global attention and sustained increases in annual tourism.   Because it is important to feel safe when vacationing or investing overseas, the best option for tourists and investors is the northern coast (Gold Coast) of Montego Bay, especially in the most elite Rose Hall district.  The Gold Coast of Montego Bay is well known for its stunning beauty, captivating beaches, and now its high-end luxury real estate and shopping.  With commitment from the Jamaican government in recently spending prodigiously in the region to improve their airport, roadways, and police protection, tourists and real estate owners are afforded all the comforts of other resort locations with the unique character and the beauty that is only Jamaica, The Gold Coast has become a very sustainable location to own luxury real estate.  Jamaica compares favorably with all the Caribbean islands, due to its unique culture, accessibility (only a couple hours direct flight from most US hubs) creative and friendly people, ideal weather, wonderful beaches and spectacular mountains and an abundant water supply. Jamaica provides an opportunity for investment real estate buyers to have it all and get ahead of a long term positive economic and infrastructure boom.

Anguilla - Physical Characteristics

Anguilla is an island in the Eastern Caribbean that is (16) miles long and (3) miles wide and boasts (33) white sandy beaches and transparent turquoise waters. Its topography of copious reefs, white coral rock and stunning coastline entice visitors from around the world.  The unspoiled reefs make Anguilla a mecca for snorkeling and diving and its history as a British territory and spice island foster the exploration of numerous underwater wreck sties.   Anguilla’s tropical climate yields a year round average temperature of 80 degrees Fahrenheit with approximately 35 inches of rainfall annually.  Water temperatures are in the upper 70ºs to lower 80ºs. Optimum diving conditions are in the summer months when visibility is at its highest and there are little or no ground seas. Anguilla has long been considered among the most exclusive islands in the Caribbean.  Famed for its fine sand beaches, the island has long attracted the rich and famous to its shores including Uma Thurman, Brad Pitt, Denzel Washington, Beyonce Knowles, beau Jay-Z and others. 

Anguilla - Economic Drivers

Due to its beautiful beaches, but lack of overall resources, tourism has long been the island’s dominant economic force.  In the early 1980s, the local government exercised a considerable amount of foresight and set regulations limiting development to boutique hotels and resorts. Nearly thirty years later, Anguilla continues to flourish as an inconspicuous retreat. Void of discos, casinos, duty-free shopping, or cruise liners, Anguilla offers discerning globetrotters a true escape, free of worldly diversions. Anguilla is home to world-class resorts including Cap Juluca, CuisinArt and Malliouhana – all recognized in Condé Nast Traveler’s Top 15 Caribbean Resorts for years running. The island was also recently rated as the world’s 15^th Best Island by National Geographic Traveler for its “beaches of legendary beauty, friendly people, fine dining and art.”

Anguilla - History

Claimed by the British in 1650, this historic relationship remains in place today as it is a British dependent territory and it’s governed by a parliamentary representative system.  The island’s small population of 13,500 is predominately Christian and English speaking.  Driving is on the left as in the U.K., but Electricity is 110 AC voltages, the same as in the US.  Anguilla’s currency is the East Caribbean dollar; however the U.S. dollar is also widely accepted.

Anguilla - Critical Factor Analysis

When considering a real estate investment in Anguilla (or anywhere) many factors must be evaluated independently.  The first, of course is price.  As has been well-documented, real estate prices in much of the world have reached excessive levels.  As the real estate bubble has now popped, real estate prices (in general) are now much closer to their historical norms with relation to incomes, rents, and other measures.  Location in any real estate investment is another crucial factor.  It is here that Anguilla excels.  The island’s small size and population have allowed it to remain insulated from the mass construction and less affluent tourists (that eventually downgrade the exclusivity factor) that frequent many other desirable locales.  Anguilla has only a small airport, requiring most tourists to arrive via ferry or small plane from St. Maarten or Puerto Rico, ensuring that its beaches will remain some of the world’s most beautiful and private.Another critical factor is the rule of law.  Anguilla’s British background, use of English, and comfort level with American currency make it a safer investment than some other exotic locales that may not share similar traits.

Anguilla - Conclusion

In conclusion, Anguilla’s many positive attributes including beauty, affluence, exclusivity, climate, and government system, far outweigh its negative dependence on tourism and vulnerability to Mother Nature.  If one were interested in investing in Caribbean real estate, Anguilla should be at the top of your list.

Is Real Estate Really an Investment?

Part III 

The Beauty of Leverage and “The American Dream” 

Their Effects on Investment Real Estate Return 

In the final segment of the investigation to determine whether the S&P 500 Index or purchasing real estate is a better investment, we will examine and quantify how leverage and The America Dream benefit real estate investment returns.

In the case of equity investment in a group of stocks or mutual funds in the S&P 500 Index, the return percentage is based on and investment/return ratio of one to one.  This means that if a person invests $500,000 in a stock portfolio gain and loss will be measured against this investment total.  For example, if after year one the stock investor’s portfolio total is $550,000 the investor gained (pre-tax) about $50,000 (ignoring broker/trading fee’s).  This percentage return is measured as the gain divided by the investment (i.e. $50,000/$500,000) which is equal to ten (10%) percent.  In order to gain $50,000 the investor needed to risk $500,000 which is a one to one investment to return ratio.  There is no leverage available in this style of investment and the owner’s entire cash position is at risk.

In the case of investment real estate, leverage works to the benefit of the owner to allow the owner to realize the same gain with less exposure.  For example, if the selling price of a second home was $500,000, the owner in most cases would typically place a down payment of twenty (20%) percent equal to $100,000, and the rest would be financed via a mortgage vehicle.  If after year one, the property appreciated ten (10%) percent to $550,000, and was sold, the owner would realize a gain of about $50,000 (ignoring broker/closing fees), which is the same as the stock investment above. 

The critical distinction is that the real estate investor was able to gain $50,000 on his cash outlay of $100,000 versus the stock investment of $500,000.  This means that instead of a ten (10%) return like the stock investment, the real estate owner’s percentage gain on his investment (downpayment) is 50% or 500% percent higher than the stock gain…even though it is the same money gained. 

The reason this is true due to the beauty of leverage.  Although both investments produced the same monetary gain, the real estate gain was achieved by 1/5^th of the actual cash amount exposed and at risk.  Leverage enables real estate owners to realize appreciation gains on the sales price of the property, with only 20% actual invested exposure versus the 100% exposure of the S&P 500 Index stock portfolio.  Because of leverage real estate owners are in a position to realize larger gains with less risk exposure over the long term.

The American Dream

Demographics & The Desire to Own and Benefit from Real Estate  

For decades many have considered home ownership to be the true American Dream.  People need a reasonable place to live, raise their families, and call home.  To have the opportunity to actually own a home and call it theirs is something that most aspire to achieve.  Over time, the percentage of home owners in the United States has grown consistently.  Continued rises in population and low interest rates have spurred insatiable demand for real estate ownership.  People have been achieving their dream and owning homes at growing and record levels. 

Some of this growth was unfortunately helped along by unsustainable creative financing, undisciplined lending standards which caused some people that weren’t financially ready to own the types of homes they were able to afford in the short term with the creative financing (i.e. subprime), as well as others like speculators, to suffer the consequences of a market correction. 

All markets correct and they need to.  No market goes straight up.  All markets go up and they go down and the real estate market is no different.  As shown by the chart in Part I, over time the real estate market has peaked, corrected, bottomed and then made new highs.  And it will again. 

In the long term, the demographics and the desire to own the best real estate possible have not changed. In 2008, we live in a time of continued global population expansion, an aging baby-boomer generation, and increased Non-US investment into global real estate.  People desire and will continue to desire second/investment homes in the finest places in the world for life experiences, income, tax incentives and long term value. 

Conclusion

Is the S&P 500 Index or Real Estate the Better Investment?

In summary, due to ultra-negative market sentiment currently surrounding real estate, it was proper to return to the basics, examine historical facts, and compare whether the S&P 500 Index or real estate is the better long term investment.  For many reasons demonstrated in detail in this exercise it is clear that the better investment for one’s hard earned financial resources is real estate, preferably the finest real estate in the most exclusive locations possible. 

Real estate is the better investment for the following reasons:

1.)     Return Consistency:  As detailed in Part 1, the S&P 500 Index over the past fifty years has averaged a return of 10.99% versus 6.67% annual average for real estate.  However, the S&P Index’s gain has been very sporadic and often +/- 20% of the average return.  If your money isn’t in the right place on the right days, the gain could be reduced or missed entirely.  Real estate investment returns, although on the surface appear less, are much more consistent and achievable.

2.)     Tax Advantages: Owning real estate has numerous tax benefits.  Many components of ownership can be taken as income tax deductions, which can lower the “taxable” income of the homeowner and the amount needed to be paid to the government annually.  This advantage is not present with gains in the S&P Index where gains are taxes at least as income.

3.)      Leverage: As detailed in Part III, real estate investors can produce higher percentage returns with less exposure due to leverage.  Leverage is not available in most equity portfolios invested in the S&P Index, where the investment/return ratio is one to one.

4.)      Demographics:  Over the longer term, the desire to own real estate has proven to be insatiable.  Favorable demographics that include an ever increasing population, an aging baby-boomer generation, and increased Non-US investment in global real estate.  These trends will continue and will drive the demand side of the curve for decades to come.

Is Real Estate Really an Investment?

Part II

How income tax deductions benefit real estate investment return

Although we are not tax law professionals and recommend that all questions concerning income tax deductions are best referred to an experienced tax expert; it is important to understand the mechanics of real estate income tax deductions and how they affect the comparison between which investment return is better: the S&P 500 Index or real estate.  Additionally, how each investment may benefit your specific financial position.

In many countries, including the United States, one is able to deduct the cost of numerous second home ownership necessities.  In basic terms, taking a tax deduction against your income means that you are able to subtract the amount of paid mortgage interest from your income, which reduces your “taxable” income, and more importantly the amount that you may owe to the government annually.  Depending on the method of ownership, in most instances, the following components are considered deductable: mortgage interest, property taxes, maintenance/repairs, expenses, and depreciation.  However, monies received through any rentals are considered income and need to be claimed as such.  The ability to claim these components as income tax deductions can lessen your financial responsibility to the government.  The best way to illustrate the benefits of tax deductions is through a short example.

Investment Home Price: $300,000

Down payment: $60,000 (20%)

Mortgage Amount: $240,000

Interest Rate: 6%; 30 year fixed rate mortgage 

Monthly Estimated Carry Cost:

Mortgage: $1440/mth (Principal and Interest)

Taxes: $400/mth (Estimated)

Insurance: $75/mth (Estimated)

Total: $1,915/mth

Possible Tax Deductions:

$14,400 (1^st Year Mortgage Interest) = $240,000 * 6%

$ 4,800 (Estimated Property Taxes)

$ 3,000 (Estimated Maintenance/Repairs)  (i.e. Painting/Carpet/Landscape/Other)

$ 3,000 (Estimated Expenses) (i.e. Advertising, Utilities, Insurance, Phone, Mileage)

$ 8,727 (Estimated Depreciation) (Depreciated over 27.5 years) (i.e. $240,000/27.5 = $8,727/yr)

Total Deductions: $33,927 * 33% (tax bracket) = $11,295 of Possible Income Tax Savings.  This number could be more of less depending on each owner’s tax bracket.

Estimated Rental Income = $2,500/mth = $30,000 Income added to owners income

The above example shows that the owner in this situation paid about $22,980 to carry the investment property for one year.  It was rented to an interested party at $2,500 per month which totaled an annual rental income of $30,000.  In addition, the owner took $33,927 in income tax deductions.  Depending on country/state laws and how tax experts prepared the filing, the owner is in a great financial position because (s)he spent $22,980 in real dollars to receive $30,000 income and is able to deduct expenses of almost $34,000 which is an advantage to the owner all the way around.  Depending on how the gains and deductions are taken, this situation could result in a double digit (11.7%) cash return on down payment (i.e. ($30k-$22,980)/$60k = 11.7%) or the above discussed $11,295 tax income savings which is an 18.83% return on the $60k downpayment.  Either way, the taxable income position of the owner has been advantaged significantly.

The purpose of the above example is to show that, unlike the S&P 500 Index in which all gains are taxed as income, the return on real estate is more than just an absolute 6.67% average annual gain. (Based upon the average selling price of houses over the last fifty (50) years).  The ability to realize the benefits of income tax deductions on real estate ownership is critical to recognize and include when considering the real return on a real estate investment. 

Please read Part III: Is Real Estate Really an Investment in which we examine the benefits of demographics and "The American Dream" on real estate return, summarize the entire research project, and make a final determination of which investment, (real esate or the S&P 500 Index), is better for long term investment return.

Toll Brothers Releases 2Q2008 Market Status

A Sign of Real Estate Market Progress?

On May 13, 2008 Toll Brothers, the nation’s leading luxury home builder, reported second quarter 2008 and six month totals for home building revenues, contracts, and backlog for the period ended April 30^th 2008.  The results were preliminary and unaudited and will be certified with the actual 2Q2008 earnings release scheduled for June 3^rd 2008.

It isn’t news that the numbers were terrible.  There are more than a couple reasons that Toll Brothers could blame for their poor performance.  What is important is Toll Brothers outlook for the sector and market overall.  The financial performance of Toll Brothers is an excellent indicator of the overall health of the primary residential real estate market because of their size and scale of operations.  Toll is currently building developments in many parts of the country including some of the most beleaguered zip codes. 

Jim Cramer, famed host of the TV show Mad Money on CNBC, aired an interview with Robert Toll, CEO of Toll Brothers the week of 5/13/08.  In this interview Robert Toll gave a candid summary report card of how Toll developments are doing across the board in the United States.  He commented how traffic is down and if it were a school report card it would be one, “in which you would talk to you child upstairs for a couple of hours, and then come down and have a stiff drink.  Most developments would receive a grade of F, F+, F- .”  These comments come as no surprise as the media has been very clear and consistent in highlighting all of the real estate market negativity. 

Robert Toll went on to make one very important statement; He commented that one area actually has seemed to turn a bit.  To the surprise of many people, Toll commented that in Naples, Florida they have actually been able to RAISE PRICES!   Toll stated, “One year ago in Naples, Florida we (Toll Brothers) were unable to give a house away, no matter what the price.  People were walking away from their deals and forgoing their deposits because they didn’t want the homes.  Although we (Toll) kept their deposits we were left with tons of finished inventory and unsold houses.  Since that time, most if not all of the inventory has been worked off and we have now raised prices commensurate with demand.” (CNBC, 2008)

The reason this is an interesting event is because Naples, Florida was one of the first and hardest hit locations in the country during this recent real estate market downturn.  The blood was in the streets and it appeared that even if you gave the homes away, nobody wanted them.   It seems as though this now may be changing, at least in this one particular location.  Does price increases in Naples, Florida indicate the bottom of the entire real estate market, and from here all will go up as desired?  Probably not, but what it does show is progress and a light at the end of the tunnel. 

We felt it important to share Mr. Toll’s sentiment with you as it is easy to lose sight of progress amidst piles and piles of daily negativity.  As a real estate investor it is critical to gauge negativity levels in investment marketplaces as many people have had more long term success buying quality real estate assets at the time when nobody else wants them.  Making money “following the herd” and mimicking what everyone else is doing is often harder than taking strategic, long term positions in historically strong markets which will eventually re-surface.  We urge you to look for small signs of progress in negative markets because one day the negativity will stop and reverse.  We don’t want our clients to be among those trying to “time” the market and getting caught off guard, unprepared, and back in the undesirable position of trying to make money chasing an up market once again.  For more information or questions please visit us at http://www.legacyresortconsulting.com